Business & Management

What is an LLC or Limited Liability Company?

LLC

What is an LLC?

LLC is the Limited Liability Company. Forming an LLC is the easiest way to structure your company to protect your private assets in the event your company issued.

A limited liability company (LLC) is the official registration of a company in the country where the company is located with the Department of State. It serves mainly as an official organization which separates a firm from its owner(s) by law.

When an LLC is established, then all contracts and most legal liability are directly related to the LLC and not to the owner(s). In comparison, the owner is private responsibility for all legal liabilities, including personal assets, by corporations and sole proprietorships.


Do you need an LLC?

You may want to think of an LLC in order to protect your personal assets if your businesses face a reasonable risk of legal action or if the business debt is possible.

You can still form an LLC if you are a solo entrepreneur. Only one owner needs to form an LLC.


Reasons to form an LLC

The main reason for forming an LLC is to protect personal property by the owner against the liability assumed by a business.

The LLC has sole responsibility for most contractual disputes and other legal liability so that the personal assets of the business owner (house, car, savings,etc.) are not at risk.

LLC protection can even (partly) contribute to protecting company owners against charge orders, where creditors directly sue members instead of LLC. In this situation, the creditor is entitled to “capital distributions” but since not all LLC members are required to receive capital distributions, this can sometimes mean no gain for the creditor.


How to form an LLC in the US ?

Location

The first stage in the formation of an LLC is the decision as to which state to register. Some say that due to their corporate laws the two best LLC States were Nevada or Delaware. However, this is generally more costly and time-consuming than simply registering with the country of residence, so that in order to be simple, the majority of small businesses should simply register in their home state.

Each state has different requirements, so businesses must ensure that they are exactly looking at what they need to successfully register. The LLC shall be recorded in the State that the business is registering by the Department of State (or the Secretary of State). Links to the websites of DOS / SOS are available here

Choose a Company Name

The first step before you submit your papers with the State Department is to select the name of the business.
The general rules require the name to be unique and to use nothing restricted (by trademark and other laws) and to end with “limited liability company” or the short: “LLC” or “L.L.C.” Limited liability company.

Articles of Organization

The first official stage for registering an LLC is to file articles with the Department of State.It is a simple yet quite specific format to follow, again, uniqueness of each state. Make sure the format is followed or the registration will not be accepted. It is also the time for any filing fees to be paid, and at this point in the process, a number of small businesses decide to take over the professional services in order to ensure the correct formatting and details are accurately followed.

Operating agreement 

The operating agreement shall be concluded in most States with the LLC’s registration. The purpose shall be to name members, managers, tax matters partners and develop the terms and conditions of the equity distribution. This is not something that you normally have to send to the DOS, but it is not an easy move. In order to guarantee a healthy business and reasonable shares of the equity of all employees, especially in their leaving, LLCs with more than one member must enter into an appropriate operational contract with the exit clause. For multi-member LLCs, it is highly recommended for the lawyer to assist in drafting the operating agreement.

Registered agent designate

The designation of the “registered agent” is another requirement for the formation of the LLC. Simply put, the company must choose an LLC member as the person to send all the official correspondence for. For instance, the registered agent is the recipient of the subpoenas and of other legal documents if legal action is referred to the LLC.


ADVANTAGES OF AN LLC

  • It reduces responsibility for the managers and members
  • Superior protection through the order of charge.
  • Management flexibility
  • Flow-through tax: Profits are distributed at their private tax rate to employees taxing earnings. Double taxation is thus avoided.
  • Extraordinary flexibility in the allocation of profits and losses in various amounts to members.

DISADVANTAGES OF AN LLC

  • Some states, including California, charge an LLC fee.
  • Some states do not allow LLC operation by professional groups (e.g. doctors or dentists).
  • Single Member LLCs face reduced protection against assets. Many States do not honor a single owner for asset protection for LLCs.

See Also

How to write a Business Plan

error: Content is protected !!