Setting up a limited liability company (LLC) is a popular choice when establishing a business structure for startup and growing businesses. There are several options that can be selected based on the type of entity that you will be forming. As with most business decisions, there are perspective advantages and potential disadvantages. This article is aimed towards addressing key items to consider when deciding if an LLC formation is the right choice for you, your business and your investments.
Items to Consider When Forming an LLC
One of the key items to address when forming an LLC is to ensure that it is formed in accordance with the rules and regulations of a particular state. In a majority of instances, this will be the state where the business is operated and headquartered. If your business will be operating in several states you may be required to register in all of these states.
Filing the LLC Articles of Organization
An LLC cannot be officially formed until an “Articles of Organization” is prepared and filed (keep in mind this document can be referred to something else in certain states.) This document addresses key items such as whom the registered agent for the LLC will be. This is the person who will receive legal documents related to the business. Examples include items such as service of process, complaints, subpoenas and so forth. You will also need to include a statement of the purpose of the LLC.
Keep Current with Required Filings
Most states require some form of annual report filing. If a business misses this deadline for such filings they may be faced with potential late fees and in some cases a suspension or dissolution of the LLC. Procedures and filings will differ based on state jurisdictions. This is why it is important to understand and comply with the standards established in the state in which your limited liability company is established.
Advantages of an LLC
Tax flexibility: This is referred to as flow-through taxation. The IRS does not tax the LLC directly. Rather, profits are distributed to the members who are then taxed on profits at their personal tax level. This avoids double taxation.
Limited Liability: As the name implies, an LLC provides its members with protection from liability. This important shield protects members in ways that a sole proprietorship or traditional partnership does not. Members are not personally liable for debts and often court judgments and creditors.