What Is an LLC (Limited Liability Company)?
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Simply put, it's the least complex business structure. Unlike an s corp or c corp, an LLC's structure is flexible. It also gives you the perk of pass-through taxes, limited liability (obviously), and legal protection for your personal assets. Plus the added benefit of looking more legit than the other guys.
Advantages of an LLC
There are several advantages to starting an LLC, but here are a few that stand out.
- Pass-through taxes. There's no need to file a corporate tax return. Owners report their share of profit and loss on their individual tax returns, meaning you avoid double taxation.
- No residency requirement. Owners need not be U.S. citizens or permanent residents.
- Legal protection. Owners have limited liability for business debts and obligations.
- Enhanced credibility. Partners, suppliers, and lenders may look more favorably on your business when you've formed an LLC.
Compare LLCs and corporations with our business comparison chart.
Disadvantages of an LLC
Creating an LLC is an attractive option, but there are a few hurdles.
- Limited growth potential. You cannot issue shares of stock to attract investors.
- Lack of uniformity. LLCs can be treated differently in different states.
- Self-employment tax. Earnings can be subject to this kind of taxation.
- Tax recognition on appreciated assets. This could happen if you convert an existing business to an LLC. One more way that extra taxation can occur.
Is Creating an LLC Right for Me?
That really depends on what your short-term and long-term business goals are. We recommend that you put some thought into where your business is now and how you want your business to grow before deciding whether the LLC structure is right for you.
How to Form an LLC (Limited Liability Company):
- Choose a legal name and reserve it, if the Secretary of State in your state does that sort of thing (not all do).
- Draft and file your Articles of Incorporation with your Secretary of State.
- Decide who will run the business (managers or members)
- Decide how many owners are in the business
- Apply for a business license and other certificates specific to your industry.
- File Form SS-4 or apply online at the Internal Revenue Service website to obtain an Employer Identification Number (EIN).
- Apply for any other ID numbers required by state and local government agencies. Requirements vary from one jurisdiction to another, but generally your business most likely will be required to pay unemployment, disability, and other payroll taxes – you will need tax ID numbers for those accounts in addition to your EIN.
Benefit#1: Cost Savings
Forming an LLC with a lawyer has been the traditional route. However, with new technology and an abundance of state information available online, if you create your LLC online with incorporate.com, you can generally save significant money over hiring a lawyer. Using information that you provide to us, we complete the state-required forms, send them to you for review, and then submit them to the Secretary of State, all for less than what an attorney would usually charge.
Benefit #2: Time Savings
Traditionally, the process of completing the forms and filing with the state can take days or weeks. Today, by forming an online LLC with incorporate.com, you can achieve huge time savings. The filing of needed documents is normally done within 24-48 hours of your order. Of course, we can't control the state's turnaround time, but we promise that you won't be waiting on us. When the Secretary of State issues the evidence of filing, we'll provide it to you right away – no waiting for an appointment or paying for our time. If you need a hard copy, we'll send it to you via FedEx.
Benefit #3: Online Compliance Watch®
All of our formation packages include free access to Compliance Watch, a state-of-the-art online compliance management tool that will help you keep your business in compliance with all state requirements. We provide secure online document storage, a comprehensive to-do list that will make sure you don't miss any steps, a one-stop online business profile, and we make it easy to make payments and track your orders.
Benefit #4: $75,000 Corporate Compliance Guarantee
incorporate.com guarantees its services against filing defects negligently caused by incorporate.com for the life of your entity. If your filing is found by a court of competent jurisdiction within the United States to be invalid at the time the formation documents were properly filed solely due to the fault of incorporate.com, we will resolve the issue, or we will pay you up to $75,000.
- How does an LLC help protect my personal assets?
- How are LLC profits taxed?
- How does an LLC compare to a C Corporation?
- How does an LLC compare to a S Corporation?
- What is a Series LLC?
- What state should I form my LLC in?
- How do I form an LLC?
- What do I need to do to maintain my LLC?
- Can I use incorporate.com as a Registered Agent?
- If I buy a package, but want to customize and add services, is that possible?
- I had some legal questions come up. Can you assist?
How does forming an LLC help protect my personal assets?
Unlike sole proprietorships and partnerships, LLCs allow their owners to separate and protect their personal assets from business debts and liabilities. A sole proprietor or general partner remains personally liable for business obligations, leaving their home, car, and personal savings at risk.
In contrast, forming an LLC creates a business structure separate from its owners. In a properly formed and managed LLC, only business assets remain at risk in a judgment against the company. Owners can protect their personal savings and possessions from business debts.Back to Top
How are LLC profits taxed?
Like a sole proprietorship or partnership, an LLC enjoys pass-through taxation. This means that owners (also known as "members") report their share of profits or losses in the company on their individual tax returns. The Internal Revenue Service (IRS) does not assess taxes on the company itself. This avoids the "double taxation" that general, or "C," corporations experience. In a C corporation, the IRS taxes profits at the corporate level and dividends at the shareholder level.
