An llc is a legal entity that can be used for any type of business. The process of creating one varies by state but generally involves filing articles of organization, paying a fee and notifying the state of your intent to do so.
Forming an LLC is a significant step in establishing a new business and protecting your personal assets from liability. In addition to filing articles of organization, there are several other key steps you should take to make sure your new LLC is a success.
Articles of organization
Articles of organization are the legal documents that establish your limited liability company (LLC). Generally, these documents contain important information about your business, including its name, purpose, and location.
The specific requirements of these documents vary from state to state, so it’s best to consult with a business lawyer before filing them. They’ll help you ensure that your business meets all state requirements and avoid any unnecessary delays or denials.
Creating and filing an LLC’s articles of organization is one of the first steps to establishing your new business. This process can take up to several weeks, depending on your state’s Secretary of State.
To make the process easier, some states have a standard form available online that you can use to create your articles of organization. Each state has different requirements, so be sure to check with your Secretary of State’s website before filing your LLC’s articles of organization.
Registered agent
A registered agent is the person or business that receives legal notices and tax documents on behalf of a corporation, LLC or other type of business entity. Usually, the registered agent is someone you choose, such as yourself or a professional service.
The registered agent’s responsibilities include accepting and forwarding important legal mail like lawsuits and garnishments, which can lead to major consequences if your business isn’t notified quickly of a suit. This can put your company at risk for a judgment, and it could even lose its status as an LLC.
A registered agent should be a reliable and consistent individual who is physically present at the registered office during regular business hours to ensure any hand-delivered legal documents are received promptly. They should also be familiar with the governing business entity and compliance rules, have professional staff who are well-versed in how to handle and forward SOP papers and have state-of-the-art processes in place to deliver crucial documents.
Shareholders
A company needs shareholders in order to raise capital and issue shares of stock. In a corporation, these shares represent ownership of the business and its profits.
Typically, LLCs do not have shareholders but rather owners, or members, who contribute to the business. Usually, members agree to the terms of the company in an operating agreement.
In addition to ownership shares, the operating agreement may divide them into different types of membership interests. These are akin to corporations’ “common” and “preferred” shares.
This bifurcation enables the LLC to separate profits, voting rights and management decisions between members. It also provides a way to designate a member as receiving a greater percentage of profits in the event of liquidation.
Members can have a variety of roles in an LLC, such as managing the business or investing in it. However, members must be clear about how they will manage the company. Creating a well-drafted operating agreement is a good way to avoid disputes amongst members.
Taxes
When creating an LLC, it’s important to understand the taxes you’ll be responsible for. These include federal, state, and local income taxes.
LLCs are typically treated as a pass-through entity for federal income tax purposes. This means that LLC owners must report business profits and losses on their personal tax returns.
But, members can also elect to have their LLCs taxed as corporations. This can help them save on their overall taxes if the company’s profits are high enough.
If a member chooses to pay federal income tax as a corporation, they’ll be required to file IRS Form 8832 and check the box for “corporate tax treatment.” Then they’ll have to file a corporation income tax return and pay corporate income taxes on the taxable profits of the LLC.
Because the profits of a C corporation are taxed at a lower rate than the top three individual income tax rates, this can help members reduce their overall tax bill. However, the LLC will have to pay taxes on any dividends it distributes to its owners/members.
