An LLC, r limitd liability mn, i a type f business structure. Whn you frm an LLC, u gt the bnfit f -thrugh taxation lik youd hv with a l rritrhi r partnership lng with th limitd libilit f a rrtin. Fr m buin owners, its the best of bth worlds rviding imliit nd rttin.
Wht D LLC Stand Fr?
LLC Stands for Limited Liability Company.
Wht Does LLC Mean?
LLC mn limitd liability mn, whih is a t of business trutur tht rtt the wnr from th liabilities f the business.
Hw Does an LLC Work?
An LLC operates with features frm bth corporations and l proprietorships r rtnrhi. It i a -thrugh ntit fr tax ur, mning th buin doesnt fil a rt tx return. Even though an LLC i gnrll ir to n and manage than a traditional corporation, thr are till rtin ruirmnt. Th requirements include th rtil of organization and th operating grmnt. Yu huld work with a buin lawyer to create and fil bth of these important dumnt.
Th Artil f Orgniztin
The articles of rgniztin tblih th mn a rl, legal company. It l outlines wh th wnr and mngr are as well the rgitrd gnt. Thi document l describes wht th business is in brd trm.
The Orting Agrmnt
Yu huld hk with ur tt nd if an rting agreement i required b lw r nt. If it nt, u huld till draft n because it will help ur buin futur operations. The operating grmnt dtil th members rnibiliti and duti. It l brk dwn th rntg f wnrhi, transfer f intrt, hw th company m b dilvd, nd th itl ntributin ruirmnt.
Th transfer f interests is rtiulrl imrtnt bu it dictates how mmbr can be ddd t r rmvd frm th LLC. When it comes to ling dwn the business nd dilving th LLC, th operating agreement i ntil. It will tt hw the t huld b dividd, hw mntin wrk fr any dbt th mmbr gurntd, nd how itl contributions should b rturnd. To ut it simply, t rt withut n rting agreement is nt nl flih, but it could u a lot f rblm in the future.
Cn I Start an LLC in An Stt?
Yu n trt n LLC in n state. Hwvr, in most , u huld start n LLC in ur hm tt to v mn and prevent rgitrtin a frign LLC. Thr are m situations in which it makes mr sense for u t trt n LLC in a state thr thn ur home tt. You huld consult with a business lwr t determine if it mk sense fr you t start n LLC in any state thr thn ur home state.
Wht is a Singl Mmbr LLC?
A ingl member LLC is n LLC that has only n mmbr. Thi huldnt b confused with a sole rritrhi tht int treated as a rt ntit. While a ingl member LLC i rt from it wnr, it is uull trtd as a disregarded ntit fr inm tx purposes, mning u file taxes fr th LLC on your rnl rturn. Sm tt dnt llw th frmtin f a ingl mmbr LLC, so u huld check with ur tt lw to if thi i even an option.
In some cases, u may think hing a spouse i a good id t avoid a ingl member LLC. Yu huld knw tht the IRS nd th urt will likely till consider u a ingl member. If you did t frm a single mmbr LLC, it ritil tht u k the business rt frm yourself. This means detailed rrd nd finn tht dnt intrtwin with ur wn. Youll l wnt t keep detailed mting minut nd n mjr diin u make.
LLC Prtnrhi Agrmnt
An LLC rtnrhi agreement is another name fr an operating grmnt fr multi-member LLC. It tblih mmbrhi, h mmbr right and rnibiliti, nd rviin fr running the company. Thr r m tt tht dnt ruir an LLC partnership agreement, but it nt mthing u should skip if u wnt your buin t run mthl. Sm f th mt imrtnt things t include in n LLC rting grmnt r:
- Diin mking responsibilities. Yur dumnt huld utlin hw diin r md (is it a unnimu vt r a percentage?), whn ll members huld b invlvd in decisions, and wh h the responsibility (nd hw much) of mking diin.
- Capital contribution. Thi tin tt hw muh h rn ntribut to trt th buin. Th section huld l diu wht hn if th business dnt hv nugh mn in th future.
- Slri nd ditributin. Yu huld if whn mmbr n tk mn ut of th buin nd if mmbr are rid fr th investments they mk int th business.
- Death nd disability. Wht hn if a mmbr di or bm dibld? Yur wn rnl trusts and will huld if thi, but it a gd id to put it int th grmnt. In m tt, the LLC dissolves un a mmbr death, so you huld hk th lw of your tt.
- Dilutin. Your grmnt huld tell how the buin n b dilvd in the futur. Thi i lld ur xit trtg nd h rtnr should nidr what th wnt in th vnt tht th dnt wnt t participate in the buin nmr.
Wh Strt n LLC?
Individul choose to trt n LLC bu it n ir way t form a legitimate, rt buin and it provides rttin fr its wnr. Starting an LLC i a rnl diin, but it is a ulr hi bu it t trt and maintain. LLCs ruir l rwrk t trt thn a traditional rrtin and th r ir to mng.
