Thinking About Forming an LLC?
An LLC is a separate business entity. This means that when someone does business with your company (LLC) they are interacting in a financial transaction with the business and not you personally. This can hold great tax benefits but more importantly it protects you from being held personally responsible for civil damages. Unfortunately we live in a society where some people feel that bringing a small business owner to court for financial compensation (eve over the most trivial of issues) is ethical. It is not and thankfully millions of small business owners are protecting themselves from incredible financial liability by forming an LLC.
What is an LLC?
There are two special types of LLCs that are only accepted in certain states due those particular regulations and laws. A Series LLC is a kind of company that presents asset protection across several cells, or series. Each series is protected from the liabilities of the other. Another type of limited limited liability company is the Professional LLC. A PLLC is formed for the purpose of providing professional services, such as accounting, medicine, or law.
The Series LLC is a fairly new business structure which is comparable to a corporation with several subsidiaries. Series LLCs offer great advantages in planning such businesses as hedge funds, venture capital funds, oil and gas deals, and fractional share arrangements. Many form the kind of company to protect personal assets from a legal claim, usually concerning real estate investments or business liabilities. Each cell of a Series LLC can own distinct assets, incur separate liabilities, and have different members. Profits, losses, and liabilities of each series are legally separate. This creates a high level of protection between them. This structure removes the administrative burdens and expenses of forming multiple LLCS. In addition, a Series LLC pays one filing fee and files one income tax return form, if each series member is also a founding member. The procedure to add or delete a series is uncomplicated. Series can be added by amending the “limited liability company agreement.” Delaware was the first state to approve this form of LLC and as of today six other states have adopted it: Oklahoma, Illinois, Tennessee, Iowa, Utah, and Nevada.
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What about a professional LLC?
Professional limited liability companies, or PLLC’s are corporations organized for the purpose of providing professional services. Usually, they are professions that require state mandated licensing, such as doctors, chiropractors, lawyers, accountants, architects, and engineers. While forming a PLLC is similar to forming other LLCs, with these professional entities, the state licensure must approve the documents. The articles of formation must contain the signature of a licensed professional as the incorporator their license number will be necessary to file. Consequently, the filing time for PLLCs may be longer. Because the greatest benefits of an LLC is its tax advantages, a PLLC can opt to be taxed as a C corporation or S corporation. However, these kind of corporations that are qualified personal service corporations pay a flat federal income tax rate of 35 percent. If the corporation chooses to file as an S corporation, pass-through taxation becomes an option. This allows the income to be taxed on the individual members and not the business entity. Despite the tax benefits a members liability does not include any malpractice suits or claims.
Unlike other limited liability corporations, this kind of corporation may hold restrictions as to who may be a shareholder. Either employees performing said service, retired employees of the profession, or someone who inherited the stock, must own the stock of a PLLC. However, in some states only licensed practitioners may own stock in the corporation or serve on a board of directors. Currently, 38 states permit the formation of a Professional LLC.
Many have seen the three letters LLC and wondered what those initials were symbolic of. LLC stands for limited liability companies. They are businesses that combine features of both a corporation and a partnership. Various states refer to these types of companies as articles of organization; since the business is not incorporated. They are formed and regulated according to state laws. There are no limitations as to how many owners these companies can have.
There are benefits to be had in forming one of these type businesses as they grow popular and are increasing daily, but first it would be advantageous for an individual(s) to become familiar with the steps that are involved.
Before forming a LLC, research and become familiar with what your state laws are as it concerns your situation because each state’s regulations are different. The steps include:
• Selecting a business name. The name that you choose to place on your business cannot be a name that has been filed already with the LLC office. This information can be obtained from your Secretary of State. Specific words should be excluded from the business name such as bank, insurance, corporation, or city and it should end with a LLC designator in accordance to your state guidelines.
• Filing an Article of Organization. Completion and filing of this document is required by and with the state. This article is filed to establish the organization. A filing fee starting from $100.00 and up is required, dependent on the state that you live in.
• Create a LLC Operations Agreement. This document need not be filed, but it must be available if your company becomes involved in a lawsuit or any other legal or financial matters. It also reflects the agreement that has been set forth by the members or owners of the LLC and it is a guarantee that the company is adhering to those rules. Special attention should be given to the processing, as it is the most important document in the company.
• Publication Notice – A notification of filing a LLC should be placed in your local newspaper. Not all states require this; therefore, you should check with your Secretary of State office.
• Obtaining Business License and Permits. As with opening any new business, a
business license, federal tax ID, and zoning permit, if needed, must be obtained.
• Once you have completed this step your business is official for opening.
Benefits of Forming LLC
• LLC member’s personal assets are protected. The owners also known as members are not held responsible for the debts nor the actions of the company. If a lawsuit was to be brought against the company then the owner(s) personal property would be protected because the lawsuit is against the company and not the person.
• Taxes that are due are paid at a personal level and not the business level.
• Face fewer state imposed annually requirements.
• Have the freedom to establish any organizational structure agreed upon by the company owners.
• Have few restrictions on who can be a LLC owner or how many owners a LLC may have.