A limited liability company (LLC) is a business structure you're likely to run into a lot these days. The LLC offers sole proprietors and small business people the chance to register their businesses as non-taxable entities. Entrepreneur notes that an LLC structure came about when small businesses were trying to find a way to help them operate as a formal partnership. Today, many businesses have become registered as LLCs because of the inherent benefits that registration offers to them. These business structures can be registered in any locale or jurisdiction throughout the United States and combine the characteristics of a corporation with a partnership or sole proprietorship. In some jurisdictions, they don't even need to have more than a single member at the head.
LLCs vs. Corporations
LLCs are similar to corporations in a few ways. One of the most evident similarities is personal asset protection. Members of a corporation's board are isolated from litigation that affects the company, similar to members of an LLC's board. LLC's have flexibility in taxation as well. They can file as an S-Corp to be taxed as a corporation or rely on pass-through taxation, where the members are taxed as self-employed individuals, like a sole proprietorship. LLCs don't require a lot of maintenance and are the most manageable business structures to keep running. Corporations need meetings to maintain their status and can even sell shares to raise capital for expansion.
Limited liability companies are typically filed with the state registrar to notify them of the business's details and their intention to go into business. However, before the documents are filed, there are a few requirements that need to be met. These requirements apply to companies regardless of which state they file their registration in.
- Business Name
When you're filing an LLC, the name you put on the forms needs to be unique. The state registrar will use this name to refer to the company and send any necessary correspondence to the business. Each individual state has its own rules about what is and isn't acceptable as far as trademarked names go. However, most of them stipulate that the company name end in the LLC or Limited designator. Once the business name conforms to these basic rules, the company can proceed with the registration.
- Articles of Organization
When filing your LLC, you're required to submit articles of organization. LLC's need this document outlining the critical information that pertains to the business. These may include the owner's name, the reason for opening the company, and the addresses of the managers involved in the enterprise. Some jurisdictions allow for filing anonymous LLCs that remove this data from the public record. These articles of organization differ from articles of incorporation. Articles of incorporation relate to filing for a corporation within the state. Before filing the articles, you should ensure that all the information required by the state registrar is included. Filing the document usually comes with a fee that ranges from $50 to $500 depending on the locale.
- Registered Agent
Occasionally, a business may opt to have a registered agent to deal with its business within the state. Registered agents receive correspondence on behalf of a business within the locale that the company is registered in. The existence of registered agents means that a business need not operate within its "home" state. In the age of internet business, this can be useful since it allows companies to take advantage of tax haven states when registering a company to do business online. Many third-party companies are happy to act as registered agents for companies for a small fee.
- Management Type
Businesses need to have a clearly defined management hierarchy established before they begin operations. Small LLCs with a few members at the head may choose to be managed directly by the members. However, as the company size increases, the members may decide it's more viable to hire managers to run the daily operations. Managers can play a significant part in the company's processes and even vote on expansion and acquisitions for the business.
- Operating Agreement
Most states don't require a business have an operating agreement, but it's still better to have one. LLCs use operating agreements to delineate how the business is going to be run. This outline includes the management of the company as well as its daily processes and workflows. If an LLC doesn't have an operating agreement, the state will govern how the company operates in line with what they expect.
- Tax and Regulatory Requirements
Businesses have several tax and regulatory guidelines they must obey. LLC's are required to have an Employer Identification Number (EIN) even if the company has no employees. Single-member LLCs are exempt from obtaining an EIN unless they intend to have employees or decide to have your SMLLC taxed as a corporation and not an LLC. Aside from federal taxes, state tax may require the business to register with the requisite board. These taxes may include employee and sales tax. Depending on the industry it intends to operate in, the LLC may need to obtain professional or business licenses from the local authorities.
Which Type of Business Benefits from An LLC?
LLC's have a lot of the benefits of corporations, such as asset protection. However, it's a structure that's much better utilized by individuals who would otherwise have been sole proprietors. Smaller businesses with a few directors may also benefit from the LLC structure because of its flexibility and taxation exemption. However, industrial and commercial companies that may consider expanding are better registering a corporation. While LLCs provide protections, raising capital for growth is much more complex since it cannot offer shares for sale and become a traded company. Corporations allow for this fundraising method and are a much better choice for businesses that may need the funding.
Registering an LLC With The Help of a Legal Professional
While you could register a business on your own, having help to do so gives you an advantage. The registration is more likely to be accepted if you have a lawyer advising you on the best way to approach the situation. Starting an LLC is an involved process, and without the proper guidance, you might get your filed documents returned to you several times. Choosing a lawyer to help guide you in this process ensures you waste neither your time nor your money.