State laws govern formation of a limited liability company (LLC). Differences from state to state relate mostly to filing requirements. If you’re thinking about forming an LLC for your new business, the structure and advantages are basically the same across all jurisdictions. An LLC is well-suited to smaller businesses, but you can form one for almost any business endeavor other than banking or insurance.
Alone or With Partners
In most states, you can form an LLC if you are the sole owner of your business or if you have one or several partners. Typically, co-owners of an LLC are called members. Members can be individuals or they can be other businesses, even another LLC.
Limited Liability for Business Debts
Forming an LLC for your business protects you and other members from most liability for your business’ debts. If an unhappy customer sues your business, any court judgment that results can’t affect your personal assets. Your LLC is a separate entity from you. Typically, you’re not personally responsible for its debts or liabilities.
Your Company Is Not Taxed
Some business structures pay taxes on their own, and then their members or shareholders must also pay taxes on any income they receive from the business. The same money is subject to taxation twice. An LLC does not pay taxes. Its earnings and losses typically pass through to its members, who can declare them on their personal tax returns and pay taxes according to their individual tax brackets. This tax arrangement is similar to that of a partnership, and the IRS will automatically treat your LLC as a partnership unless you notify the IRS otherwise by filing certain forms.
Forming an LLC Is Relatively Simple
Although the exact procedural requirements may differ from state to state, it’s usually not difficult to form an LLC for your new business. Most states require the filing of articles of organization, detailing certain information about your operation. Some states require a member operating agreement as well, explaining how you’ll run the LLC. The most difficult part of the process might be naming your LLC, because its name must stand apart from any other business name registered with your state. If “Expert Architectural Services, LLC,” already exists, your state will most likely reject any paperwork for “X-Pert Architect Services, LLC.” In most states, you can contact the Secretary of State’s office to determine name availability.
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