In most cases, n LLC fil tx a pass-through ntit intd of a rt rrtin. Thi means tht members can fil thir buin tx n thir rnl tx rturn intd f a separate filing. In dditin t requiring l rwrk to gt started, LLC ruir l rwrk nd work in gnrl to k your LLC mlint with the law. Strting n LLC is a great hi if u want t frm a mr legitimate business, but dnt want th hl of forming nd king u with a rrtin.
Hw D Yu Bm an LLC?
Yu can bm n LLC b choosing a nm fr ur business, filing specific documents, paying th ruird f, rting n rting agreement, btining n EIN, nd ling fr n necessary rmit and licenses. A buin lawyer n help u thrugh h step of th process to mk sure u r mlint with all lw and ruirmnt.
I an LLC a Partnership?
An LLC can b a rtnrhi with a multi-mmbr rting grmnt. Fr inm tx purposes, an LLC with at least tw mmbr i considered a partnership. If u dnt wnt t b a rtnrhi, you mut fil Frm 8832 nd lt t b trtd a corporation. A ingl mmbr LLC int a rtnrhi, but a disregarded entity fr tx ur unless Frm 8832 i filed.
T be trtd a rtnrhi whn ur a multi-mmbr LLC, u dont hv t d nthing. A rtnrhi i th dfult lifitin. If you bgin ur LLC a partnership and ltr want to change t b trtd a rrtin, you n fil th m Form 8832 t change ur classification.
What i Partnership LLC?
A partnership LLC i n LLC with at lt tw mmbr tht hasnt elected to be trtd a rrtin. A rtnrhi LLC is th dfult state fr n LLC with tw r more mmbr. Th LLC n h to b treated as a rrtin b filing Frm 8832. Whn it comes t taxes, a rtnrhi LLC follows the same rul a trditinl partnership. Th LLC should file Frm 1065, whih i th U.S. Rturn f Prtnrhi Income. Additinll, h wnr will use Schedule K-1 t hw their hr f th LLC.
I n LLC a Crrtin?
An LLC n b a corporation if it fil Frm 8832 t elect to b treated as a corporation. B dfult, n multi-mmbr LLC is nidrd a partnership. T b nidrd a corporation, th LLC should fil Frm 8832. Th frm can b fild t th trtu f the LLC r t a later dt whn th LLC wnt to change it ntit t. Once an LLC is nidrd a corporation, they must fllw trditinl corporation tx lw.
Is an LLC a C Crrtin?
In rdr fr an LLC t b a C Corporation, mmbr mut fil Frm 8832 to be treated as a rrtin nd lt to b a C Crrtin tht fil a Form 1120 t fil income taxes.
I an LLC n S Crrtin?
In order fr n LLC t b an S Crrtin, mmbr mut fil Frm 8832 tht mk th buin a rrtin nd then choose to be trtd as an S Corporation and fil Frm 1120S for inm tx.
I it Better to b n LLC r n S Crrtin?
Whether it is better t be n LLC or n S Crrtin is a rnl decision tht vri bd n ur wn uniu irumtn. LLC nd S Corps hv mn things in common:
- Both hv limitd libilit rttin for it wnr
- Bth are rt legal ntiti
- Bth r usually thrugh tx ntiti, but n S Cr has to fil a buin tx rturn in ll .
- Bth have to follow rtin tt ruirmnt upon frmtin and nging thrughut the lif f th buin.
While thr r several imilriti btwn n LLC v n S Crrtin, thr are l big diffrn tht huld b considered.
S r n hv no mr thn 100 owners/shareholders while n LLC i unlimitd. Additinll, S corps ruir that wnr b U.S. itizn while nn-U.S. citizens n be in an LLC. S rrtin m not b owned by thr rrtin, LLC, rtnrhi, nd mt trut. LLC d nt have th m limitations. LLC r l allowed t hv unrestricted ubidiri.
LLC n hv wnr mng the LLC or lt t hv mngr mng th LLC. If the LLC is mmbr mngd, it rt a lt lik a rtnrhi. If it i mngr mngd, owners rnt involved in d to d diin.
S Crrtin hv ffir nd dirtr whil LLCs do not. The brd f directors in an S Cr vr th buin and hndl mjr diin. Th officers, wh are ltd b th brd, mng dil buin activities.
Sm states ruir that LLC xir with a dilutin date listed n their frmtin dumnt. Additinll, if a mmbr dies r lv the LLC, th LLC may be required t dilv in rtin tt.
LLC ownership nt trnfr frl without th rvl from other mmbr. Whil S Corps n frl trnfr stock long it meets the IRS restrictions.
An S Cr m hv a better lf-mlmnt tx itutin because n owner n be trtd as an ml nd rn a salary.
FICA tx r id n the salary munt and n dditinl corporate rning could b treated unrnd inm, thu viding lf-mlmnt tx.
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