What is an LLC?

Understanding What is an LLC

Unlike sole proprietorships and general partnerships, LLCs can protect your personal assets if your business is sued. Unlike corporations, LLCs are relatively easy to form and maintain and are not subject to double taxation.

For most small business owners, alimited liability companyoffers the right mix of personal asset protection and simplicity. LLCs can be owned by one or more people, who are known as LLC “members.” An LLC with one owner is known as asingle-member LLCand an LLC with more than one owner is amulti-member LLC。

Forming your business as a limited liability company (LLC) helps:

• Protect you against lawsuits.
• Reduce paperwork compared to corporations and other legal entity types.
• Prevent your company from being taxed twice.
• Make your business appear more credible to customers and creditors.

A limited liability company (LLC) is just one of several business structures. Other common examples include:

• Corporations
• General Partnerships
• Sole Proprietorships

Advantages Of An LLC

LLCs offer these benefits to small businesses:

• Limited liability protection
• Pass-through taxation
• Simplicity
• Flexibility
• Tax options
• Increased credibility
• Access to business loans and credit

Limited Liability Protection

Provided there is no fraud or criminal behavior, the owners of an LLC are not personally responsible for the LLC's debts or lawsuits. This is often referred to as personal asset protection.

Note:LLCs help protect yourpersonal assets。Liability insurance can help protect yourbusiness assetsfrom lawsuits. Learn more about liability insurance in TRUiC'sGeneral Liability Insuranceguide.

Pass-Through Taxation

An LLC’s profits go directly to its owners, who then report their share of the profits on their individual tax returns. Hence, an LLC’s profits are only taxed once. This is known as pass-through taxation.

In a C corporation, profits are subject to "double taxation". This means profits are taxed before being distributed to owners and taxed again when owners report their share of profits on their individual tax returns.

Simplicity

Limited liability companies are relatively easy to form and maintain with little paperwork. Unlike C corporations, LLCs are not required to assign formal officer roles, hold annual meetings, or record company minutes and resolutions.

Flexibility

There are few restrictions on how you can structure the ownership and management of an LLC:

• Your LLC can besingle-memberormulti-member
• A Multi-Member LLC can be managed by its members, termed as member-managed.
• A Multi-Member LLC can be managed by a manager that is appointed by its members, termed as manager-managed.

Tax Options

A limited liability company can choose among three different ways of paying income tax. One popular option is to be taxed as anS corporation。Technically an S corp is a tax designation, not its own type of business entity.

You can learn more about choosing the S corporation tax designation in ourLLC vs S corpguide.

Increased Credibility

Forming your business as a limited liability company brings added credibility. An LLC is recognized as a more formalbusiness structurethan a sole proprietorship or partnership. Including LLC in your business name lets customers and partners know that you are a credible business.

Access To Business Loans

Once you have formed an LLC, your business can begin building a credit history. This will help your business accessloansand lines of credit.

If you have awomen-owned business, discover the right financing opportunity by reading our list of thetop loans for women entrepreneurs。

Disadvantages Of An LLC

LLCs offer many benefits but there are small disadvantages:

• Because LLCs are pass-through entities like a sole proprietorship, LLC owners are responsible for paying taxes on their share of LLC income, whether or not they are given a disbursement. This is why LLCs don't attract investors like a corporation.
• All members must wait until the LLC sends out K-1 forms to complete their personal taxes. For this reason, most investors will not fund LLCs.

Who Can Form an LLC

Any person of legal age can form an LLC in the US. LLC owners do not have to be US citizens; they can be from any country except for those under US sanctions.

To learn how to form a company from abroad, read ourHow to Company in the USA

Types of LLCs

All LLCs offer the same features that make them a unique hybrid of other business entities: limited liability and pass-through taxation. Some LLC types work best for a particular business scenario. Here are the most common types of LLCs.

Domestic LLC

An LLC is referred to as a "domestic LLC" when it is conducting business in the state in which it was formed. Normally when we refer to an LLC we are actually referring to a domestic LLC.

Foreign LLC

When an existing LLC decides to open offices or have any other kind of physical presence in a new state, it needs to register in that state as aforeign LLC。For example, if an LLC "organized" in Texas opens a business establishment in Michigan, then your Texas LLC will need to also form in Michigan as a foreign LLC.

Professional LLC

AProfessional LLCis a limited liability company that is organized to perform a professional service, like a medical or legal practice. To form a professional LLC, it is necessary for certain members of the LLC to possess the necessary state licenses to demonstrate their professional qualifications.

In a professional LLC, the limitation on personal liability does not extend to professional malpractice claims. Therefore, before forming a professional LLC it is advised to seek legal counsel.

系列有限公司

A系列有限公司is a unique type of LLC where a single “parent” LLC provides limited liability protection across a series of “child” businesses (individual protected series). Also, each “child” business is protected from the liabilities of the other businesses under the single series LLC.

