The Limited Liability Company or LLC is not a partnership or a corporation. Limited Liability Company (LLC) is a relatively new business structure allowed by state statute. 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.
Limited liability companies, or LLCs, are becoming more and more popular, and it’s easy to see why. The Limited liability Company (LLC) provides the desired limited liability while avoiding some of the drawbacks (like double taxation and excessive paperwork). They combine the personal liability protection of a corporation with the tax benefits and simplicity of a partnership. In addition, they’re more flexible and require less on going paperwork than corporations.
Owners of an LLC are called members. Since most states do not restrict ownership, members may include individuals, corporations, other LLCs and foreign entities. There may be unlimited number of members. Most states also permit “single member” LLCs, those having only one owner.
Member owned LLCs 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.
Why should I form LLC?
If you have made up your mind to start your own business, you will need to figure out which type of business entity you want to set up. One of the most popular business entities is the LLC, which has many advantages and benefits. Set up an LLC can protect your personal assets, reduce your taxes and save your time and efforts in filing excessive paperwork. Formation of LLCs are preferred because they combine the limited liability protection of a corporation and the pass through taxation of a partnership.
What is the difference between single member or multiple members LLCs?
Generally, Limited liability Company (LLC) can be formed with unlimited numbers of shareholders. In such a case it is called multiple members LLC. Nevertheless, most states also permit “single member” LLCs, those having only one owner. A single-member LLC is taxed as a sole proprietorship, while a multiple-member LLC is taxed as a partnership.
Advantages of LLC formation
The Limited Liability Company, or LLC, is a relatively new type of business structure that combines the best features of the corporation with those of the sole proprietorship or partnership. Starting an LLC provides its owners many advantages and benefits which they can not enjoy altogether in any other type of business.
Personal liability Protection:
LLC is separate entity from its owner. Since it is viewed as a legally distinct entity, the personal assets of the owner (such as personal residences, and personal bank accounts) are not reachable by business creditors. 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.
The popularity of LLC filing is primarily based on the Tax Advantage. 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. An LLC operates in most ways as a corporation, yet the distributions to its “members” (shareholders) are not subject to taxation at the corporate level. Instead, the distributions are “passed through” the corporate level and are taxed only at the individual level. Therefore, the LLC filing avoids “double taxation”.
Ease of Transfer
Starting LLC also gives you opportunity to sold ownership interests to third parties without disrupting the continued operation of the business. On the other hand, selling interests in a sole proprietorship or general partnership requires much more time and effort. An owner must individually transfer assets, business licenses, bank accounts, permits and other legal documentation.
No Ownership restrictions:
LLC formation also allows you to retain any number of members. By comparison, S-corporations cannot have more than 100 stockholders, and each must be a resident or citizen of the United States. None of these restrictions apply to an LLC.
Easy Generation of Capital:
If you create LLC, you have more options available to raise capital. You can admit new members by selling membership interests. You can even create new classes of membership interests with different voting or profit characteristics.
It offers greater credibility:
As a registered LLC, your business will enjoy legitimacy and greater credibility when dealing with other companies, banks and potential partners.
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.
How to Form a Limited Liability Company (LLC)?
After you decide to form an LLC, articles of organization must be filed with that state and initial fees must be paid. After your articles of organization are filed, your LLC should have an organizational meeting where an operating agreement is adopted, interest certificates are distributed, and other preliminary matters are completed. LLC kit includes all of the information and paperwork to make this process easier.
A few states require notice to be published in a newspaper that an 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).
Federal Tax ID Number:
A federal tax identification number, also known as an employer identification number or EIN, is basically a social security number for businesses. It is the number the IRS uses to identify the business, and it must be included on tax filings the business makes. Infotax Square can assist with the preparation and/or obtainment of your company’s tax ID number. If you operate your business as a sole proprietorship or partnership and are now looking to incorporate or form a limited liability company (LLC), you must obtain a new EIN for your business.
Members in 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.
Can a corporation be a member of LLC?
Yes, A corporation can be a member of an LLC. This allows you to create an additional level of ownership, which is designed to create an entity that can offer such traditional fringe benefits as retirement plans and an additional level of protection from liability
Where should I set up LLC?
LLC should be formed in the state in which it operates. An LLC is formed by filing Articles of Organization with the state in which you will be doing business.
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