A lot of us have small businesses and we want to make sure we are protected. Considering an LLC (limited liability company) may be imperative for your business. Determining if your business would benefit from some legal protection depends on the nature of your business.
What is an LLC?
A limited liability is a business structure that provides limited liability (similar to a corporation). It also provides a pass-through treatment of income for tax purposes, like a sole proprietorship. No need for a separate return for taxes, just reporting of profits and losses on personal income tax returns. It also protects the owner’s personal liability. This means that any claims on the business or lawsuits can only be taken out against the business assets and not the personal assets of the business owner. This protection does not extend to illegal acts committed by the owners of the LLC.
Do you Need an LLC?
The obvious advantage of an LLC is protecting your personal assets from claims against the business. The only additional taxes you need to file fall under a schedule C if you are a sole proprietor. Taxes are paid independently and you won’t run into double taxation where you pay taxes as a corporation and then at the individual level. An LLC also makes your business look a bit more professional. Having your business registered with the state makes it seem more legal and more legitimate. The filing is simple and of course the peace of mind of protecting your family’s assets from legal issues is priceless.
How to Set Up an LLC
Choose a business name that does not already exist in you state. Also, you must check the rules for your business name usage in your state, as most require you to add LLC to anything that shows your business name.
Create and file articles of organization with your state. Most states have a form for this type of filing. It usually asks basic things like the name and address of the owners and their signature.
Appoint a registered agent that is the person that represents the LLC if there are any legal issues. This person is usually the owner of the LLC.
Pay the required fees to register your LLC and note that it could be as little as $100 or up to several hundred dollars depending on the state.
Some states also require you to register your LLC and publish a notice of intent to create an LLC. The local newspaper should be aware of this process and be able to help you.
Create an LLC operating agreement that is probably the most complicated part of an LLC. This document spells out the rights and responsibilities of each owner of the LLC. It is similar to corporate bylaws and gives information on how management of the LLC will work. It should provide owner’s rights and responsibilities. The document can be as detailed as you want or need it to be.