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LLC FAQ's
Here is a list of frequently asked questions about LLC
What is a limited liability company?
The limited liability company or LLC is not a partnership
or a corporation. An LLC is a distinct type of business that
offers an alternative to partnerships and corporations, by
combining the corporate advantages of limited liability with
the partnership advantage of pass-through taxation.
What paperwork is required to form an LLC?
Articles of organization must be prepared and filed with
the state and filing fees, initial franchise taxes, and other
initial fees must be paid.
Do I need an attorney to form an LLC?
No, an attorney is not a legal requirement. You can prepare
and file the articles of organization yourself; however, you
should understand the requirements of your intended state
of formation.
You can use our service to form your LLC and save money
on attorney's fees. However, if you are unsure of what entity
type would be most beneficial to your business, consult an
attorney or accountant.
What should I name my LLC?
Choose the name of your LLC carefully. It is very important
that your name portray the image you want for your new company.
Legally, the name you select must not be "deceptively
similar" to any existing company or must be "distinguishable
on the record" of your state.
For example, if an LLC named Flower LLC exists in your state,
you probably would not be allowed to name your business Flour
Limited Liability Company. It is possible that the name you
select will not be available; therefore, we ask for a second
choice on the LLC order form.
Additionally, most states require that the name you select
show your business is a limited liability company, by including
the words "Limited Liability Company," or the abbreviation
LLC.
How many people are needed to form an LLC?
The IRS does allow one member LLCs to qualify for pass-through
tax treatment; however, taxation of one person LLCs at the
state level may be different.
How is an LLC taxed?
A state-registered LLC can be taxed for federal income
tax purposes as a partnership. Under the check-the-box rules,
an LLC can elect partnership status to avoid taxation at the
entity level as an "association taxed as a corporation."
If an LLC is not taxed as a partnership, it will be taxed
at the entity level similar to a standard or C corporation.
The state income tax treatment of LLC profits and losses
may or may not mirror the IRS tax treatment depending on the
state. For specific information on your state rules visit
your state's web site. The web address can be found on our
detailed state information page.
Please note that California LLCs are subject to an annual
minimum franchise tax of $800 per year. The first payment
must be made within 3 months of forming your LLC. The state
of California does send a bill to help you to remember to
make this payment.
What is the organizational structure of an LLC?
An LLC is owned by its members. They are analogous to
partners in a partnership or shareholders in a corporation,
depending on how the LLC is managed. A member will more closely
resemble shareholders if the LLC utilizes a manager or managers,
because then the members will not participate in management.
If the LLC does not utilize managers, then the members will
closely resemble partners because they will have a direct
say in the decision making of the company.
A member's ownership of an LLC is represented by their "interests,"
just as partners have "interest" in a partnership
and shareholders have stock in a corporation.
How is an LLC managed?
An LLC may be managed by its members (owners) or by selected
managers.
If the LLC is to be managed by its members, it operates much
like a partnership. Each member has an equal say in the decision
making process of the company.
If the members choose, they may elect a manager or managers
to act in a capacity similar to a corporation's board of directors.
These managers are in charge of the affairs of the corporation.
Member management is the normal default rule of state law.
This means that if managers are not selected in the articles
of organization, the members will direct the affairs of the
LLC
What are the advantages of an LLC?
LLCs offer numerous advantages.
" Pass-Through Taxation
LLCs allow for pass-through taxation. This means that earnings
of an LLC are taxed only once. The earnings of an LLC are
treated like the earnings from a partnership, sole proprietorships
and most S corporations.
" Limited Liability
The LLC owner's liability is generally limited to the amount
of money which the person has invested in the LLC. Thus, LLC
members are offered the same limited liability protection
as a corporation's shareholders.
" Flexible Management Structure and Flexible Ownership
is Permitted
Like general partnerships, LLCs are generally free to establish
any organizational structure agreed on by the members. Thus,
profit interests may be separated from voting interests.
What are the disadvantages of an LLC?
The disadvantages of an LLC include:
" More Paperwork Than an Ordinary Partnership
Documents must be filed at the state level to create an LLC,
which is not the case with a general partnership.
" Dissolution Date
Some states require that a dissolution date be listed in the
articles of organization. This date may be amended. Further,
certain events, such as death of a member, a member leaving,
bankruptcy, etc. can be a dissolution event. A corporation
has unlimited life and these events are not dissolution events
for a corporation.
" Newer Entity Type
The LLC is a newer entity, and people are not as familiar
with the LLC as a corporation.
Should I choose an LLC or an S corporation?
While the S corporation's special tax status eliminates
double taxation, it lacks the flexibility of an LLC in allocating
income to the owners.
An LLC may offer several classes of membership interests while
an S corporation may only have one class of stock.
Any number of individuals or entities may own interests in
an LLC. However, ownership interest in an S corporation is
limited to no more than 75 shareholders. Also, S corporations
cannot be owned by C corporations, other S corporations, many
trusts, LLCs, partnerships, or nonresident aliens. Also, LLCs
are allowed to have subsidiaries without restriction.
What is a publication requirement?
A few states require notice to be published in a newspaper
that a corporation or LLC has been formed. States with this
requirement include: Pennsylvania (corps only), Georgia (corps
only), Arizona (corps and LLCs), Nebraska (corps and LLCs),
and New York (LLCs only). The service performed by Business
Filings includes the publication requirement for each of the
above states except for New York LLCs.
In New York, all LLCs formed or foreign qualified there are
required to publish a notice of formation for six consecutive
weeks in assigned newspapers. The publication is made at the
county level in two newspapers as assigned by the local county
recorder. The cost of this requirement varies greatly based
upon the county where the business is located. In New York
County, the publication costs will be higher than in the rest
of the state.
To comply with this requirement, please contact your local
county recorder's office and they will assign the newspapers.
The county recorder's phone number is located in the blue
pages of your local phone book.
ADVANTAGES OF DELAWARE:
Delaware has long been a great place to incorporate in.
In fact, over half
of the Fortune 500 companies are incorporated in Delaware.
The reasons for
Delaware popularity are many:
- The cost to incorporate in Delaware is one of the lowest
in the country.
- There is no corporate income tax for corporations incorporated
in Delaware but not transacting business in the state.
- Delaware maintains a separate corporate law court system,
called
the Delaware Court of Chancery, that does not use juries,
but only uses
judges appointed for their knowledge of corporate law.
- One person can hold all officer positions of the
corporation-president, secretary, and treasurer-and serve
as the sole
director. These names are not required to be listed in
the articles of
incorporation.
- Shareholders, directors, and officers of the corporation
need
not be residents of Delaware.
- Shares of stock owned by persons outside of Delaware
are not subject
to Delaware taxes.
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