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What is an LLC?

WHAT IS AM LLC? LLCS (Limited Liability Companies) are becoming a more popular business entity for new companies. The LLC combines the limited owner liability of a corporation with the tax efticiencies and flexibility of a partnership. Here, we take a look at what it is and how it compares to other business entities. KEY FEATURES TAXES DEBT THE BOOKS OWNERS TAXES LIABILITIES RECORDKEEP ING MANAGEMENT Owners of LLCS are called members. Members can be individuals, companies, or foreign By default, an LLC is not taxed as a busi- Members are typically not directly liable for the debts of an LLC. LLC operation is flexible like a LLCS are required to submit annual state reports but aren't required to hold annual shareholder meetings. ness entity. See "Taxing the LLC" for more information. partnership. An operating agreement isn't required but is entities. recommended. TAXING THE LLC However, LLCS must be clas- To the federal Instead, federal income taxes sified as a corporation, part- government, an LLC is not a are passed through to mem- nership, or sole proprietor- separate tax entity, so the bers and paid through their ship by the appropriate business itself is not taxed. personal income taxes. annual return forms and file the appropriate return. WEIGHING THE PROS & CONS Compared to corporations, partnerships, or other business types, LLCS have a few key advantages and disadvantages. ADVANTAGES DISADVANTAGES • Owners subject to • Fewer ownership restrictions • Limited owner liability • Less recordkeeping • Better profit-sharing • Tax flexibility self-employment taxes • Limited life if a member leaves • Higher taxes and fees in some states • Fewer benefits like group medical insurance BUSINESS TYPE BREAKDOWN LIMITED Take a closer look at how an LLC compares to other business type options. GENERAL SOLE PROPRIETOR LIABILITY PARTNERSHIP CORPORATION CORPORATION COMPANY CAN HAVE UNLIMITED NUMBER OF OWNERS CAN HAVE FOREIGN OWNERS CAN BE OWNED BY ANOTHER BUSINESS OWNERS HAVE LIMITED LIABILITY FOR COMPANY DEBTS OWNERS CAN REPORT BUSINESS PROFITS/LOSSES ON PERSONAL TAX RETURNS OWNERS CAN SPLIT PROFITS/LOSSES WITH BUSINESS BUSINESS DURATION CAN BE PERPETUAL NOT REQUIRED TO HOLD ANNUAL MEETINGS ... CREATED BY STATE-LEVEL REGISTRATION MAY ISSUE SHARES OF STOCK SETTING UP AN LLC IN 8 EASY STEPS EN-A-M-t= HARANF CHOOSE A NAME The business name should follow these three guidelines: GET REGISTERED s require • Must be different from an existing LLC in the state Some states r more registration forms than others. Must indicate it's an LLC • Must not include wor by your state (such as "bank" or "insurance") ds restricted DRAFT AN OPERATING AGREEMENT OPERATIO GET LICENSES AND PERMITS Though not required in all states, they're recommended. Include the following details: You'll need different business licenses and permits based on the industry, state, and locality once the business is registered. • Members' percentage ownership • Roles • Rights and responsibilities 5 SEEK A LAWYER'S APPROVAL 6 GET IT IN WRITING A lawyer isn't required to set up an LLC in most cases, but it's good to have one look over paperwork and the agreement. RECORD KEEPING Document major proceedings or procedures (such as an annual meeting) to help protect LLC status. ANNOUNCE YOUR BUSINESS 8 LEARN THE FEES Stay up-to-date on what you can expect to pay in taxes and annual fees, which can vary dramatically by state. Work with an accounting professional to help you stay on top of everything. Some states require LLCS to publish a statement of formation in the local newspaper. intuit. SOURCES: WALL STREET JOURNAL, SBA.GOV. IRS.GOV, INCORPORATE.COM, LEGALZOOM

What is an LLC?

shared by Ariela on Jan 22
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What a limited liability corporation is and how it stacks up to other kinds of corporate entities.




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