How to Form an LLC

There are many people who own a business as a sole proprietor. Others may not have yet started their business but are considering which legal structure to utilize. There are many benefits when a business incorporates as a limited liability company, otherwise known as an LLC. If someone believes it is too expensive or takes too much time to form, they are wrong. Organizing a business as an LLC provides many benefits.

Things to Consider

As with all business structures, there are important things to know. Forming an LLC does cost money, for instance. States collect fees after businesses file Articles of Organization. There are some states that charge regular fees for annual reports, as well as franchise tax fees and more. Some states also require an LLC to publish a notice of its formation in a local newspaper for several weeks. It's more difficult to transfer ownership of an LLC. With a limited liability company, all owners must approve any change to the business. This includes adding additional owners, selling the organization to an outside entity, and more.

Benefits

When an owner organizes a business as a limited liability company, personal assets are under protection. This is because the business owners are not personally liable for the debts or financial obligations of their LLC. Laws prohibit creditors from pursuing an owner's assets to pay the debts of the LLC. There are usually no taxes involved with an LLC. Any business income or loss goes on the owner's personal tax return. The taxes are then paid at an individual level, a process called pass-through taxation. There are fewer compliance requirements with this type of business structure when compared to forming a corporation.

Forming an LLC

There are specific steps that must be taken in order to correctly form a limited liability company. The process is not overly complicated, but the details are important. The first step is choosing an available business name. It's important that the name complies with a state's rule for naming a business. Owners also need to file formal paperwork and an accompanying filing fee. Each individual state determines the fee amount. This formal paperwork is called the articles of organization. Filers must also write an LLC operating agreement. This will establish all of the rights and responsibilities of each LLC member. In some states, it is a requirement for the business owner to publish their intent to form a company. The last step is to obtain any permits or licenses required to conduct business.

Legal Help

Many business owners prefer to have an attorney help them set up their limited liability company. In some states, business owners can complete the process of creating an LLC online. In other cases, a mail-in process is available. It is possible to form an LLC without an attorney. An experienced lawyer should review the prepared operating agreement for any business filing. This is to make certain that the agreement includes all required information.