Limited Liability Company (LLC):     

 

What is a Limited Liability Company (LLC)?:

Is a relatively new form of business structure which blends the traits of a partnership with that of a corporation.

This structure allows limited liability similar to corporations. However, it has the benefit of pass - through taxation. What this means that owners or members will declare their share of profits or losses in the company on their personal tax returns. The Internal Revenue Service (IRS) does not assess taxes directly on the company.

There are many other advantages to choosing a Limited Liability Company (LLC) business structure. One of the major perks in the Limited Liability Structure is that it allows unlimited members, you are not limited to 2 or 3, you can have as many as you choose.

Choosing to form a Limited Liability Company also allows the members to decide on the profit distribution structure among the members or owners. Forming an LLC shows potential customers, vendors, lenders and partners that you have made a formal commitment to your business. This may help you to establish credibility which is important in building a good client base and securing the future business.

Forming an LLC business allows limited personal liability for obligations and debts that result directly from the company. Owners or members are not all required to be US citizens or permanent residents of the United States.

The LLC business structure allows flexibility in management unlike corporations which have officers who manage the day-to-day affairs and a board of directors who oversee the major business decisions of the company. Record keeping is simple, monthly meetings are not required and minutes do not have to be taken.

Limited Liability Structured Businesses may have some disadvantages as well. LLC businesses cannot be taken public if the business proves to be a huge success, therefore it cannot be listed on a stock exchange. There is no stock involved in Limited Liability Company business structure therefore it could never be listed.

In order to form an LLC, Articles of Organization must be filed with the state in which the LLC is being formed and the state filing fees must be paid. Some States require ongoing fees, such as franchise tax fee and an annual report fee.

Often these fees are to accompany an application, such as application for reservation of name, application for registered name. These fees are not expensive however, Limited Liability Company start-up is more expensive than that of a partnership or sole proprietorship, by which you are not required to file formation documents with the State for these business structures. There are a few States, such as Arizona, and New York that also require LLC owners to publish a public notice of the LLC formation for several weeks in local newspapers. This can be expensive.

In Some states, a certificate of good standing or certificate of existence may be issued for a business. This is certificate is provided by the designated authority in the state to verify that the a corporation does exist, has paid all of the required fees, met all of the requirements to operate and conduct business transactions in that State.

Ownership in an LLC can be harder to transfer than with a corporate structure. Corporations, have shares of stock can be sold to increase ownership. With the Limited Liability Company, all owners must agree to allowing additional new owners or changing the ownership percentage and profit structure.

Limited Liability Company Structure is a newer business structure, therefore, there is not as much legal precedent or case law for this type of businesses structure as there is for other business structures. You should contact your lawyer or accountant about the advantages and disadvantages of forming a LLC in your state and for your specific business.    

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