When and Why You Should Form an LLC For Your Business

Are you thinking about forming an LLC? You may be going back and forth between an S-corporation or an LLC. According to the LLCRatings website — “An LLC is the best choice if you’re looking for more flexibility and less paperwork”.

An LLC offers the same protections as a corporate entity. The difference is that LLCs have fewer regulations.

However, LLCs do come with some restrictions. For example, you must file the entity with an official document, and you must appoint a legal representative. Overall, LLCs are more accessible than corporate entities.

This article will show you how to form an LLC and help you determine if an LLC is right for you. Let’s explore.

Forming an LLC

First, owners must determine the proper name. Then, you must decide the best state to register the entity. Each state has benefits and drawbacks. For example, setting up a Wyoming LLC is beneficial because the state has strong asset protection laws, and there is no state tax.

Whether you’re forming an LLC in California or Texas, you must first register the name at your secretary of state office.

Regardless of your chosen state, the name must be different from other LLC names. You can look on the secretary of state registry to see which names are already taken.

In many states, the name must contain have ‘LLC’ in the title. If you’re forming an LLC in Texas, for example, state law stipulates that the name must contain the words ‘Limited Company’ or ‘Limited Liability Company.’

The name can also contain abbreviations in the form of ‘LLC’ or ‘Ltd.’ This rule applies to most other states as well.

After choosing the name, you can reserve it for 120 days online or by mail. The reservation fee is usually around $40.

The next step is choosing a registered agent. A registered agent will accept legal documents on the company’s behalf.

The agent can be you or anyone within the organization. The agent must be a resident in the state where you formed the LLC, and the agent must have an address in the state.

You’ll list the agent’s name and address on the articles of organization. This document will register your entity. You’ll include other information such as:

  • A general-purpose statement
  • The name and address of the LLC owner
  • Information on whether the LLC is member-managed or manager-managed (If manager-managed, list the names of all managers)

LLC Costs

The cost to form an LLC depends on the state and could range from $40 to $500. You’ll pay the filing fee when you submit your articles of organization. The processing time can take anywhere from three business days to three weeks.

Drafting a Public Notice

This is a requirement for some states. New York, for example, requires LLC owners to publish information about the new LLC in local newspapers.

You must publish this notice several times over a few weeks. You’ll have to pay extra fees to the local newspaper to publish your notice.

Draft an Operating Agreement

An operating agreement isn’t required in many states, but you should have one. An operating agreement establishes how you will run your company. It ensures that all members know about the company’s management structure.

Moreover, it determines the responsibility of each member and their rights. An operating agreement should contain the following:

  • Voting powers of each member
  • The allocation of profits and losses
  • Percentage interest of each member
  • Governing rules for votes and meetings
  • Buyout provisions in case a member wants to buy out another member
  • Failsafe measures in case a member retires or dies

Without an operating agreement, the state government can dictate your company’s operations.

Obtaining an EIN Number

An EIN stands for an electronic identification number, and this number identifies your business. You’ll get an EIN from the IRS. You can obtain an EIN online by going to the IRS website, and it’s free.

Benefits of an LLC

An LLC has numerous advantages over other entities, such as a sole proprietorship. When it comes to liability, LLC members have more asset protection.

If the company incurs debts, creditors cannot petition the personal assets of the members. Conversely, members of partnerships and sole proprietorships are personally liable for any business debts incurred.

  • Note: In some cases, creditors can seize LLC assets if the owners acted inappropriately. This is known as piercing the corporate veil, allowing creditors to claim the personal assets of LLC members to pay for business debts.

LLCs will protect your income from double taxation as well. LLCs aren’t subject to business taxes. Instead, the business income flows from the LLC to each member. From there, each member can note the income on their tax returns.

Overall, LLCs are more flexible compared to corporations. With a corporate entity, you must keep meticulous records of your business activity as dictated by law.

LLCs don’t require recordkeeping, and LLCs don’t require much paperwork compared to corporations. Additionally, the cost of maintaining an LLC is cheaper than the maintenance costs of a corporation.

Is Forming an LLC Worth It?

Forming an how to start an llc is worth the effort because it’s a relatively easy process. Creating an LLC requires a business name, registered agent, articles of organization, and a filing fee.

LLCs offer numerous benefits, such as asset protection and minimal restrictions. That said, each state offers more advantages than others; therefore, research multiple states to see which one is best for your business goals.

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About Ambika Taylor

Myself Ambika Taylor. I am admin of https://hammburg.com/. For any business query, you can contact me at [email protected]