To function as a legitimate company in the United States, you need to be registered. One of the options available to you is the LLC option. In this article, we’ll talk about LLC’s and provide you with a list of the essential information you’ll need.
What is an LLC?
What does LLC mean in business? If you’ve ever wondered or asked yourself this question, this is the article for you. LLC is an acronym for Limited Liability Company. A limited liability company is a structure wherein the owners of the company are not personally responsible or liable for the company’s debts or the company’s liabilities.
A limited liability company combines some of the characteristics of a corporation with some of the characteristics of a sole proprietorship or partnership.
Key Features of LLCs (Limited Liability Companies)
- States tend to differ in the regulations guiding the registration of LLCs.
- The owners of an LLC are called members.
- The ownership of an LLC is usually not restricted. This means that anyone can become a member of an LLC. This includes other LLCs, individuals, foreigners/ foreign entities, and corporations.
- The LLC structure is not open to all companies. Institutions such as insurance companies and all sorts of banks cannot form an LLC.
- To form an LLC, articles of organization need to be filed in the state the LLC is situated. It is much easier to form compared to corporations. It is also more protected and flexible.
- An LLC can choose not to pay federal taxes. The profits and losses may be listed on the owner’s (member’s) personal tax return.
- An LLC can also be classified as a corporation if the right registration is done.
- It is important to note that although members (owners) are not liable for the company, a creditor can go after the owners if the company is being fraudulent and unwilling to meet the legal requirements set by the state.
- The wages or salaries paid to the owners will usually be regarded as operating expenses and are therefore removed from the profits of the company.
How to Form an LLC
Once again, it is important to remember that the regulations and requirements vary from state to state. This is not a certified method. This is the average process that is required to form an LLC. It may be a little different in your state. Therefore, you should check your state’s requirements.
- There should be at least one or two owners, which we call members in an LLC.
- A name must be selected. Without a name, you can not register an LLC.
- The articles of organization hold the documentation and registration needs of each state. The members are to file these documents with the state the LLC is located in. These articles also establish the duties, rights, liabilities, powers, and obligations of each member (owner) of the LLC.
- The articles of organization will also contain personal information on the members such as name and address. The LLC must have a registered agent as well and a statement of purpose.
- Once this is done, the owner(s) will pay a fee to the state and submit the articles of organization. This step will be repeated at the federal level. You cannot get an employer identification number (EIN) unless you’re registered at the federal level.