A limited liability company, also known as an LLC, is a business structure that has features similar to both corporations and partnerships. LLCs protect owners from certain liabilities, including business debts, while the legal structure allows for a flexible management arrangement. This section includes an overview of limited liability companies, a comparison between LLCs and corporations, tax information, and resources to help you craft an LLC operating agreement and file your articles of organization and more.
LLC Formation Requirements
Each state has their own laws surrounding how to start an LLC. Your first step is to understand those rules and regulations and determine if an LLC is right for you. Typically speaking, you'll want to choose a business name and then learn whether that name is available. Some states require you to have the words "Limited Liability Company" in the title. You may also need to prepare and file Articles of Incorporation, prepare an operating agreement, obtain any necessary business licenses, and more.
Setting up an LLC Business Bank Account
One of the biggest advantages of forming an LLC is that members aren’t personally liable for the debt and liabilities of the business. But this isn't always the case if you and your partners commingle personal and business funds. If your LLC is sued and you can't demonstrate separateness between business and personal finances and expenses, you and your partners may become just as liable for the debts and liabilities of the business as is the LLC. Setting up an LLC bank account adds a layer of protection for members of the LLC.
Will I Need a Business License to Operate an LLC?
The short answer is, "it depends." Depending on the type of business you will be operating, you may need to obtain a combination of federal, state, and local licenses in order to legally set up shop. Businesses requiring a federal license usually involve interstate commerce such as trucking, agricultural products, alcohol, aviation, firearms and weaponry, fish and wildlife, maritime transportation, mining or drilling, nuclear energy and broadcast communications. Those professions requiring a state license run the gamut from doctors and lawyers, to teachers. Finally, there are a plethora of local licenses you may have to obtain depending on the nature of your LLC such as operating a food establishment.
One of the key benefits of forming an LLC is pass-through taxation. With pass-through taxation, business partners pay taxes on all business profits on their individual tax returns. Essentially the business income "passes through" the business to the owners' tax returns. Each member will have to report their share of profits and losses, but this structure assures the member will avoid double taxation.
Seeking Professional Help from a Business Attorney
Every state has different laws regarding the formation of an LLC. Understanding the basics and seeking help from a legal professional when you need it can save you time and money later down the road. A business attorney in your area can help you with matters such as how to name your LLC, assistance with drafting a buyout agreement, understanding the tax implications of your LLC, and more.