The Limited Liability Company or LLC is a popular new form of business entity that combines the limited liability protection of a corporation with the simplicity and tax advantages of a partnership. It is a viable and practical alternative to forming your company as a traditional corporation. While state laws and federal regulations governing how LLC?s will be taxed are still evolving, recent developments have proved to be extremely favorable to small businesses. Most states have made it easier to form LLC?s and recent federal tax regulation changes have given LLC?s increased flexibility. We make it simple to form your LLC online in just minutes.
Limited Liability. Similar to a corporation, all of the members (owners of an LLC are called members) of an LLC enjoy limited personal liability. Generally owners are not exposed to legal liability for the debts of the business, you only risk your share of the investment in the business.
Tax Flexibility. An LLC with two or more members can choose how it wishes to be taxed. It can have the pass-through taxation of partnership or elect to be taxed as a corporation. Most LLC?s will choose to have pass-through taxation in order to have the profit or losses of the business pass-through to the to the tax returns of it?s individual members. Electing pass-through taxation avoids the possibility of the double taxation associated with traditional corporations.
For LLC?s with only one member you can elect to be taxed as a sole proprietorship or a corporation. Most single member LLC?s will elect to be taxed as a sole proprietorship to avoid double taxation, however, many are electing to be taxed as an S Corporation which also allows for pass through taxation. Electing to be taxed as a Sole Proprietorship would mean that profits and losses from the LLC will be reported on your individual tax return on Schedule C.
Flexible Management Structure. An LLC can be managed by it?s members or it can designate a manager or managers who will run the LLC. It is common for the members of an LLC to be closely involved in the running of the day to day affairs of the business, this is referred to as a member managed LLC. Generally an LLC with only a few members will be member managed. If an LLC chooses to be run by a manger or managers it is referred to as a manager managed LLC. A member of the LLC can also act as a manager or a group of members can act as Managers.
Flexible Distribution of Profits and Losses. Members of an LLC can distribute profits and losses any way they choose. You do not have to divide up the profits and losses according to the assets contributed by each member.
The LLC is a relatively new entity and rules and regulations regarding it?s operation and tax regulations are still evolving. In some cases the state regulations need catch up with current IRS rules. In 1997 the IRS Check the Box regulations made it easier for an entity to elect how it would like to be taxed. As a result many previous requirements for LLC?s became obsolete. If an LLC is not a good fit for your business, consider other types of domestic entities such as the S Corporation or C Corporation. As an alternative you may even try a Panama corporation, a type of offshore entity.
An Operating Agreement is an agreement made between the members of the LLC as to how the business will be conducted. Operating Agreements are not part of the public record and do not need to be filed with state offices. This document is similar to the minutes and bylaws of a corporation and should contain provisions that address issues such as contributions, type and manner of distributions, allocations of profits and losses and other important operational matters. Our LLC Kit contains documents that can simplify and assist with this process.