There is a lot of legal know-how to sort through when you are starting a new business. You will need to decide what exactly you want this new organization to be, and one option available to you is a limited liability corporation. There are some key differences between an LLC and other organizational structures, so be sure to learn more about them.
1. Question: What Is a Limited Liability Corporation?
With an LLC, you get the limited amount of liability that comes with a corporation, but it is combined with pass-through taxation that you would generally get with a sole proprietorship. Owners of LLCs report business losses and profits on their own personal income tax returns. The great thing about the limited liability aspect of such an organization is that if the business is facing a lawsuit or owes money, then only business assets are at risk. You, as the owner, will be off the hook, so creditors would be unable to go after your personal assets.
2. Question: Who Should Consider Forming an LLC?
LLCs are ideal for business owners who want to limit their personal exposure in case debts or lawsuits arise with their business. Commercial liability insurance may not entirely protect you in the event someone gets hurt on your premises, so having an LLC can prevent people from going after your personal assets. However, not every business can form an LLC. Businesses in the insurance and banking industries, for example, cannot be LLCs. Certain states have further limitations on what businesses can file to be LLCs, so do research into your own area to see if doing so is permitted.
3. Question: How Many People Need to Be Involved to Form an LLC?
There is no minimum you need as far as business owners in order to turn your business into an LLC. You should be able to form an LLC even if you are the only owner. However, you need to be mindful of how you document everything or else your business may be viewed as a sole proprietorship.
4. Question: How Do You Form an LLC?
Regardless of the state you reside in, you should only need to follow a few steps to get your LLC. First, you will need to decide on a business name that is not currently taken and abides by your states rules for LLCs. Once you have settled on a name, you will need to submit all the proper paperwork. This includes your Articles of Organization, and you will also need to pay a fee. After that, you may need to create an operating agreement, which states how you will operate your LLC. This includes laying out all the responsibilities and rights every LLC member has. Finally, you will need to inform your area that your business has become an LLC or is taking steps to become one. This usually only requires you to publish something in your local newspaper.
5. Question: Can You Change Your Business to Be an LLC Even If It Is Currently Something Different?
If your business presently operates as a partnership or sole proprietorship, then you are still able to alter it to be an LLC. This happens all the time and is typically desired when the business grows or the business owner acquires more personal assets. Some states make it easier to transfer than others, so look at what forms you need to fill out in your area. Creating an LLC is often a wise business decision, and you can usually get all your paperwork collected without the assistance of an attorney. If you are unsure if an LLC is right for your business needs, then do some additional research to learn more about it.