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Forming an LLC (Limited Liability Company)
Credit: ACorporation4Less.com
| What is a limited liability company? The limited liability company or LLC is not a partnership or a corporation. An LLC is a distinct type of business that offers an alternative to partnerships and corporations, by combining the corporate advantages of limited liability with the partnership advantage of pass-through taxation. Back To Top |
| What paperwork is required to form an LLC? Articles of organization must be prepared and filed with the state and filing fees, initial franchise taxes, and other initial fees must be paid. If your LLC is formed through ACorporation4less.com, all you need to do is complete our simple order form. We will prepare and file your articles of organization and pay the initial filing fees. Back To Top |
| Do I need an attorney to form an LLC? No, an attorney is not a legal requirement. You can prepare and file the articles of organization yourself; however, you should understand the requirements of your intended state of formation. You can use our service to form your LLC and save money on attorney's fees. However, if you are unsure of what entity type would be most beneficial to your business, consult an attorney or accountant. Back To Top |
| What should I name my LLC? Choose the name of your LLC carefully. It is very important that your name portray the image you want for your new company. Legally, the name you select must not be "deceptively similar" to any existing company or must be "distinguishable on the record" of your state. For example, if an LLC named Flower LLC exists in your state, you probably would not be allowed to name your business Flour Limited Liability Company. It is possible that the name you select will not be available; therefore, we ask for a second choice on the LLC order form. Additionally, most states require that the name you select show your business is a limited liability company, by including the words "Limited Liability Company," or the abbreviation LLC. Back To Top |
| How many people are needed to form an LLC? The IRS does allow one member LLCs to qualify for pass-through tax treatment; however, taxation of one person LLCs at the state level may be different. Back To Top |
| How is an LLC taxed? A state-registered LLC can be taxed for federal income tax purposes as a partnership. Under the check-the-box rules, an LLC can elect partnership status to avoid taxation at the entity level as an "association taxed as a corporation." If an LLC is not taxed as a partnership, it will be taxed at the entity level similar to a standard or C corporation. The state income tax treatment of LLC profits and losses may or may not mirror the IRS tax treatment depending on the state. For specific information on your state rules visit your state's web site. The web address can be found on our detailed state information page. Please note that California LLCs are subject to an annual minimum franchise tax of $800 per year. The first payment must be made within 3 months of forming your LLC. The state of California does send a bill to help you to remember to make this payment. Back To Top |
| What is the organizational structure of an LLC? An LLC is owned by its members. They are analogous to partners in a partnership or shareholders in a corporation, depending on how the LLC is managed. A member will more closely resemble shareholders if the LLC utilizes a manager or managers, because then the members will not participate in management. If the LLC does not utilize managers, then the members will closely resemble partners because they will have a direct say in the decision making of the company. A member's ownership of an LLC is represented by their "interests," just as partners have "interest" in a partnership and shareholders have stock in a corporation. Back To Top |
| How is an LLC managed? An LLC may be managed by its members (owners) or by selected managers. If the LLC is to be managed by its members, it operates much like a partnership. Each member has an equal say in the decision making process of the company. If the members choose, they may elect a manager or managers to act in a capacity similar to a corporation's board of directors. These managers are in charge of the affairs of the corporation. Member management is the normal default rule of state law. This means that if managers are not selected in the articles of organization, the members will direct the affairs of the LLC. Back To Top |
| What are the advantages of an LLC? LLCs offer numerous advantages.
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| What are the disadvantages of an LLC? The disadvantages of an LLC include:
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| What is a federal tax ID number and why do I need one? A federal tax identification number, also known as an employer identification number or EIN, is basically a social security number for businesses. It is the number the IRS uses to identify the business, and it must be included on tax filings the business makes. Businesses apply for an EIN by preparing IRS Form SS-4 and filing it with the IRS. ACorproation4less.com can assist with the preparation and/or obtainment of your company's tax ID number. Futhermore, certain states also require a state tax identification number. To learn if your state requires a separate number, contact your state's taxation authority. Please note, ACorproation4less.com does not assist with the obtainment of state tax identification numbers. If you operate your business as a sole proprietorship or partnership and are now looking to incorporate or form a limited liability company (LLC), you must obtain a new EIN for your business. Back To Top |
| Should I choose an LLC or an S corporation? While the S corporation's special tax status eliminates double taxation, it lacks the flexibility of an LLC in allocating income to the owners. An LLC may offer several classes of membership interests while an S corporation may only have one class of stock. Any number of individuals or entities may own interests in an LLC. However, ownership interest in an S corporation is limited to no more than 75 shareholders. Also, S corporations cannot be owned by C corporations, other S corporations, many trusts, LLCs, partnerships, or nonresident aliens. Also, LLCs are allowed to have subsidiaries without restriction. To learn more about the similarities and differences of S corporations and LLCs, click here. For advice regarding which entity is best for your particular situation, please contact an attorney or accountant. Back To Top |
| What is a publication requirement? A few states require notice to be published in a newspaper that a corporation or LLC has been formed. States with this requirement include: Pennsylvania (corps only), Georgia (corps only), Arizona (corps and LLCs), Nebraska (corps and LLCs), and New York (LLCs only). The service performed by ACorporation4less.com includes the publication requirement for each of the above states except for New York LLCs. In New York, all LLCs formed or foreign qualified there are required to publish a notice of formation for six consecutive weeks in assigned newspapers. The publication is made at the county level in two newspapers as assigned by the local county recorder. The cost of this requirement varies greatly based upon the county where the business is located. In New York County, the publication costs will be higher than in the rest of the state. To comply with this requirement, please contact your local county recorder’s office and they will assign the newspapers. The county recorder’s phone number is located in the blue pages of your local phone book. Back To Top |
| How do I get started setting up an LLC? After you decide to form an LLC, articles of organization must be filed with that state and initial fees must be paid. If you choose ACorproation4less.com to form your LLC, we will complete these administrative tasks quickly and effectively. After your articles of organization are filed, your LLC should have an organizational meeting where an operating agreement is adopted, interest certificates are distributed, and other preliminary matters are completed. Back To Top |
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