What is a limited liability company (LLC)?
A limited liability company, or LLC, is a business entity created under state laws which has the characteristics of both a corporation and a partnership. Like a corporation, the owners of an LLC are not personally liable for business debts. Like a sole proprietorship or partnership, an LLC has operating flexibility and is a pass-through entity for tax purposes. This means the LLC's profits are passed through and taxable to the owners of the LLC.
What legal documents do I need to form an LLC?
To create an LLC, Articles of Organization must be filed with the Secretary of State or appropriate state agency. Next, the LLC members should 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 tax identification number with the IRS. LegalZoom can prepare all of the required documents for you.
Can my LLC have an unlimited lifespan?
Yes. Recent changes to the IRS code have promoted changes in state laws permitting LLCs to be created with an unlimited life.
What is the difference between a "member" and a "manager" of an LLC?
A member is an owner of the LLC and is similar to a stockholder of a corporation. A manager is a person chosen by the members to manage the LLC and is similar to a director of a corporation. A manager can also be a member.
Does an LLC have to hold meetings?
The answer is usually no, unless the LLC's operating agreement requires meetings. LegalZoom's operating agreements make meetings optional. This is one of the key advantages of an LLC - fewer formalities. This means less paperwork and less chance that the members will accidentally violate the law and thereby lose their liability protection.
How much will it cost to form and operate an LLC?
Each state charges an annual fee to maintain an LLC. In many states, you must also submit an annual report or statement of information, which is a one-page form sent by the state. Some states also have state taxes. The annual fees for three popular states—California, Nevada and Delaware—are as follows (prices shown are as of 2015):
California: A $20 reporting fee and a statement of information are required 90 days after formation and then every two years. An annual $800 LLC tax is due by the 15th day of the fourth month after LLC formation and every year thereafter. If the LLC's income exceeds $250,000, it will owe an additional LLC tax based on the income amount.
Nevada: A $150 fee and the Initial List of Managers or Managing Members, as well as a $200 fee and a Business Licence Application, are due within 30 days of formation. There is no state income tax.
Delaware: There is an annual LLC tax of $300 due each June 1st, beginning the year following formation. There is no state income tax.
New York: Every LLC must publish notice of its formation in two newspapers in the county in which it was created. In some areas, the fees for this publication can run up to $2,000. The company must then submit a certificate of this publication to the state, together with a $50 filing fee. For LLCs that choose to be treated as a partnership, there are annual taxes that are based on total income (from a minimum of $25 to a maximum of $4,500)
What are the main differences between an LLC and an S corporation?
Although an S corporation shares many of the same tax characteristics as an LLC, an LLC has more flexibility and fewer restrictions than an S corporation. An S corporation cannot have more than 100 stockholders, cannot issue more than one class of shares, and is subject to more formalities than an LLC. However, owners of an LLC are required to pay Social Security and Medicare taxes on profits. Corporate stockholders are not required to pay these taxes on profits over and above the stockholders' salaries.
Do I need an attorney to form an LLC?
No, you do not need an attorney to form an LLC. You can prepare the legal paperwork and file it yourself, or use a professional business formation service, such as LegalZoom. If you choose to form your LLC through LegalZoom, you will only need to answer a few simple questions online. We will take care of all of your paperwork, file the necessary documents with the state and even send you an LLC kit with seals and certificates.
How many people are needed to form an LLC?
In all states, only one person is needed to form an LLC. Recent changes to the IRS code have promoted reforms in state laws, permitting one-member LLCs.