When creating an LLC, owners need not distribute profits and losses in the LLC in proportion to ownership (pursuant to IRS guidelines). The owners of an LLC can agree to allocate the company's profits and losses among themselves however they see fit, not necessarily based on the percentage of the company each owner controls.Back to Top
How does an LLC compare to a C Corporation?
For many small business owners, a Limited Liability Company (LLC) offers advantages over a "C" corporation (also known as a "general" corporation). Creating an LLC combines the tax advantages of a sole proprietorship or partnership with the liability protection of a corporation.
The IRS taxes the profits of a C corporation at corporate tax rates. Then, if the C corporation pays dividends to shareholders, the IRS taxes those dividends a second time at the personal income tax rates of the shareholders. The LLC business structure avoids this "double taxation." The Internal Revenue Service (IRS) does not consider an LLC itself a taxable entity. Instead, the company's earnings "pass through" to the owners, who report their share of profits or losses on their individual tax returns.
Small business owners who want the flexible structure of an LLC but the advantages of corporate taxation can elect corporate taxation for their LLC. To elect corporate taxation, owners file Form 8832, "Tax Classification Election," with the IRS. Electing this status may also make an LLC eligible for certain deductions available only to corporations. For specific guidance, small business owners should consult their accountant or tax advisor regarding this election.Back to Top
How does an LLC compare to an S Corporation?
The Limited Liability Company (LLC) and the Subchapter S Corporation ("S Corp") share the benefit of pass-through taxation. This means that owners in the company report their share of profits and losses on each owner's individual tax return. The Internal Revenue Service (IRS) assesses no separate tax on the company itself. In contrast, "double taxation" occurs when the IRS taxes both a C Corporation's profit and dividends paid to shareholders.
Despite the similarity of pass-through taxation, an LLC formation can offer advantages over an S Corporation:
- Not required to hold annual meetings or record meeting minutes (though we recommend it)
- LLC owners need not worry about the formalities of issuing stock, since an LLC does not have stock
- No limit to the number of owners
- LLC owners need not be U.S. citizens or permanent residents
What is a Series LLC?
A Series LLC consists of a Limited Liability Company with more than one series of members, managers, or LLC interests. In some cases, a series LLC can have a separate business purpose or investment objective. For years, Delaware law has permitted an LLC to register separate series. Use of this structure remains uncommon due to uncertainty over federal income tax consequences. Advantages include:
- The Series LLC permits separate liability-insulated divisions within a single entity.
- A Series LLC could be used as a holding company owning intangible assets, or tangible assets such as real estate, or as an operating company conducting different lines of business.
- The Series LLC reduces costs associated with forming and maintaining multiple LLCs.
Other states that have enacted statutes permitting the formation and registration of series LLCs include Illinois, Iowa, Nevada, Oklahoma, Tennessee and Utah. To form a series LLC, contact a Business Specialist at 800-818-6082 (toll-free) or 302-636-5440Back to Top
What state should I form my LLC in?
Most businesses form LLCs in the state in which they primarily operate. Advantages of choosing your home state include:
- Typically the least complicated option
- Usually costs less than forming your LLC in a different state and registering with your home state
- Avoids paying franchise taxes and filing annual reports in more than one state
Many companies conduct business throughout the U.S. and abroad. An LLC with business locations in multiple states may form an LLC in a single state and then register to do business in the additional states. This means that companies must formally register, file annual reports, and pay annual fees to conduct business in multiple states.Back to Top
How do I form an LLC?
incorporate.com can walk you through the process of your LLC formation either online or by telephone. Customers usually find our LLC formation services less expensive than those of an attorney. We have multiple packages and options to choose from to meet your individual budget and needs.
Creating an LLC takes less than 10 minutes. You simply need to choose a business structure, state, and your company name. We take care of the rest. Our experts have formed more than 300,000 businesses nationwide.Back to Top
What do I need to do to maintain my LLC?
Nearly all states require LLCs to file annual reports or pay franchise taxes to maintain the company's good standing. The Secretary of State may forward a renewal notice directly to your company or to your Registered Agent. Failure to file reports and pay franchise taxes by the state deadline can result in fines, notices, and the inability to conduct business.
State laws do not require LLCs to hold annual meetings or record meeting minutes. However, we recommend that LLCs update their records at least annually to reflect any changes in management or activities.
Almost all state, county, and local governments require LLCs to complete business license, permit, and tax registration applications before beginning to operate. Learn more about how our Business License Compliance Package can help your company.Back to Top
Can I use incorporate.com as a Registered Agent?
Yes, you can! We are happy to receive your legal documents and forward them to the person you designate as your legal contact. By creating your LLC online and using incorporate.com as your registered agent, you are provided peace of mind. Simply choose incorporate.com as your Registered Agent during the checkout process.Back to Top
If I buy a package but want to customize and add services, is that possible?
Absolutely! Our advanced services are available for an additional fee with any of the lower packages. The additional services and resources available include an LLC Operating Agreement, a Legal and Tax reference library, the filing of an Employer Identification Number (EIN) with the IRS, and more!Back to Top
I had some legal questions come up. Can you assist?
Not with legal questions. incorporate.com does not provide legal advice. Please consult with an attorney for any legal issues that arise with your LLC or business operations.Back to Top
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