BUSINESS FORMATION (LLC)

Forming a limited liability company (LLC) is a popular choice for small business owners and entrepreneurs. LLCs provide liability protection and tax flexibility while avoiding much of the paperwork and formalities required of corporations. This beginner’s guide will explain what an LLC is, its advantages and disadvantages, and key steps for starting one.

Benefits of forming an LLC

The benefits of creating an LLC—as opposed to operating as a sole proprietorship or general partnership,
or forming a corporation—typically outweigh any perceived disadvantages.

• Limited liability: Members (which is what the owners of an LLC are called) are shielded frompersonal liability for acts of the LLC and its other members. Creditors cannot pursue the personal
assets (house, savings accounts, etc.) of the owners to pay business debts. The personal assets of
sole proprietors and general partners, on the other hand, can be pursued against the business’
debts. Note: It is possible for an LLC (as well as a corporation) to lose its limited liability. This is
known as “piercing the veil”. For more information, see How to Avoid Piercing the Corporate
Veil.

• Flexible membership: Members can be individuals, partnerships, trusts, or corporations, and
there is no limit on the number of members. S corporations (which is a corporation that has
elected to be taxed as a pass-through entity under Subchapter S of the Internal Revenue Code) are
much more restricted in who can be a shareholder, and there is a maximum limit on the number.

• Management structure: Members can manage the LLC or elect a management group to do so.
Corporations, on the other hand, are managed by a board of directors, not shareholders. When an
LLC is managed by members (a “member-managed” management structure), owners oversee
daily business operations. When managed by appointed managers (a “manager-managed”
management structure), the LLC resembles a corporation, where business management is the
responsibility of the directors and officers rather than the owners (shareholders).

• Pass-through taxation: LLCs typically do not pay taxes at the business entity level. Any
business income or loss is “passed-through” to owners and reported on their personal income tax
returns. Any tax due is paid at the individual level. Corporations that cannot or choose not to be
taxed as an S corporation (these are known as C corporations because they are taxed under
Subchapter C of the IRC) are taxed at the business entity level and their shareholders are taxed on
the income distributed to them.

• Heightened credibility: Starting an LLC may help a new business establish credibility more so
than if the business is operated as a sole proprietorship or partnership.

• Limited compliance requirements: LLCs face fewer state-imposed compliance requirements
and ongoing formalities than sole proprietorships, general partnerships, or corporations (whether
taxed as S corporations or C corporations).

How Many States In USA?

There are fifty (50) states and Washington D.C.The last two states to join the Union were Alaska (49th)
and Hawaii (50th). Both joined in 1959.

BEST STATES FOR LLC SIGNUP:

Best state for formation LLC is your own state where client lives but we shared a detail of best states here
also,
• TEXAS
• FLORIDA
• NEY YORK
• WYOMING
• WASHINGTON DC
• NEW JERSEY

Steps for Starting an LLC

Follow these main steps to set up an LLC for your small business:

• • Choose a business name. Your LLC name must include an LLC identifier like “Limited Liability Company,” “LLC” or “L.L.C.” Your business name also can’t already be used by another LLC in your state.

• • File formation documents. To legally form your LLC, you must prepare and file “articles of organization” with your state. This document names the first members/managers, business purpose, office address and other basic details. Most states charge $50 to $500+ in fees.

• • Create an operating agreement. This document outlines the management, ownership structure, member responsibilities, voting rights, capital contributions, profit/loss distribution, buy-sell conditions and more. It’s an internal governing document.

• • Obtain licenses & permits. Most LLCs need to register for certain state and local licenses and permits related to their industry. Common examples include sales tax permits, food handler cards and professional licenses.

• • Set up accounting. You’ll need to track income and expenses, manage payroll, file taxes and produce financial statements. QuickBooks and Xero are popular small business accounting software options.