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How to form an LLC

A novel business structure that came into existence in 1977 in Wyoming, LLC is the acronym for Limited Liability Company (LLC). Being a recognised one by every State’s statute and the IRS, an LLC is a unique blend of limited liability’s corporate advantages with the advantages of pass-through taxation of partnerships. A better alternative to traditional entities, LLC is neither a partnership nor a corporation.

Limited Liability Companies has achieved its limelight status for them not holding the disadvantages of partnerships and corporations, but inheriting only their best features. Flexible and demands less ongoing paper work when compared with corporations also if you compare it with partnerships, the dangers of personal liability has been evaded here. To surprise you further, “do you know that Chrysler and Amazon, both are limited liability companies?”





LLC Ownership

“Members” are specified as owners of an LLC and they may be individuals, corporations, and other LLCs – domestic or foreign, since the restriction is not laid for ownership by states. In fact, most of them allow single owner LLCs too.

Similar to shareholders in a corporation or partners in a partnership, LLC members perform the same operations and this role majorly depends on how LLC is managed. Say for example, a member can closely resemble a shareholder if that LLC is managed by a manager or a group of mangers since the non managerial roles will not participate in day to day management of the company. The managers will closely resemble partners in cases where an LLC is not choosing them and hence they can influence the decision-making of the company.


Difference between Single and Multiple Member LLC


Multiple -Member LLC, being taxed as a partnership, is the LLC owned by an entity or more than one individual where as a single member LLC is owned by one member also is taxed as a sole proprietorship. All states do permit single owner LLC.



A list of advantages of forming an LLC


This new type of business structure, LLC provides the best features of corporation with those of the sole proprietorship or partnership. LLC is favouring many advantages which other business types lacks and they are

 

  • Personal Liability Protection: The owner’s personal liabilities are not reachable by business creditors in an LLC since it is considered as a separate entity for being legally distinct in nature. The restriction of LLC member’s liability of limiting it to the amount of money invested by that person in the LLC is a great feature to be noted on. So, LLC members enjoy the same limited liability protection as the shareholders in a corporation.
  • Tax Advantages: “Why LLC has acquired so much popularity in recent times?” is the biggest question that arises when we talk about LLC. The answer to this question is, the advantage of LLCs allowing the pass-through taxation. Being treated like the earnings from a partnership, a sole proprietorship or an S-Corporation, the earnings of an LLC is taxed only once. This advantage of limited liability protection is not offered by partnerships and sole proprietorship. But, we do see that S-Corporation, a much more restrictive business structure that is harder to maintain comes little closer to an LLC in this attribute.
  • Transfer with ease: The selling of ownership interests to third parties can operate smoothly without disturbing the continued operation of the business is the biggest benefit of an LLC. If you have a look at selling interests in a sole proprietorship or general partnership, it sure requires loads of effort and time in comparison to an LLC. An owner needs to transfer assets, permits, bank accounts, business licenses and other legal documentation individually, which is a tedious process though. Even in S-corporations, the process is not pretty smooth like an LLC.
  • No restriction on ownership: LLCs never lay any hard and fast rule on choosing the type of owners also the number of owners where as S-corporations cannot hold more than 100 stockholders. In fact, the stockholders need to be a resident or a citizen of the United States but you don’t see any such restrictions in an LLC.
  • Raise capital easily: Being flexible enough to allow for many ways to raise capital, LLCs even allow new members by selling membership interests or even allows creating a new group of members with different voting or profit-sharing characteristics.
  • A greater amount of credibility: Registered LLCs do enjoy legitimacy and greater credibility when they deal with other companies, banks, potential investors or partners. Since an LLC is not seen as an individual engaging in business rather as a legitimate company.
  • Flexible ownership and management structure: Similar to general partnerships, LLCs do enjoy the freedom of establishing any organizational structure after a mutual agreement signed upon by the members. In fact, profit interests are separated from voting interests. Owners enjoy the flexibility of separating or combining the interests of the investors into the company and of the people running the day-to-day operations.


Procedure to form an LLC



Forming of an LLC is a simple process that never demands any strenuous procedures similar to maintaining it. After deciding of forming an LLC, you need to file the Articles of Organization with the state of your choosing, and pay the initial fees. Before or immediately after filing, an operating agreement is adopted also if interest certificates are there then they need to be distributed also other preliminary matters needs to be discussed among the owners. There are LLC Kits available which includes all of the information and paperwork to make this process a smoother one.

Publish in newspaper: In addition to above simple process, only three states namely Arizona, New York and Nebraska, requires an announcement about the forming of an LLC to be published in one newspaper or many.

Federal Tax Identification number: A LLC needs a bank account to pay federal taxes and this demands a process of obtaining Federal Tax Identification number or Employer Identification Number (EIN). More like a social security number of an individual, this EIN must be included on all of the tax filings of the business. If you are operating your business as sole proprietorship or a partnership now, and looking for ways to transform it to an LLC then you need an EIN for this new entity.

Single Member LLCs: Single member LLCs are not qualified to pass-through tax treatment by IRS but the state level may differ. It is advisable to consult an accountant for a better clarification on this.




Can Corporation be an LLC member?


A corporation can definitely be an LLC member since this facility is beneficial in creating additional ownership. Expect more benefits like creation of retirement plans and an enhanced level of protection from liability.

 

You would definitely need a professional to prepare and file your LLC application. We are here to take care of this process so that you don’t face any hassles at all. Call us or chat with us or fill up the order form to let us serve you better.