LLC Frequently Asked Questions
Introduction to LLCs
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.
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%.
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.
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.
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).
Choosing an LLC
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.
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.
Forming an LLC
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.
- Learn how to do it yourself
- Invest in the expense and expertise of an attorney or accountant
- Consider our affordable LLC formation service
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.
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.
About Our Service
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.
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.