The National Association of Small Businesses published that the majority of startups in the US are LLCs (35%). One reason for this statistic is that LLCs are the easiest to launch.
Do you have an idea for a business or is your small business expanding? If so, you must protect both, your own assets and your company. By establishing an LLC, you can check off both of these liabilities – but do you think it is the best business model for you? Don’t worry, we’ve compiled a lot of literature to help you make an informed decision.
LLC stands for Limited Liability Company and the name refers to a type of business entity that has the characteristics of traditional corporations and partnerships. Most of our clients pick LLCs because they have better liability protection than individual ownership as well as perpetual existence.
An LLC is a type of business entity that offers its owners limited liability. In simpler terms, LLC owners are typically not responsible for liabilities or debts that are incurred by your business (e.g. business-related lawsuits or creditors). Suppose you are thinking about starting a business or are currently running one as a sole proprietor. In that case, we recommend that you form an LLC because doing so will limit your personal legal liabilities.
LLCs can be established to own and run virtually any genre of business. This business entity can be registered for any size of business with its own legal matters and debts. However, LLC owners are liable to pay annual fees and taxes to the state.
There are so many reasons why Limited Liability Corporation (LLC) is the perfect entity for your startup. Still, many of our clients chose it because it was their way of avoiding double taxation. Double taxation typically occurs in a C-Corp business model because the company and its owners are taxed individually. Being registered as an LLC can prevent this because these corporations are taxed just like sole proprietorships. Another benefit most entrepreneurs ignore is that their business structure doesn’t really need continual maintenance. For instance, you can easily add new partners or perhaps even sell the entity to an interested buyer. In contrast to C-Corp business structures, LLCs generally tend to have lesser restrictions on administrative items. In addition, an LLC is a perfect structure for a startup because it is quick and straightforward. In fact, it is so simple that you can register your company without an attorney. At LLC Business File, we’ve worked with businesses of all sizes and verticals to form LLCs. From LLCs for personal trainers to financial advisors and real estate agents to marijuana startups, we’ve seen it all. To find out more about forming LLCs in your state, contact our knowledgeable business experts or refer to one of our LLC blogs.
Now that you’re interested, you may be curious about uncovering all of the benefits of LLCs. Lucky for you, we’re about to dive into the pros and cons of LLCs.
Corporations are required to host regular meetings with shareholders and directors while also recording corporate minutes and filing annual reports with your state. On the other hand, LLC managers and members are required to undergo all of these formalities, therefore reducing paperwork and other complications.
S-Corporations are not allowed to have over 100 stockholders and each stockholder should be an individual that is a citizen or resident of the country. These restrictions aren’t present while registering LLCs.
Unlike C-Corps, which are required to use the accrual method of accounting, the majority of LLCs use the cash method of accounting. Simply put, an income is not realized until it hasn’t been received.
LLCs are referred to as ‘pass-through’ entities when it comes to taxes, quite like partnerships and sole proprietorships. In other words, LLCs have the benefit of avoiding double taxation. In addition, LLC owners wouldn’t be required to deduct unemployed insurance taxes from their own salaries.
LLC owners have the flexibility to shift their membership interests into a living trust. In contrast, it isn't easy to do the same if your business has been registered as an S-Corporation.
Active participants of LLCs can deduct their operating losses according to their regular incomes as allowed by the law. Shareholders of S-Corporations are also legally allowed to deduct their operating losses but shareholders of C-Corporations aren’t.
In some cases, LLCs might end up paying a lot more taxes than owners of corporations. LLCs' salaries and profits are made subject to self-employment taxes, which can total up to a massive 15.3%. In corporations, salaries (and not profits) are subject to taxes. This disadvantage is experienced by those owners who earn a salary of under $97,500 (as of 2007).
C-Corporations aren’t required to distribute their profits to shareholders as dividends immediately. This also means that shareholders of C-Corporations aren’t necessarily taxed for their profits. Since LLC owners don’t bear double-taxation, their profits are automatically added in the members’ income.
Employees working for an LLC often receive fringe benefits, such as medical reimbursement plans, group insurance, parking, and medical insurance, are required to treat them as taxable incomes.
Ownership of LLCs is often a lot more challenging to transfer than corporations. In corporations, shares can be sold for internal financing unless the shareholder’s agreement states the contrary. Typically, all the members of LLCs are required to approve the addition of new members before altering existing members and their ownership percentages.
Unlike corporations, LLCs aren’t responsible for hosting annual meetings, keeping minutes of these meetings, or maintaining stringent records of operations. However, there are some LLC requirements that you will have to keep in mind.
LLC Operating Agreements are documents that customize the terms of limited liability companies according to the specific preferences of the owners. They also outline the operational and financial decision-making process in a detailed manner. This is pretty similar to the articles of incorporation that are drawn up to govern the operations of corporations.
An LLC’s Annual Report is referred to as a statement of information since it is drawn up to provide your state all the necessary details about your business as well as any changes or updated information that may have occurred since your previous filing period. Filing these reports will also make your LLC compliant with state regulations to preserve the benefits of these types of corporations.
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REGISTER LLC TODAYPlease refer to our FAQ section if you have any questions regarding business formation or the nature of our services. Our knowledgeable consultants are available round-the-clock via phone or live chat if you still have some unanswered questions.
We form LLCs by filing your Articles of Organization with the Secretary of State and designing a professional Operating Agreement with inputs from all members. We also strive to maximize your business’s corporate protection which is why we offer initial consultation regarding: • Whether LLCs are the best type of entity for your business • The most effective method of forming your LLC • How best to operate your LLC • The on-going legal considerations once your LLC is formed.
LLCs offer a certain degree of corporate protection in that their members aren’t personally liable for the debts that arise in their business. However, this protection will be limited, and our experts will be more than happy to help you understand where your liability begins.
Each state in the US requires you to include ‘LLC’ or some form of the abbreviation (such as Limited Liability Company) in your business name to distinguish its entity. Also, you can name your business anything as long as you don’t use the same name (or a very similar name) as another company.
Yes. Every business requires a tax ID, which is also called Employer ID (EiN). This number works like a Social Security Number for your business. Additionally, you will definitely need an EiN if: • You hire employees • Your LLC operates as a partnership • You are liable to file any of the following tax returns: Alcohol, Employment, Excise, Firearms, and Tobacco
As discussed above, you only need 2 documents to register your LLC within your state, namely the Articles of Organization and the Operating Agreement. However, even if you plan on compiling both of these documents yourself, we highly recommend hiring an attorney or consulting with our business formation experts to correctly establish members’ rights, duties, powers, obligations, and liabilities.
We’ve come across many people who misunderstand the abbreviation ‘LLC’ as ‘Limited Liability Corporation’. In reality, this type of business entity doesn’t exist because corporations are one of the alternative business entities of LLCs.
The following are just some of our favorite testimonials from past clients.
“LLC Business File was quick, professional, and worth every penny for our business formation needs. They also supplied us with regular articles and case studies about how to become a fundamental player in their field of expertise.”
“I’ve utilized their services to launch 3 businesses and I’ve always received quality and speedy services from their teams. Also, all 3 of my brands are now receiving positive feedback from their respective target audiences.”
“I am pleased with every aspect of their services but what I love most is that they have a quick and efficient business formation process which was pretty easy to follow as well.”
“Not only did they help set up my LLC but they were always reachable via phone call whenever I had some legal queries. I highly recommend working with them to receive quality services and to learn a thing or two along the way.”
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