LLC Frequently Asked Questions

An LLC is a business structure formed under state law. It has features of both corporations and partnerships. Like a corporation, it can limit your personal liability as an owner. Like a partnership, you receive pass-through taxation and have flexibility in how you will run your business. Read full article “What is an LLC?”

Liability refers to financial or legal debt. Limited liability means containing the amount of liability an owner has.

An owner who invests a certain amount in a limited liability business structure such as an LLC is only risking the amount of his or her investment. The owner is not personally responsible for debts and obligations of the business that exceed the assets of the business.

An LLC must be properly set up and run to establish and maintain the “corporate veil” that protects owners from liability.

The owners of an LLC are called members. Membership is often based on percentage. A single-owner LLC contains one member who has 100% ownership. A three member LLC might contain one owner who has a 50% share and two owners who each own a 25% share. Ownership may or may not be documented in membership certificates.

Ownership in an LLC often entitles the owner to a share of the LLC profits or losses and to a right to vote in decisions of the LLC. This governance should be defined in the LLC’s Operating Agreement.

Adding and removing owners is accomplished by purchasing or selling percentage ownership from other members. The total percentage ownership should always add up to 100%.

LLCs may be managed by the members (the owners) or by managers. When the LLC is managed by the members, the members make all management decisions. When the LLC elects to be manager-manged, the members are responsible for electing manager(s). This election often occurs as part of the annual meeting. A manager-managed LLC may elect a member to serve as a manager.

Choosing to form the LLC as manager-managed offers more flexibility. This way you can elect a member as the manager or elect a non-member manager.

By default, an LLC receives pass-through taxation. It may make a special election to be taxed as an S-Corp or C-Corp.

Depending on the number of owners, pass-through taxation can either by under the IRS tax treatment of a sole proprietorship or partnership. The business income passes-through to the owners’ personal tax returns. As an owner of the LLC, you simply list your business profits and losses on your personal income tax return. Partnerships often also file an information return reporting how the profits or losses were divided amongst members.

An LLC can elect to be taxed as an S-Corporation, which allows the owners to save money on self-employment taxes on certain portions of their income. Typically this tax election is made when the business has significant profits. Eventually, the LLC will find it beneficial to elect C-Corporation tax treatment when the savings from income splitting and deducting benefits outweigh the additional cost of corporate double taxation.

An LLC does not generally have specific annual meeting requirements or other “formalities”. LLCs are easier to run than corporations but nevertheless it is important to follow basic guidelines to keep the LLC separate from the owners.

After forming the LLC, you should have an organizational meeting of the owners and adopt an operating agreement, which documents how the LLC will be run. You should keep company records, including meeting minutes and resolutions.

Some states require the LLC to file an annual report, filing fees, and franchise tax for the continued authority to conduct business in that state. Keeping up with statutory requirements is important to preserve the good standing of the LLC, liability protections, and to avoid government penalties (up to and including administrative dissolution of the LLC).

Please see the article “Advantages and Disadvantages of an LLC”

When comparing an LLC to an S-Corporation, the first thing to realize is that you can elect S-Corporation tax treatment with either. An LLC receives pass-through taxation by default and may make a special election with the IRS to receive S-Corp tax treatment. The term S-Corporation describes a corporate legal entity that has made the IRS election to receive S-Corp tax treatment.

The big difference then between an LLC and an S-Corporation are the legal structures (LLC vs. corporation). Both offer limited liability to the owners and investors. An LLC is owned by members whereas a corporation is owned by shareholders. In both cases the owners may elect managers. In a manager-managed LLC, the members elect managers, usually annually. In a corporation, the shareholders elect a Board of Directors to oversee the corporation and appoint officers who run the day-to-day affairs of corporation. An LLC has less formalities than a corporation; you have more flexibility about how you define how it will be run. A corporation is usually more appropriate when there are complex ownership arrangements, investors, and the additional governance becomes a help rather than a hindrance.

