How to Form a Limited Liability Company
Starting a business can be very stressful. You have to carefully organize the ideas for the business in a plan that can be followed. You also have to find the money to start the business. That alone can be a very stressful task. And, of course, you have to let people know that your new business exists at all.
Aside from all of this, there is one more thing that is very important to do when starting a business. You need to make your business separate from yourself so that your personal assets are protected. As exciting as starting a business can be, you must plan ahead and have a way to protect yourself in case your its members will manage the LLC is sued or experiences other legal problems.
The way to do this is by creating a separate legal entity for your business. If you are starting out small and perhaps are only going to have one employee—yourself—then the easy way to do this is by forming a limited liability company.
The purpose of this article is to explain the characteristics of a limited liability company, and why this type of business entity is conducive for many small businesses. It will also give details on establishing a limited liability company, as well as provide some examples of the paperwork that will be necessary to develop your new company.
Before we present the information, it is important to understand what is being presented. The information is this article should only be used to give you a better understanding of one of many options that are available. Only have consulting with a lawyer or other licensed professional should you make important decisions about protecting your personal assets and the assets of your business.
What is an LLC?
A limited liability company (LLC) is a legal business structure that separates business and its assets from those of the owner or owners of the company. Within the past 10 to 15 years, the LLC has become a popular business entity. The LLC is relatively easy to establish—especially compared to other legal entities for businesses. Besides, the LLC is easy to maintain with a minimum of paperwork for the owner.
The LLC is now recognised in all fifty states. Besides, unlike other types of legal structures, an LLC can have only one owner. So, if you are starting a small business where you are going to be the owner and the only employee, you can still create an LLC for your situation.
To create an LLC, you need to register Articles of Organization with your local probate court and the state. The Articles of Organization lay out the name of the company, the owners, and the registered agent—or the person who can receive official paperwork from the state.
In addition to naming the owner or owners of the business, the articles of the organisation also contain other clauses that are important to a business. For instance, they usually have a clause stating that the owner or owners of the LLC are not responsible for the debts of the company. Of course, that is unless the owners have committed fraud in any way.
When you register the business with your local government and the state, there is a fee that you have to pay. Besides, most states charge some business or franchise tax every year.
Once the initial paperwork and fees have been taken care of, the yearly maintenance of an LLC is relatively simple. Unlike an incorporated business, an LLC usually does not have to file minutes of corporate meetings or a yearly annual report. It is what makes the LLC so appealing, especially to small businesses. The business owner can focus on actually running the business—not making sure the company is continually filing the paperwork to the state.
Another way that an LLC has an advantage over other business structures is how they file the tax. By default, an LLC has what is known as pass-through taxation. It means that the company is reporting income and expenses of the business on the income taxes of the owner or owners.
With this, the business does not have to file its income tax forms. In addition, this means that the overall income from the LLC is taxed at the tax rate of the owner, rather than as a separate entity. For most small businesses, this is actually much easier and much better.
Now, once the business grows and the profits increase, the way that the LLC is taxed can be changed. The owners can elect with the IRS to have the business file its own tax return. Before making this type of decision, the company should consult with a knowledgeable tax professional.
Sample Articles of Organization
Below is a sample of Articles of Organization. These should not be considered an exact or complete set of articles for a business. It is to understand how they are written and what information they contain.
Name of Company
The name of the limited liability company shall be: ____________________
The Period of duration for this limited liability company shall be perpetual. (If the LLC is going to be established for a specific period, then that can be listed here)
In this article, you list the company reason of establishment with LLC.
It is where you list the name and address of the person who receives official paperwork from the state.
This is where you list the name and addresses of the owner or owners of the LLC.
Here is you can either state that the LLC will be managed by its members, or you can list the name of the person who will be specifically managing the company.
The members of the limited liability company shall have no liability for any debt, obligation, or liability of the company.
IN WITNESS WHEREOF, the undersigned member has hereunto executed these Articles of Organization on this the _______ day of ______, _______
An LLC can be a great way for a small business owner to protect his or her assets with very little expense. The key to making it work is to consult with a legal professional who can assist you to insure that an LLC is right for your specific purpose.