Is an LLC Right for Me? What to Know Before Forming an LLC

Is an LLC Right for Me? What to Know Before Forming an LLC

by Kylie Ora Lobell, September 2014

An entrepreneur has many options when choosing the right structure for their small business. Making the right decision can help position the company for success.

One option is a limited liability company or an LLC. The following are some basic facts about LLCs that all business owners should consider when selecting the right structure for their small businesses.

What is an LLC?

An LLC is a combination of a partnership and a corporation. Like a corporation, an LLC can protect the individual owners of the small business from personal liability for the actions or debts of the business. An LLC can operate with one or more owners. In an LLC, owners or partners in the small business are called “members.” These members can either be individuals, corporations, or other LLCs. There is no limit to the number of members who can own a part of the business. In most cases, members will report any profits or losses from the small business on their individual returns. This is called “pass-through” taxable income.

Unlike a corporation, members at an LLC are not required to organize formal meetings or prepare written documentation of any meetings. Annual meetings of corporate directors and shareholders and a written record of the decisions made at these meetings are generally required to protect its shareholders from personal liability for the business’s actions.

Like a partnership, an LLC allows for flexibility when choosing how to best manage the small business. Each member can participate in the decision-making, or the members can select a member group of members, or even a nonmember to manage the business.

How to Form an LLC

The first step when forming an LLC is to choose the business’ name. Generally, there are three rules: 1) the name has to be different from the names of other LLCs in the state; 2) the name has to include the words limited liability company (or LLC); and 3) the name cannot include words restricted by the state.

After the name has been chosen and approved by the state, a document, often called the Articles of Organization, which consist of the LLC’s name, address, and other basic information is filed with the state. Once the document is accepted, you have formed your business.

 

 

Benefits and Drawbacks of Forming an LLC

When an owner is establishing the LLC, startup costs are low and there is less paperwork than there is when starting a corporation. If an LLC is properly operated, and its assets and agreements are in the name of the business, the members will not be personally liable for the actions and debts of the business. Also, as mentioned earlier, you can structure the management of an LLC a variety of ways. There aren’t many drawbacks to operating your business as an LLC. There are ongoing expenses, but they apply to corporations and partnerships as well. Even though, in many cases, taxes on income earned by the LLC are passed through to the individual members, the LLC still has to file tax returns.

Forming an LLC Online

Nowadays, it’s simpler than ever to form an LLC because you can provide the information online. You do your part in minutes and a website will take the time needed to complete and file the paperwork for you.

First, find a trustworthy website that will allow you to form your LLC. You’ll fill out a questionnaire with information about your business. Based on the information you provide, the required documentation will be created.

The website will then send out these documents to the state for filing. Once the website receives confirmation from the state that your LLC has been formed, which can take anywhere from 20 to 35 days, the website will notify you.

Getting Started

An LLC provides numerous benefits to small business owners. It can get a business’ operations off the ground and offer members protection from problems that may arise. For many small business owners, it’s the best option available.

Interested in forming an LLC? LegalZoom can help. Learn more about forming an LLC.

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