Starting An LLC
Limited liability companies, more popularly referred to as LLCs, are becoming a very popular entity form. More and more, people are choosing to run their business by setting up an llc because of two main desirable benefits — pass-through taxation and limited liability. This article gives an overview of limited liabilities for those of you who are thinking about starting an llc business.
LLCs have been around since the late 1970s, however it was not until 1988 that the Internal Revenue Service agreed to treat LLCs as partnerships for tax purposes.
When the IRS passed this ruling, many businesses decided to utilize this form for running their business. Today, all 50 states and the District of Columbia have laws recognizing limited liability companies and creating statutory frameworks that lay out the rules that cover formation of LLCs, operation of LLCs and dissolution of LLCs.
A limited liability company is recognized for tax purposes and is purely a creature of state law. So, to set up an llc, one must look to the procedures required in the state of operation. In most states, forming an LLC requires the preparation of a document that needs to be filed with the secretary of state or some other designated state agency. This document includes general information about the company and each state has detailed rules for what must be contained in this document.
Some states also require that an operating agreement be filed when forming or starting an llc. The operating agreement is a document that specifies how the limited liability company will be run, how profits and losses will be divided, who the members are as well as other information regarding the LLC. While not all states require an operating agreement, it is prudent practice to have one. It is recommended that almost every LLC have a well drafted operating agreement. If an operating agreement does not exist or does not address a specific issue, a court will resolve any disputes by referring to the state’s default statutory provisions that govern the operation of limited liability companies.
For tax purposes, a limited liability company may be classified as either a partnership or a corporation. Owners of an LLC are generally referred to as “members.” If a domestic LLC has at least two members, it will automatically be classified as a partnership for tax purposes unless an election is filed to treat it as a corporation.
So, some of the main advantages of setting up an LLC as your entity of choice are:
• Members are not personally liable for the LLCs debts
• Flexibility in management structure
• Limited formalities, such as meetings and record keeping
There are other business structures out there and every business venture is unique. There are a number of factors that should be considered when selecting an appropriate entity. So, when choosing which entity is right for you, be sure to consider the advantages and disadvantages of each entity type as it relates to your business specific goals and concerns.
If you want to start an llc or want to learn more about forming a limited liability company, contact your state agency to find out the specific rules and requirements required in your state of operation.
Other Useful Posts:
LLC Formation is a Great Idea Under Most Circumstance
The business structure know as a limited liability company, or LLC, can be best described as being a composition of a partnership and a corporation.
If You Are an Entrepreneur You Should Consider Creating an LLC
The business formation know as a limited liability company, or LLC, can be best considered to be a mixture of a partnership and a corporation.
Is Your Business a Candidate for LLC Formation?
If you have a business, or are considering starting one, you need to think of the legal implications of doing so.
Mail this post
