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but what is an llc?
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basic Process
Getting your LLC is not hard. Question is, is an LLC the right structure for your business. Here are a few things to consider:
1. Single Member LLC
Like the title suggests, this option (which is available in every state) is an formation where there is only one owner: you. Because of the pass-through taxation of the LLC, this formation is not unlike a Sole Prop. Since this is a relatively new type of LLC, case law (precendent) is underdeveloped when compared to Multi-Member LLCs.
2. Multi-Member LLC
The usual formation of the LLC: there are multiple owners, as made clear in the initial operation agreement — and with the ability to bring on additional investors as owners. This is the typical (and likely best) structure of the LLC.
With this option, you can choose (per the operating agreement) to be either member-managed or manager-managed.
There are options in the LLC structure that aren’t available to C-Corps or S-Corps.
LLCs are great for many types of businesses: real estate, estate planning, software company, entertainment company, and many more.
3. Manager-Managed
A manager-managed LLC is managed by an appointed manager or managers — either someone outside the company or someone within the company — a fellow owner.
More on this distinction below.
4. Member-Managed
A member-managed LLC is managed by the owners of the company. Simple as that.
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more about llcs
How are LLCs formed?
LLCs are formed through states (not federal) and every state has different requirements. For the most part, you must file what are called ‘Articles of Organization’ with the Secretary of State.
Articles of Organization typically include:
– The name of your LLC.
– Business Address.
– The members (owners) of the LLC.
– Type of business (nature of the business).
– Name and address of the LLC’s registered agent.
(When we help you get your LLC, we act as your registered agent).
Again, every state has slightly different requirements for filing.
Operation Agreement
Since LLCs have many options–from management structure to tax structure to pay structure–you typically create what’s known as an ‘Operating Agreement.’
This agreement will cover how profits (and when) are allocated, as well as what responsibilities belong to each member.
This operating agreement will also explain how members can sell his/her interest in the company.
As well as how disagreements are to be resolved.
When it comes to drafting operating agreements, it’s advised to consult an attorney.
Benefits of LLCs
Include multiple options for taxes (as explained below) as well as liability protection.
These are the main draws of the LLC.
Like C-Corps and S-Corps, LLCs are perpetual.
3 Benefits To An LLC
1. Pass-Through Taxation
Single-member LLCs don’t have to file any tax forms–as they are taxed as sole-proprietorships. Business income or loss shows on your (Schedule C) personal tax forms.
2. C-Corp Tax Structure
By filing Form 8832 with the IRS, LLCs can opt to be taxed as a C-corp. In this type of tax structure, the taxed don’t pass-through. In other words, the LLC is taxed — as well as the dividends drawn by the members.
3. LLC As An S-CORP
In this type of tax structure, the LLC owners receive a tax based on their shares in the company’s profits. In this scenario, they don’t have to pay self-employment tax (which has to be paid with the sole-proprietor tax setup).
Still not sure if an S Corp is right for you?
Talk to one of our specialists to answer any specific questions.