The Limited Liability Company commonly referred to as LLC originated in Germany in the 1890’s variations of the German LLC model other countries throughout Europe began passing legislation allowing for the formation of the Limited Liability Company.
Wyoming was the first state in the America to enact legislation allowing for the formation of the LLC. That was in 1977, today every state has passed legislation allowing for the formation of the LLC and it has quickly become the most popular entity choice of small business owners.
The LLC appeals to the business community because it requires less maintenance than a corporation and allows for flexible ownership agreements because unlike the corporation ownership is based on percentages not shares. Owners of an LLC are referred to as members.
The guiding document that governs the LLC is called an Operating Agreement and is generally drafted by the members upon the initial post filing meeting. The Operating Agreement typically lists the members, percentage of ownership and other guiding provisions that will determine how the company will be managed. The Operating Agreement is essentially a private partnership agreement between the members and is not filed with the state.
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 multi-member 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.
Unless you plan on having a large, multi-state operation, it is generally best to form your company in the state in which it is located.
Generally speaking, most states will expect you to be registered with them if there is substantial ongoing business and/or a physical presence in that state. If you do form your company in a state other than the one in which your company is located, you may ultimately need to register your company as a foreign (out of state) company with your home state, which will subject you to all of the fees, taxes, and regulations of that state.
Many forms of business entities exist, but all pay taxes although there is no way to avoid them, your decision upon choosing a business entity will have differing tax ramifications. The IRS will treats sole proprietorship's, LLC's and corporations differently when it comes to paying taxes on profits. If the LLC is a single member LLC, the payment of taxes is the same as for a sole owner where an LLC with multiple members will be taxed as a partnership.
The first step is to determine the taxation status of the LLC. The best way to do this is by calling the IRS and asking them what type of taxation they have on record for the LLC. In simple terms if you are the only owner, you will treat the company taxes as if you were a sole proprietary business. If there are multiple owners, then the taxes on profits become the liability of the individual partners. The expenses and profits all divide between the partners based on the percentage of the business that they owned.
Track all the relevant profit, costs and expenses on Form C for business income as if you were a sole owner. The Limited Liability Company is required to issue a Form K-1 which stipulates the percentage of income for the LLC that each member is required to report and pay taxes on. This percentage also applies to the costs and expenses of operating the business. Payment of taxes for an LLC is similar to the payment of taxes for an LLC is very similar to that of an S-Corporation in that the profits will flow through to the individual tax returns of the members in the case of the LLC or share holders for S-Corporations.
You must submit your tax returns to the IRS by the deadline for the year in which the taxes are due. The tax forms for an LLC have the same filing date as a normal taxpayer or other self-employed taxpayer. File estimated taxes due with the return. There will be penalties and interest on the unpaid balance of tax due. You are allowed to call the IRS in order to make arrangements for a payment schedule.
No, it does not. An attorney is not a legal requirement to form a Limited Liability Company. While we always recommend consulting the appropriate legal and accounting specialists, we can take care of the filings for you and save you the attorney fees.
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.
An LLC 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 an LLC are afforded limited liability similar to shareholders of a Corporation and have pass-through taxes comparable to a partnership.
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.
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.
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 multi member 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 or E). 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.
There are no citizenship or residence requirements for ownership of a C Corporation or an LLC. The S Corporation however does not allow nonresident aliens to be shareholders (owner), but any US citizen or resident alien may be a shareholder (owner). You would, of course, require an in state street address for the state to forward official legal and tax correspondence including service of process, known as the registered agent address, but neither residency nor citizenship is required for ownership of a C 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 (with the exception of New York), although it is certainly recommended. When dealing with private companies for financing issues (loans, mortgages, etc.) it may be required by that company. A customizable operating agreement is included with the LLC/Corp Kit.
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 LLCs. 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 LLC is governed by the state statutes and legislation written to define it. Every state has its own special provisions, rules and governing agencies assigned to oversee incorporated entities. State filing fees, annual report obligations and tax liabilities vary. It is important that you are familiar with the specific nuances and statutory requirements in your state.
Select a state in the drop down menu to obtain more information about filing for an LLC in your state of incorporation:
One of the distinguishing features of the LLC is that the income of the company will flow through to the personal income tax returns of the individual members meaning that the company does not pay taxes on a corporate level.
Single Member LLCs.
Generally when an LLC has only one member, the fact that it is an LLC is ignored or “disregarded” for the purpose of filing a federal tax return. This is only a mechanism for tax purposes. It in no way changes the fact the business is legally a Limited Liability Company.
If the only member of the LLC is an individual, the LLC income and expenses are reported on Form 1040, Schedule C, E, F.
Multiple Member LLCs
Most LLCs with more than one member file a partnership return, Form 1065.
Every new order is reviewed for accuracy and conformity to state filing guidelines.
A thorough name search is conducted with the state to ascertain the availability of the company name.
Articles of Incorporation / Organization are prepared and delivered to the governing state agency.
The filed articles along with any additional services are mailed to the client.
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