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How To Create An LLC

A Guide for New & Serial Entreprenuers
Registered Agent Working at A Blue Coffee Shop
Tactical Steps For FILING Your LLC

A Complete Guide To Creating Your LLC

Starting a business involves developing and researching a business idea, creating a business plan, securing funding, registering the business, obtaining necessary licenses and permits, and setting up operations. It also involves ongoing financial and legal management, marketing, and growth planning.

So if you're wondering where to start, even if your question is as basic as "what does LLC stand for," you're in the right place. As you will learn, forming a Limited Liability Company (LLC) involves several steps:

  1. Choose a unique name for your LLC that's not already in use in your state.
  2. File articles of organization with your state's business registration office.
  3. Obtain an EIN (Employer Identification Number) from the IRS.
  4. Create an operating agreement that outlines the ownership and management structure of your LLC.
  5. Register with your state's tax agency and obtain any necessary business licenses and permits.
  6. Comply with all ongoing annual reporting and tax filing requirements.It's important to research your state's specific requirements and laws to ensure that you have formed your LLC correctly. It's also recommended to consult with a legal professional for assistance.

Advantages of Filing a LLC

A Limited Liability Company offers owners limited liability protection, flexible management structure, pass-through taxation, and potential tax benefits.

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Tax Benefits of a Limited Liability Co

LLCs are popular for many reasons. Among them include tax advantages such as pass-through taxation, special deductions, and flexible allocation of profits & losses.

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How Much Does it Cost to Create an LLC

It depends! The cost to form a LLC varies by state, with fees ranging from $50 to $500. Legal and accounting fees may also apply.

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Tactical Steps for Form a Limited Liability Co

Choose a name, file articles of organization, obtain EIN, create operating agreement, register with tax agency, comply with annual reporting. We'll show you the way.

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What Is a Limited Liability Company?


LLCs offer a range of flexibility and mitigate risks that other business entities cannot offer. They are also extremely simple and cost effective to form.

A Limited Liability Company (LLC) is a type of business structure that combines the liability protection of a corporation with the tax benefits and flexibility of a partnership or sole proprietorship. In an LLC, the owners, known as "members," have limited personal liability for the company's debts and obligations, meaning their personal assets are generally protected.

LLCs offer flexibility in terms of management and organization, allowing members to choose how the business is run and structured. This structure also offers pass-through taxation, meaning that the company's income is only taxed at the individual member level and not subject to double taxation as a corporation.

LLCs are typically easy to set up and maintain, with fewer formalities and requirements for record keeping and reporting. This makes it a popular choice for small businesses and entrepreneurs who want to limit their personal liability while maintaining the ability to manage their business as they see fit. Additionally, because an LLC can be easily converted into a corporation if the business needs change in the future, it offers a great deal of versatility.

Overall, the limited liability protection, tax benefits, flexibility, and ease of maintenance make the LLC a desirable choice for many small business owners and entrepreneurs.

Generally speaking, LLCs offer several advantages to business owners:

  • Limited Liability Protection
    One of the main benefits of an LLC is that owners (known as "members") have limited personal liability for the company's debts or liabilities, meaning their personal assets are generally protected.

  • Pass-Through Taxation
    LLCs are often taxed as "pass-through" entities, which means that the company's income is only taxed at the individual member level, rather than being subject to double taxation as a corporation.

  • Attractive to Investors
    The limited liability protection offered by an LLC can make the company more attractive to potential investors.

  • Flexibility
    LLCs offer flexibility in management and organization structure, allowing for the creation of a structure that fits the specific needs of the business.

  • Simplified Record Keeping
    LLCs have fewer formalities and requirements for record keeping and reporting, making it easier for owners to manage the business.

  • Versatility
    LLCs can be used for a variety of business purposes and can be structured to meet the specific needs and goals of the owners. Additionally, an LLC can be easily converted into a corporation if the business needs change in the future.

UNDERSTAND THE VALUE OF LLCS VS. OTHER BUSINESS TYPES

How LLCs Compare To Other Business Entities

A Limited Liability Company (LLC) compares favorably to other business types in several ways. Compared to a sole proprietorship or partnership, an LLC offers its owners limited liability protection, meaning that the owners' personal assets are shielded from business debts or lawsuits.

Compared to a corporation, Limited Liability Companies have more flexibility in terms of management structure and the option to be taxed as a partnership or corporation, offering potential tax benefits.

Additionally, compared to a corporation, LLCs are easier to set up and maintain. These factors make the LLC an attractive option for many small business owners who want to protect their personal assets and have a flexible, tax-advantaged structure for their business.

Business Type

Ownership

Liability

Taxes

Sole Proprietorship
One Person
Personal Liability Unlimited
Personal Taxes
Partnership
Two or more people
Personal Liability is unlimited UNLESS it is a Limited Partnership
Self-Employment Taxes (unless Limited Partnership); Personal Taxes
Limited Liability Company (LLC)
One or More People
Owners are NOT Personally Liable
Self-Employment; Personal or Corporate Tax
C Corp
One or More People
Owners are NOT Personally Liable
Corporate Tax
S Corp
One or More People, Less than 100, US citizens
Owners are NOT Personally Liable
Personal Tax
Nonprofit Corporation
One or More People
Owners are NOT Personally Liable
Tax-exempt, but corporate profits can't be distributed
CLICK THE TABS BELOW

A sole proprietorship is a cost-effective and uncomplicated option for many small business owners. There is minimal red tape involved when establishing a sole proprietorship, as there is no separation between the business owner and the business itself.

