A limited liability company (LLC) has quickly become the go-to business entity for those looking for something easy to run, but still be provided personal liability protection. A major benefit for LLCs is the tax arrangement. An LLC itself does not pay taxes, instead the owners pay taxes on their ownership percentage of the LLC profits and their individual tax brackets; this avoids profits from being “double taxed.” Aside from the tax advantages, an LLC provides much more. Unlike requirements for executives in corporations, owners of LLCs are unrestricted by residency requirements and have a great deal of flexibility in sharing profits.
Also, the formalities necessary to maintain an LLC are infrequent compared to corporations. An LLC isn’t ideal for every business though. If you plan on bringing on outside investors then an LLC is not preferred. Generally, owners of LLCs are unable to issue stock options to their employees with the same tax advantages as a corporation. It’s also impossible to “go public” as an LLC. As such, many institutional investors, like venture capitalists, have frameworks that don’t even allow them to invest in LLCs. Finally, it can be difficult and expensive to convert your business structure down the road so it’s important to have an LLC lawyer help make the right decision in the beginning.
It’s helpful to have a professional LLC attorney double-check the materials you’re submitting to your given state. Forgetting something will only delay your ability to be protected from personal liability, plus some formation applications are non-refundable.
Gain a fresh perspective
Although you may have already come to the conclusion that your company should be an LLC, are you sure that's the correct move? Experienced LLC lawyers may suggest another route that makes more sense for your business.
Provides long-term stability.
LLC lawyers who assist you during formation will have a greater familiarity of your company and its needs going forward, rather than a random lawyer you’re forced to hire when something goes wrong.
Who can form an LLC?
There are no residency or legal restrictions for owners (also known as members) of an LLC. However, a few states require owners and/or managers to be at least 18 years of age.
Can I use a “do it yourself” website?
You could but you’re exposing yourself to risk. Those sites certainly have limitations, largely in that their forms are standardized and may leave out important details specific to your company. You also miss out on the ability to have an LLC lawyer examine which business entity and state is right for you.
What documents do I need to form an LLC?
Articles of Organization must be filed with the Secretary of State or appropriate state agency. Ideally, the LLC members should also enter into an operating agreement, which sets forth the rights of the members and the rules for running the company. An LLC may also need to apply for a federal employer identification number (EIN) with the IRS.
What’s limited liability protection?
It’s the biggest reason why people choose to incorporate their businesses. It provides owners protection from their personal assets against creditors’ claims. As long as the owners truly treat their business as a separate entity, they retain such protection.
What’s a registered agent?
A business or individual designated to receive service of process when a business is a party in a legal action or when the state attempts to communicate with the company. Some states, like Delaware, require entities registered within its jurisdiction to maintain an in-state registered agent.
Should I choose an LLC or an S-Corp?
While an LLC and S-Corp both have pass-through taxation, the S-Corp lacks the flexibility of an LLC in allocating income to the owners. Also, an LLC may offer several classes of membership interest while an S-Corp may only have one class of stock. In terms of ownership, any number of individuals or entities can own interests in an LLC. On the other hand, ownership interest in an S-Corp is limited to 100 shareholders and cannot be owned by other corporations, LLCs, partnerships, or nonresident aliens.
Talk to a LawTrades Expert firstname.lastname@example.org (646) 781-7197