The hard costs to set up and run an LLC are defined by the state fees in your state of formation. All states charge some filing fee to process your Articles of Organization to set up the LLC. Some states will require an initial report, publication, and other set up to your LLC which incur further costs. Beyond the hard costs of the state fees, setting up an LLC also requires registering for tax IDs, establishing records, and otherwise setting up to do business. We simplify your start-up expenditures by offering LLC formation packages.

After your LLC is set up, you are responsible for running an LLC in compliance with your statutory corporations code. This often requires filing an annual report, filing annual tax returns, and, in some states, remitting an annual franchise tax for the privilege of doing business. Fulfilling these state requirements will keep your LLC in good standing. The costs to accomplish these tasks vary by state. In some states there is no cost and in others you may have to spend hundreds every year. Please contact us if you would like more information about the business compliance aspects of running your LLC.

An LLC is formed by filing Articles of Organization (sometimes called Articles of Formation) with the governing statutory body, usually the Secretary of State. This document outlines the company name, registered agent, and other basic information required for the state to create the legal entity of the LLC. Some states require publishing or an initial report before the LLC is truly finalized.

After forming the LLC, the business should register for federal and state tax IDs, hold an organizational meeting and adopt an Operating Agreement, issue membership certificates (if applicable), otherwise establish records, register for business licenses and permits, and set up a foundation to ensure compliance with ongoing statutory requirements.

An attorney is not required to form an LLC. In most states any natural person age 18 years or older may file the Articles of Formation to create an LLC. You have several options:
- Learn how to do it yourself
- Invest in the expense and expertise of an attorney or accountant
- Consider our affordable LLC formation service

Most small businesses want to set up their LLCs intelligently and in the most economical way possible. For this reason, it is common to form your LLC in the state in which you reside and do business. Registering in a different state such as Delaware or Nevada adds another set of state filings and ongoing reporting requirements. While popular states such as Delaware do have certain advantages in terms of case law and court systems, these benefits are most often realized by much larger businesses such as Fortune 500 companies.

Some start ups naturally have presence in multiple states from Day 1. If this is the case, we can help you file a domestic registration for your LLC in your preferred state as well as foreign registrations in each other state where the LLC will conduct business. Please contact us for a custom quote.

If you purchase our LLC formation service, a filing specialist will check availability of your desired business name and, if needed, help you find an acceptable alternate name.

You must choose a name for your LLC that is distinguishable from all other registered entities in your state of formation. The name must contain a corporate designator that is approved by that state’s corporations code. Certain words are restricted and either may not be used in the name or may only be used in the name with prior approval. Professional LLCs have additional restrictions on their company name.

Before filing Articles of Organization, a name availability check should be conducted to ensure the desired business name is available. Most states have searchable public records. Every state has a slightly different search protocol. Some require a name reservation in addition to a name availability search.

LLCs that wish to have multiple business names accomplish this by filing a fictitious name in addition to the LLC. We can help you avoid the common mistake of filing the fictitious name under your personal name instead of under the LLC. Please contact us for a custom price quote.

To get started with your LLC, either learn about our LLC formation service or jump to LLC packages and pricing.

Ordering your desired LLC package is easy. You probably already know all the information you need such as your desired business name (if it’s not available, we’ll help you find one that is), a description of the purpose of your business, and the names of the owners.

We can prepare and file the government forms to create most LLCs in one business day. During this time we will contact you with the results of your name availability search and may require your signature on certain documents.

State processing times vary. Some states permit us to form your LLC immediately online while others can take 10+ weeks to respond. We’re experienced in the best ways to submit your LLC and we communicate directly with the state government to resolve any delays.

Some secretaries of state offer expedited processing for a fee. If you’re in a rush, contact us and a formation specialist can explain state rush options, take your order by phone, and, with your help, submit your formation documents in a matter of hours.

Absolutely. Our affordable document filing service complements the personalized advice you obtain from licensed experts.

We want to support you before, during, and after you form your LLC. Please contact us to speak with a formation specialist.