LLC – Limited Liability Company

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Set Up Your LLC Limited Liability Corporation Website Online HelForming an LLC

LLC stands for limited liability company, and it is a type of legal structure for a business. It is a company in which the owners or partners of the LLC personally pay the taxes on the company’s earnings but in whichthe liability of these ownersis limited. In other words, in terms of taxes it is similar to asole proprietorship or a partnership, but as far as liabilityis concerned, it is like a traditional corporation.Advantages of Forming a Business asan LLCAs mentioned in the course of definingan LLC above, one of the biggest advantages is that the owner or partners inan LLC are not personally liable for the debts or liabilities of the company.

This is due to the fact that, like a corporation, the LLC is considered a separate legal entity. This becomes a bigger benefit the higher the net worth of the person or people starting the LLC. If you’ve got a large, expensive house and a couple expensive cars and flush bank accounts, then this benefit is extremely important.Another big benefit of forming your business as an LLC is that you still have total control over your business while enjoying the aforementioned liability protection of a corporation. That is this legal business structures main benefit over that of a corporation. Like a sole proprietorship, you have no board of directors or shareholders to answer to. An LLC also gives you control over how many people can start and run the company. Most states allow single member limited liability companies, so you can use this company structure even if you are striking out into the business world on your own.Disadvantages of Forming a Business as an LLCOne problem with LLCs is that they are a relatively new legal creation. While corporations have been around for a few hundred years1, it was only as recently as 1977 that Wyoming became the first state to enact laws that allowedforthe creationofLLCs. This means there islesscase law and, therefore, greater legal uncertainly with this legal business structure. Additionally, there is more state by state variabilitygoverningLLCs. Some types of businesses, such as banks and medical providers, as a couple major examples,may be barred from forming themselvesasan LLC. This legal variability can make this an undesirable business structure if you plantooperate across multiple states.If your business will need to raise a lot of capital to grow, then beingan LLC shares the same downside as a sole proprietorship or partnership. A corporation can simply issue stock to raise money, but you will have no such luck if youare formed asan LLC. In addition to it being harder to raise money, you will sometimes have to pay more. Fees for startingan LLC are typically higher than for other business entities, and some statesrequire annual renewal fees as well.How to Form and Operate an LLC

Let’s assume you have gone over the up and down sides of forming your company as an LLC versus the other forms and decide to go ahead with it. Another potential disadvantage is that setting up an LLC is not as simple as a sole proprietorship. If you don’t want trouble or disputes between owners or partners down the road, you will need a lawyer to help you draft an operating agreement. Except for issues specific to your firm or partners, these will be fairly boilerplate as you are hardly the first people to start one. It basically helps with settling unforeseen issues and also how matters such as when one partner decides to leave are handled. The lawyer who drafts your agreement will also be able to help you navigate any state and local rules and regulations that you will need to comply with.

When This is the Best Business Structure to Use

One ideal scenario for choosing this type of business entity is if you are planning to start a business that either only involves you or just a couple partners. It will also be ideal if you only plan to operate in a single state as you avoid the issue of the legal variability between states. This will give you the benefit of limiting your legal liability, which you do not get with a sole proprietorship, but also allows you to be in complete control of your business, which you don’t necessarily get with a corporate structure. When this is the ideal structure for your business, hire an attorney and do it right, so you can concentrate on growing your business and not have to worry about any issues arising from an incomplete operating agreement or possibly not complying with any local laws or regulations out of ignorance.

1 en.wikipedia.org/wiki/Corporation

 

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