The full form of LLC is Limited Liability Company. An LLC is a legal entity that protects your personal assets, if your business is sued.
An LLC is a legal entity (the business structure) which is created by state law. An LLC is used to run a business (or) it can be used to hold assets such as vehicles, real estate, boats or aircraft.
The owners of an LLC are called the Members.
If an LLC is owned by one person, then it is called a Single-Member LLC.
If an LLC is owned by 2 or more people, then it is called a Multi Member LLC.
The LLC is created by filing LLC formation Documents with the State and paying the required filing fee.
Why Form an LLC?
The main reason to form an LLC is to Protect the Personal Assets.
Forming an LLC means, you are creating a protective wall between your business and personal assets.
Your personal assets includes everything that you own: home, cars, bank accounts, investment properties, jewelry etc.
An Attack on Assets, if your LLC is sued:
If your LLC is sued, then the creditors can attack on the assets of your LLC only to settle the business debts and liabilities.
Your personal assets are safe and secure. The Personal Assets are not considered a part of the business.
Without forming an LLC, if your business is sued, then your personal assets are at risk.
LLC vs Corporations:
The differences between LLC and Corporation are as follows:
- LLCs don’t have to elect a board of directors, but Corporations can have elected board of directors.
2. LLCs don’t need to hold board meetings, but Corporations should hold the board meetings.
3. LLCs don’t have to keep records of all their meetings, but Corporations do.
4. LLCs are not subject to double taxation. Corporations are subject to double taxation.
5. LLCs can distribute profits however they want; Corporations can’t distribute the profits.
LLCs are Inexpensive to Setup
You will have to pay a one-time filing fee to form an LLC.
The LLC formation fee is not expensive when compared to forming other types of business entities like a Corporation.
If an LLC is not setup, then losing your personal assets is more expensive.
Even if your state has higher filing fees, it is well worth the assurance to protect your assets.
LLCs Are Low Maintenance
Once your LLC is setup, there are few requirements to keep it active.
The first requirement is to send your LLC Annual Report to the state. Not all states require the Annual Reports.
The second requirement is to file your state taxes and local taxes.
The third requirement is to file a form, if you change your address.
How to Form an LLC
1. Choose the desired name for your LLC.
2. Prepare your Articles of Organization, Certificate of Organization. You can file by mail or file online with the Secretary of State and pay the state filing fee.
3. Wait for few business days to get the approval for your LLC.
The basic steps to start LLC are Operating Agreement, Federal Tax ID Number (EIN), and Annual Report.