Currently, you can only form a series LLC in seventeen states:

Alabama, Delaware, Washington D.C., Illinois, Indiana, Iowa, Kansas, Minnesota, Missouri, Montana, Nevada, North Dakota, Oklahoma, Tennessee, Texas, Utah, and Wisconsin.

How To Form A Limited Liability Company

Forming an LLC is easy. Our state-by-state LLC formation guides streamline the process into six easy steps. Just choose your state from the dropdown below.

As mentioned above, you can form yourself using the guide below, or use our recommended LLC formation service:Northwest($29 + state fees).

Six Basic Steps to Start an LLC

Step 1: Select Your State

Step 2: Name Your LLC

Step 3: Choose a Registered Agent

Step 4: File the Articles of Organization

Step 5: Create an Operating Agreement

Step 6: Get an EIN

Step 1: Select Your State

For detailed step-by-step instructions for forming an LLC in your state, choose your state from below:

• Alabama
• Alaska
• Arizona
• Arkansas
• California
• Colorado
• Connecticut
• Delaware
• Florida
• Georgia
• Hawaii
• Idaho
• Illinois
• Indiana
• Iowa
• Kansas
• Kentucky
• Louisiana
• Maine
• Maryland
• Massachusetts
• Michigan
• Minnesota
• Mississippi
• Missouri
• Montana
• Nebraska
• Nevada
• New Hampshire
• New Jersey
• New Mexico
• New York
• North Carolina
• North Dakota
• Ohio
• Oklahoma
• Oregon
• Pennsylvania
• Rhode Island
• South Carolina
• South Dakota
• Tennessee
• Texas
• Utah
• Vermont
• Virginia
• Washington
• Washington D.C.
• West Virginia
• Wisconsin
• Wyoming

Step 2: Name Your LLC

You will need to give your business a unique name that is distinguishable from all registered names in your state when you file your LLC's formation documents.

OurBusiness Name Generatorand ourHow to Name a Businessguide are free tools available to entrepreneurs that need help naming their business.

Step 3: Choose an LLC Registered Agent

Your LLCregistered agentwill accept legal documents and tax notices on your LLC's behalf. You will list your registered agent when you file your LLC's Articles of Organization.

Step 4: File Your LLC's Articles of Organization

TheArticles of Organization, also known as a Certificate of Formation or a Certificate of Organization in some states, is the document you will file to officially register an LLC with the state.

Step 5: Create an LLC Operating Agreement

AnLLC operating agreementis a legal document that outlines the ownership and member duties of your LLC.

Our118bet官网 is a free resource for business owners.

Step 6: Get an EIN or Transfer an Existing EIN

AnEmployer Identification Number (EIN)is a number that is used by the US Internal Revenue Service (IRS) to identify and tax businesses. It is essentially a Social Security number for a business.

EINs are free when you apply directly with the IRS. For more information about whether your LLC is required to obtain an EIN, visit ourEIN for LLCsguide.

Who Will Manage Your LLC?

Generally, an LLC is managed by its members, known asmember-managed。However, in some cases, members will appoint a manager to handle the LLC’s daily operations, and this is calledmanager-managed。

有限责任公司的成员,这将是俄文n are laid out in a legal document known as an188金宝搏官方网站。This is an internal agreement among all the members of the LLC.

You can learn more about LLC management in ourmember-managed vs manager-managedLLC guide.

Where Should I Form My LLC?

People starting a business for the first time often ask where they should form their LLC. There is a lot of hype about forming in the following states: Delaware, Nevada and Wyoming. However, in most cases you should form a domestic limited liability company in the state where your business will be located.

To understand why, consider this comparison:

Scenario A:John starts a business in Michigan and registers his LLC in Michigan. He pays a filing fee and an ongoing maintenance fee each year to keep his LLC in good standing.

Scenario B:Mike opens a business in Michigan but chooses to register his LLC in Delaware. Because his business is located in Michigan, his Delaware LLC must also register a118bet金博宝 in Michigan. Mike is now paying filing fees and maintenance fees in two separate states. He has double the paperwork and pays twice as much as John.

对形成企业为什么炒作s in Delaware?

Some large investors and bankers prefer working with Delaware businesses due to Delaware’s business-friendly laws. However, this rarely offers enough of an advantage to the small business owner to justify the added cost and paperwork of registering in multiple states.

What about Wyoming and Nevada?

Nevada and Wyoming have more relaxed business laws than most other states. However, unless your business is based in one of these states, your Nevada or Wyoming LLC will still need to register as a foreign LLC in the state where you conduct business. So you will be paying more and filing paperwork in two separate states.

Does it ever make sense to form an LLC outside your home state?

