A limited liability company (LLC) is a form of business entity that is separate and distinct from a person, like a corporation. The LLC is often described as hybrid between a corporation and a partnership (or sole proprietorship). It allows for the limited liability protection similar to that of a corporation (i.e. your risk is limited to the amount that is invested in the LLC, and personal assets beyond that are usually protected). It also allows for a more flexible setup and operating structure than a corporation while providing the pass through taxation of a partnership (if a multimember LLC) or a sole proprietorship (if a single member LLC). One of the main advantages of an LLC over a Partnership or a Sole Proprietorship is the Limited Liability protection.
There was a time when almost every state required the LLC to have two or more members, but that is no longer the case. This important change came in response to revised IRS regulations that clearly permitted single-member LLC's. As a result, in most states, if you plan to be the sole owner of a business and you wish to limit your personal liability, you can choose between forming a corporation or an LLC.
The operating agreement is akin to a partnership agreement for a General Partnership or Limited Liability Partnership (LLP). It is an internal contract amongst the members/owners of the LLC, and it lays out such things as ownership interest, member responsibilities, accounting method, adding or removing members, terms for concluding the LLC, etc. It is generally not required by a given state for forming an LLC, although it is certainly recommended. When dealing with private companies for financing issues (loans, mortgages, etc.) it may be required by that company. A sample operating agreement is included with the LLC / Corp Kit.
For federal income tax purposes the profits of an LLC (Limited Liability Company) “pass through” to the personal income of the members/owners. In the case of a single member LLC it is taxed the same as a sole proprietorship (i.e. typically filed on the schedule C of the owner’s personal income tax filing). In the case of a multimember member it is taxed the same as a partnership (i.e. a 1065 partnership return is filed with the IRS, with a schedule K-1 being supplied to each partner/member showing the proportional profit/loss allocated to them, with this being filed on the schedule C). NOTE: These are general tax explanations and may not apply to everyone. You should confer with the appropriate accounting/tax specialists to make sure you understand your personal tax liability.
An LLC is typically managed by its members/owners (referred to as member-managed). In that respect an LLC is unlike a corporation, which has a much more rigid and defined management structure, including directors and officers. All owners of the LLC are typically referred to as members, and they can have control and voting interest proportional to their ownership interest, or in proportions different from their ownership interest; however the members agree.
NOTE: An LLC can be also be managed by managers (referred to as manager-management). This makes the LLC operate similar to a Limited Liability Partnership. The vast majority of limited liability companies are member-managed. A manager-managed has important tax ramifications and should not be entered into without consulting with the appropriate tax and legal professionals.
While meetings may frequently be necessary and proper to discuss a variety of LLC issues, they are not required by the state to have and maintain an LLC as they are with a corporation.
A limited partnership consists of at least one general partner and one limited partner. The general partner is potentially liable for all the obligations of the partnership. The limited partner has limited liability. Limited partners may jeopardize their limited liability status if they actively participate in the business of the partnership.
A limited liability company consists of one or more members which may be individuals, partnerships, limited partnerships, trusts, estates, associations, corporations, other limited liability companies or other business entities. The members of a limited liability company are afforded limited liability similar to shareholders of a corporation and have pass-through taxes comparable to a partnership.
If you already have an EIN, and the organization or ownership of your business changes, you may need to apply for a new number. Some of the circumstances under which a new number is required are as follows:
• An existing business is purchased or inherited by an individual who will operate it as a
• A sole proprietorship changes to an LLC, corporation, or partnership,
• A partnership changes to an LLC, corporation, or sole proprietorship,
• A corporation changes to an LLC, partnership, or sole proprietorship,
• An LLC changes to a corporation, partnership, or sole proprietorship,
• An individual owner dies, and the estate takes over the business.
Although we perform a name search for your company before we file it with
the state, the company name is not official until it has been accepted and filed by the
state. We cannot recommend making any business or financial decisions based upon the company
name until it has officially been accepted and filed by the state.
If your first name choice does not appear to be available, we will automatically proceed to the second name choice. If neither is available, we will contact you to for further instructions. The alternate name is not a required field; if you are not certain that the alternate name will be acceptable to you then please leave that field blank.
Due to the fact that the EIN is filed with the IRS in the name of the company, we have to wait until the state officially forms your company and we receive the official filed documents from the state in order to electronically obtain your EIN. Once we have received your documents from the state we will immediately obtain your EIN electronically and forward everything to you, ASAP.