Here are some of the disadvantages to keep in mind:

  • With a sole proprietorship, the business and personal tax returns are filed together, meaning that the business profits and losses are reported on the owner's personal tax return.
  • There is no shield for the owner's personal assets in a sole proprietorship.
  • In the event of a lawsuit, creditors may seek compensation from the owner's personal assets.
  • The business and personal income and expenses are intertwined in a sole proprietorship.

The formation of a general partnership differs from that of an LLC and is subject to different regulations. The process of establishing an LLC involves completing various forms, paying filing fees, and navigating a significant amount of bureaucracy.

In contrast, a general partnership can be formed through an agreement with another person, which may be in the form of a verbal agreement (which is not recommended), a written agreement, or an implied agreement.

While this might seem like a simple and convenient way to start a business with a friend, it's important to note that there are also downsides to a general partnership.

Here are some of the disadvantages associated with General Partnerships:

  • Neither partner in a general partnership is afforded any protection for their personal assets or is exempt from liability.
  • In the event of a business crisis where only one partner is able to pay for the company's debt, that individual will be solely responsible for paying the entire amount, regardless of fairness or who may have caused the catastrophe.
  • An LLC owner has the flexibility to determine their share of profits and losses, whereas in a general partnership, the profits must be divided equally among the partners.

LLPs and LLCs are similar in many ways. Both are considered pass-through entities by the IRS and are not subject to double taxation.

Both structures provide liability protection, but there is a distinction.

In a limited liability partnership, each partner is only responsible for their own investment, so if another partner engages in wrongdoing, it does not affect your investment or assets. The laws regarding LLPs may vary from state to state and the liability parameters could differ depending on your location.

The only disadvantage of an LLP is that, by definition, it must have multiple owners. On the other hand, an LLC can have a single owner.

An S corporation is not a type of entity, but a tax status. It offers similar benefits to an LLC in terms of protecting personal assets and avoiding double taxation.

Some LLC owners may opt for S corporation status for tax purposes, which allows them to categorize their business profits into two separate categories: salary and distribution. The IRS only requires a 15.3% tax to be paid on the portion designated as salary, allowing the distribution funds to be tax-free profits.

Here are some of the disadvantages associated with S corporations:

  • S corporations are limited to a maximum of 100 owners or shareholders.
  • All owners of an S corporation must be permanent residents or citizens of the United States.
  • With only a few exceptions, other business entities cannot own an S corporation.
  • S corporations are subject to single-level taxation, with no other options available.
  • The rules for business administration in an S corporation are very strict, including requirements for regular board of directors' meetings and specific recording of minutes.

A C corporation is a wise choice for a business owner who operates globally or seeks to attract external investors.

Shares of a C corporation can be bought and sold more easily, making it a more attractive option for investors compared to an LLC.

Additionally, C corporations also offer liability protection. Click Here for more info on C Corps.

Here are some of the disadvantages associated with C corporations:

  • C corporations are subject to double taxation, paying both corporate and personal income taxes.
  • There are strict regulations regarding the administration aspect of C corporations, much as there are with S corporations. The board of directors is required to meet regularly and record what happens in their meetings in specific ways, etc.
  • C corporations are taxed at one level.

There are actually 8 types of Limited Liability Companies, and a PLLC, or Professional Limited Liability Company, is one of them. A PLLC is a type of business structure that offers liability protection for professionals such as doctors, lawyers, accountants, and architects.

It is very similar to a regular Limited Liability Company (LLC) in that it offers personal asset protection and pass-through taxation, but is designed specifically for licensed professionals who are required to operate under state licensing laws.

In a PLLC, each member is protected from the debts and liabilities of the business and from the actions of other members. This allows professionals to practice their respective fields without worrying about personal financial ruin due to lawsuits or other legal issues related to the business.

Click Here to learn more about PLLCs

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50 State Guide to Forming an LLC

The laws for forming a Limited Liability Company vary from one state to the next.

  1. Name Requirements: Different states have different requirements for the name of an LLC, including restrictions on using certain words and a requirement for certain terms, such as "LLC."
  2. Registered Agent: In some states, an LLC must appoint a registered agent to receive legal documents on behalf of the company.
  3. Filing Fees: The fees for filing articles of organization and other paperwork to form an LLC vary by state.
  4. Operating Agreements: While not required in all states, an operating agreement outlines the ownership and management structure of an LLC and is highly recommended.
Click Below To View The LLC Requirements IN Each State

Here's What Business Owners Are Saying

Business owners often express favorable views on forming a limited liability company.

LLCs offer liability protection, meaning that the owners' personal assets are shielded from business debts or lawsuits. This provides peace of mind and reduces the risk of personal financial loss. LLCs are also flexible in terms of management structure and have the option to be taxed as a partnership or corporation, offering potential tax benefits.

Additionally, LLCs are relatively easy to set up and maintain compared to other business structures. Overall, forming an LLC is seen as a smart choice for many small business owners looking to protect their personal assets and have a flexible and tax-advantaged structure for their business. It's a solid choice for most businesses.

Lisa N.
Salon Owner

"BusinessFormation.io pointed me in the right direction! I am so glad they referred us to the perfect LLC formation company."

Eliza H
Financial Services Owner

"This site was recommended to us by a mentor. We decided to take a chance as a new startup. No regrets. Time and money saved. Thanks!"

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