Like a corporation, an LLC is a separate legal entity from its owners. Both LLCs and corporations offer limited liability protection to their owners. This means that the personal assets of members or shareholders are generally shielded from the debts, liabilities, and legal obligations of the business. However, the limited liability protection of a corporation is typically stronger and more established in legal precedents.
An LLC is a relatively easy classification to obtain, and it can be a huge help if your business ever faces a lawsuit. It can also impact your taxes positively depending on how, or if, you choose to pursue federal corporate status. Look up the LLC laws in your state, seek expert help and, before you know it, you’ll have the legal protection every business needs. If your LLC consists of only you – one member – the IRS treats the LLC as a sole proprietorship. However, the LLC will be taxed as a partnership if you have multiple members. Then, depending on your specific tax situation, you may elect to tax the LLC as an S-corp.
Do I need a lawyer to form an LLC?
LLCs are popular among small businesses because they offer flexibility and simplicity. LLCs can be formed in all 50 states and the District of Columbia. An LLC offers benefits such as personal liability protection and potential tax advantages, but it is not the only option available. These may be simpler to establish but come with different legal and financial considerations. As mentioned earlier, LLCs are usually taxed as sole proprietorships or partnerships. But single-member LLCs and multi-member LLCs can choose to be taxed like a corporation.
Starting an LLC in Your State
Our extensive collection of legal topics ranges across different areas of practice. Sidestep the lawyers with do-it-yourself books, documents, and software. Most LLCs need to raise capital to get started with their business. Read about some of the more commonly-used options for obtaining funding. Find out how much it costs to form and own an LLC in your state.
What states are most popular with small businesses?
At Nolo, we prioritize quality and transparency because we know how important reliable legal information is to our readers. Our information is meticulously researched, regularly updated, and written in plain English by our experienced writers and editors. Briefly tell us about your case, and provide your contact information. Owners of a single-member LLC are not employees and instead must pay self-employment tax on their earnings. To learn about starting an LLC in your state, choose your state from the list below.
How long does it take to form an LLC?
That means the LLC doesn’t need to file a return with the IRS. However, as the sole owner, you must report all profits and losses when you file your personal taxes with the Internal Revenue Service. With sole proprietorships, the business owner—or sole proprietor—has total control over the business and benefits from pass-through taxation.
An LLC is a popular and flexible business legal structure, especially for small companies and startups. Our editors have over 100 years of combined experience practicing law. These professionals have worked in a wide range of legal areas, from estate planning to criminal law to business formation and beyond.
Instead, their profits and losses can be reported on the personal tax returns of the owners. Or, the LLC may choose to be classified as a corporation for tax purposes. A corporation is a more formal business entity involving bureaucracy, ongoing paperwork, and stricter reporting than an LLC. There are shareholders instead of members, and stock is issued to raise money.
Legal Protection and Tax Benefits
- The articles of organization are filed with the state in which the LLC is formed, along with a fee paid directly to the state.
- This approach is more common in part because most LLCs are small businesses with limited resources and they don’t need a separate management level to operate.
- A limited liability company (LLC) is a business structure in the U.S. that protects the assets of its owners from lawsuits and creditors concerned with the company’s business debts.
- A professional limited liability company runs like other LLCs but focuses on certain professions.
- However, if you plan to scale, work with clients, or want to protect your personal assets, an LLC is generally the safer and more future-proof option.
In this case, there may be advantages to forming your business as a domestic LLC in Delaware, Nevada or Wyoming, depending on your specific needs. Nevada and Wyoming have more relaxed business laws than most other states. However, unless your business is based in one of these states, your Nevada or Wyoming LLC will still need to register as a foreign LLC in the state where you conduct business.
- In some states a registered agent is known as a resident agent or agent for service of process.
- Once you have formed an LLC, your business can begin building a credit history.
- This includes rules, regulations, and provisions related to the business.
- A series LLC is an LLC whose articles of formation allow for unlimited segregation of membership interests, assets, and operations into independent series.
- LLCs can choose to be taxed as either corporations or partnerships.
- It should also be noted that an LLC is typically dissolved when a member leaves unless a clause in the agreement allows it to continue.
Pass-through taxes
LLC owners usually pay self-employment tax on their share of the business’s profits. Although this is similar to what sole proprietors pay, it can be a drawback compared to corporate structures, where only salaries (not profits) are taxed this way. Choosing to be taxed as an S corp may reduce this burden, but it comes with stricter rules and reporting requirements. An LLC, or limited liability company, is a type of business entity that a company can form by filing paperwork with the state. An LLC can have one owner (known as a “member”) or many owners.
First and foremost, the operating agreement should outline a dissolution process. Additionally, it needs to set guidelines in case some members want to dissolve the LLC, and others don’t. Unlike corporations, which have complex formation and governance requirements, LLCs can be formed relatively quickly and easily. The LLC members make major decisions, whereas the managers conduct the day-to-day operations. If you decided to open a franchised business, the franchise would be in the name of the LLC. In most states, an LLC is not required to hold annual meetings of the members, or to keep minutes of meetings.
To form an LLC confidently, and without a lawyer, use our online LLC formation service. It’s usually best to form your LLC in the state where your business is located. There are ordinarily no great advantages to forming your LLC in any other state. If you do form your LLC in a state where your business isn’t located, then you’ll llc meaning in company need to qualify to do business in your state.
Our operating agreement tool is a free resource for business owners. In a professional LLC, the limitation on personal liability does not extend to professional malpractice claims. Therefore, before forming a professional LLC it is advised to seek legal counsel. Provided there is no fraud or criminal behavior, the owners of an LLC are not personally responsible for the LLC’s debts or lawsuits. A registered agent is an individual or company in the state you’re filing that receives your official documents on behalf of your LLC.
