A limited liability company is a legal business entity that combines certain aspects of corporations with certain aspects of partnerships. In a nutshell, a business LLC enjoys the protection from liability afforded shareholders of corporations while simultaneously allowing its member to benefit from the tax advantages and flexibility of a partnership.
How to Form an LLC
State law dictates the steps for forming an LLC. Forming an LLC is a relatively simple process and generally requires:
- Reserving the name of the LLC with the Secretary of State;
- Filing the Articles of Organization and Transmittal Data Forms with the Secretary of State;
- Payment of all fees mandated by the State; and
- Compliance with state notice requirements.
Although LLC law in most states does not require that a limited liability company have an LLC operating agreement, it is advisable. The LLC operating agreement sets forth the rights and responsibilities of the members and managers of the LLC. Additionally, it addresses issues of membership and managements and establishes how assets will be distributed and the circumstances under which the LLC will be dissolved. The LLC operating agreement is a private contract between the members and managers of the LLC. For this reason, LLC law does not require that it be filed with the Secretary of State.
Types of Limited Liability Companies
There are several different types of LLC companies. The biggest difference between the various LLC companies is how they are treated for tax purposes. The types of LLC companies are:
- Single Member – The LLC taxes on a single member LLC is paid by the member;
- Multi Member – A multi-member LLC enjoys pass through of profits and loss to its members;
- Non-Profit – A non-profit LLC enjoys LLC tax exemptions similar to the tax exemptions afforded non-profit corporations;
- Series – A series LLC may separate its assets into series which affords it protection from creditors and enables it to maximize the tax advantages of the LLC structure;
- Professional – A professional LLC may be formed only by people, such as doctors, lawyers, and accountants, who provide professional services. The tax treatment for a PLLC depends on whether it is a single member or multi-member LLC.
Benefits of the Business LLC
The business LLC allows for maximum asset protection. The LLC structure is especially appropriate for businesses which may have a high potential for exposure to liability and whose insurance may not fully cover a claim which could subject the personal assets of the business owners to judgment creditors.
Another benefit of the limited liability company is its tax advantages. Not only do the members of the LLC enjoy pass-through of taxes, the LLC members do not pay self-employment taxes so there is no double taxation.
Finally, the business LLC provides the added benefit of flexibility and reduced administrative and record keeping requirements. This alone makes the LLC structure more desirable to business owners who may not like dealing with lots of paperwork.
Getting Legal LLC Help
Before choosing a business structure, you should speak with an experienced business attorney. Your attorney will explain in detail exactly how to form an LLC. Moreover, he can handle the drafting and filing of Articles of Organization, Operating Agreement, and all other required documents.