如果您的业务实体multiple states, then you will have to register as a foreign LLC in multiple states. In this case, there may be advantages to forming your business as a domestic LLC in Delaware, Nevada or Wyoming, depending on your specific needs.

Read ourBest State to Form an LLCguide to learn more.

What states are most popular with small businesses?

Most small business LLCs are formed inTexasandFlorida。Small businesses in these states seem most satisfied with the taxation and fees in these states. Again forming an LLC in Texas and Florida only makes sense if your business is located in these states.

What is an LLC?

LLCstands forlimited liability company。Forming an LLC is the simplest way of structuring your business toprotect your personal assetsin the event your business is sued. An LLC is the most popularbusiness structurechosen by small business owners.

How much does it cost to form an LLC?

The cost of forming an LLC will vary from state to state. In general, you can expect to pay a minimum of between$50 and $500to form your LLC, and around $100 annually to maintain your LLC. These costs will increase if you hire a lawyer or use a118金宝app to form or maintain your LLC. Visit our金宝搏188是什么公司guides to set up your LLC.

For a complete breakdown of the costs associated with forming and maintaining an LLC - Read our article,LLC Costs By State。

What is a registered agent?

A registered agent isa person or business nominated to receive and send legal documents on your LLCs behalf。In most states, you are required to nominate a registered agent when forming your LLC. In some states a registered agent is known as a resident agent or agent for service of process. To learn more, read ourregistered agentarticle.

What is an operating agreement?

An LLC Operating Agreement isa legal document that outlines ownership and operating procedures of your Limited Liability Company。本协议允许您创建财政服务局l and working relations among business owners (members) and between members and managers. Having this document in place is important in the event that a dispute or lawsuit arises.

For a free LLC Operating Agreement template and more information - Check out ourLLC Operating Agreementarticle.

What are the articles of organization?

The articles of organization isthe legal document you submit to your state to form your LLC。This document contains important information related to your LLC, such as your LLC's name, purpose, and the name and address of your registered agent. The articles of organization are also known as a certificate of formation or certificate of organization.

How are LLCs taxed?

LLCs have the advantage ofpass-through taxation。This means the LLC’s profits pass through to its members, who pay taxes on their share of the earnings on their individual tax returns. Multi-member LLCs file an annual earnings report to the IRS usingform 1065。For more information on state level LLC taxation, read ourstate tax guide。

Although LLCs are pass-through entities, there are several types of state-level tax that may still apply to your LLC:

What are the benefits of an LLC?

LLCs offer the liability protection of a corporation with the simplicity and pass-through taxation of a sole proprietorship. LLCs are affordable and easy to maintain.

Learn more in ourLLC Benefitsguide.

What is an LLC license?

There is no such thing as an "LLC license" per se. To form your business as an LLC, simply follow the steps above in the118bet金博宝 。Many types of companies do require a state business license in order to conduct business. To learn more about business licenses and permits,read our guide。

How long does it take to form an LLC?

The standard processing time for forming an LLC istwo to three weeksfrom the time the state receives the formation documents. Many states offer same-day or expedited LLC formation for an extra fee

Do I need a lawyer to form an LLC?

You don’t need a lawyer to form an LLC。Our free LLCformation guidescover all the steps to set up an LLC in all 50 states. To save time, you can hire a118金宝app that can set up your LLC for you. If you are thinking about starting a Professional LLC, such as a legal or medical practice, it is recommended that you consult a lawyer.

Does an LLC have a board of directors?

Unlike corporations, LLCs arenot required有一个董事会。有限责任公司通常是managed by its members, unless the Articles of Organization appoint a non-member manager to manage the LLC.

Does an LLC have shareholders?

LLCs don’t have shareholdersand they can’t sell shares on the stock market. Instead, an LLC is owned by its members, who split the business earnings among each other. The way your LLC’s earnings will be divided should be explicitly stated in your188金宝搏官方网站。

Can I form an LLC in another state?

Yes, you can form an LLC in another state。If you already have a domestic LLC and wish to expand your business to another state, you will need to form aforeign LLCin that state. Generally it is not recommended to form an LLC in a state where you do not plan to conduct business.

How do I pay myself from my LLC?

How LLC owners pay themselves depends on how the LLC is taxed, the number of members, and any agreements regarding profit sharing and sweat equity.

In a single-member LLC (SMLLC) or multi-member LLC (MMLLC), you can pay yourself:

• a distribution that passes through to your individual tax return, or
• a reasonable salary and distribution as an S corporation (S corp)

Read our guide to learn more abouthow to pay yourself from an LLC.

How do I change from a sole proprietor to an LLC?

It is easy to convert your sole proprietorship into an LLC. OurSole Proprietorship to LLCguide discusses the exact steps to take to make the transfer.

Related Articles

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• Learn How to File a DBA
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