An LLC, also known as a limited liability company, is an entity of business that is its own legal organization. There are two types of LLCs. An LLC that is owned by one person is considered a single-member LLC. An LLC that is owned by multiple people is called a multi-member LLC. Business owners choose to make their business entities an LLC due to the benefits an LLC offers such as a reduction in paperwork, prevention of double taxation, better credibility for the business, and lawsuit protection.
An LLC Enables a Reduction in Paperwork
Converting a business into an LLC is straightforward. Because of this, the amount of paperwork that is required is significantly reduced. LLCs do not require records of company minutes, and no officer roles are necessary. Additionally, no resolutions need to be made, and annual meetings are not needed. The reduction in paperwork is one of the most appealing benefits to starting an LLC.
If you plan to form an LLC with multiple members, then it is vital that all of you form an operating agreement. An operating agreement will protect you and your members from legal disputes.
LLCs Prevent Double Taxation
Unlike other types of business organizations, LLCs are not subjected to double the taxes. Because an LLC is only taxed one time, they go through what is known as pass-through taxation. All profit that is generated by the LLC will go directly to the owners, and the owners will report these profits on their personal tax returns. LLCs are not required to pay federal income taxes, unlike other company structures.
LLCs Provide Better Credibility for a Business
An LLC provides increased credibility for a business. When customers see LLC attached to the name of a business, they believe that they are dealing with a legitimate company. Customers put more trust in an LLC because they feel that the business owners have put forth the effort to establish a company that is formal and legitimate compared to more informal company structures such as a partnership or sole proprietor.
Sole proprietorships and partnerships are not considered to be formal business structures because these companies are named after their owners. Most people want to do business with someone who has a more professional image, and they especially want to work with someone who has taken time and effort to build their business because this means they care about having an excellent work ethic and committing to providing outstanding service to their clients.
LLCs Provide Lawsuit Protection
When you establish your business as an LLC, you will have lawsuit protection. Those who want to sue your LLC will only be able to put a judgment against the assets of the LLC. Your personal assets, such as your home, car, and bank accounts, will be protected. To provide protection for the assets of your LLC, you need to make sure you have a good limited liability insurance plan. A good insurance policy will protect you, your LLC, and its assets. Even if you do not believe you need good coverage, it is recommended that you obtain the best coverage available. Good insurance plans may cost more money, but the cost of insurance will be pennies compared to what you may lose if you are ever sued if someone decides to come after you.
What is Needed to Start an LLC?
Starting an LLC is not difficult. You need to establish a registered agent, construct an operating agreement, submit articles of organization to the state and pay the necessary fees. You may also pay additional costs depending on how you go about the process of starting your LLC.
Establish a Registered Agent for Your LLC
All LLCs are required by law to have a registered agent. Registered agents are the ones responsible for sending and receiving necessary paperwork. Some of the examples of paperwork that a registered agent will need to send and receive are papers that need to be filed with the state and any legal paperwork that must be completed. You can either appoint yourself as a registered agent or choose someone else whom you trust.
Compose Your Operating Agreement
An operating agreement outlines the operating procedures for your LLC as well as provides details about who owns the LLC. An operating agreement will specify operational and financial relationships among all the owners of the LLC. While not all states require you to have an operational agreement to establish an LLC, it is strongly advised because there will be protections if legal disputes arise. Operational agreements are especially important if an LLC has multiple owners, so assets are not lost when people decide to go their separate ways.
Create the Articles of Organization
Before you can form your LLC, you need to submit a document to the state called the articles of organization. The articles of organization is a legally binding document that includes information about the LLC such as the names of the owners, the name and address of the LLC’s registered agent, and a description of the purpose of your LLC. Articles of organization are required to be submitted in all states during the process of forming an LLC.
Paying the Fees and Counting the Cost
To apply for LLC, the fees that you will pay will depend on how you choose to go about this process. If you use a service like IncFile you can do this for free. However, traditionally the cost of starting an LLC will also depend on the state in which you live. Some states will only require you to pay $50 whereas others can require you to pay approximately $500. Then there is the annual charge of $100 for maintenance fees. If you work with a law firm, you can expect to pay out even more money. Whether you choose to work with a law firm or establish an LLC on your own will depend on how much money you are willing to spend to form your LLC.
LLCs do not take long to form. In most states, LLCs can be formed in as quickly as three weeks. If you do not want to wait three weeks for your LLC to be formed, you can pay extra costs to have the formation of your LLC expedited. LLCs can be expedited as quickly as one day. Once you have formed your LLC, you can begin enjoying the benefits and establishing lasting professional relationships that will guarantee steady profits.