Starting a business in America is an exciting experience, but don’t let the excitement and ease of getting started fool you. Starting a business in America can be complicated, and there are a lot of legal formalities and rules you must abide by. Suppose you’re looking to start a business. In that case, you should understand that the legal formality of creating an LLC, or limited liability company, is a crucial part of creating your business. If you plan on starting a business in America, you should create an LLC and familiarize yourself with the basic LLC rules and procedures.
We’ve recently had several people ask us about how to create an LLC (see here). With all of the changes with the recent tax reform, it then becomes easier to understand what that LLC means. According to LLCGuys.com – an LLC stands for Limited Liability Company and is a tax structure. It became a popular tax structure for businesses after the war with the IRS over taxes. LLCs, like corporations, have the advantage of being taxed differently than individuals in that LLCs don’t have to pay income taxes on their profits. Instead, they are taxed in the same manner as partners for tax purposes.
If you have started your business with an idea but want to take it to the next level, creating a limited liability company (LLC) may be the way to go. By forming an LLC, you can limit your personal. This means your assets, such as your house, car, and savings, can’t be taken to pay your business debts, according to Forbes.
Here Are The Things You Need To Do To Set Up Your LLC
- Create Your Company Name
When you create your new limited liability company (LLC), the first thing you want to do is decide the name of your business. Your company name will be considered your business identity and should accurately reflect the type of business you intend to engage in.
- Registered Agent
LLC stands for Limited Liability Company. It is a legal business entity that its members own. It is created through a state registration process. Once you register your LLC, you need to designate a registered agent. A registered agent in your LLC agreement is a person or company that is appointed to receive official legal communications, such as lawsuits or official government notices, for your LLC. It can be you, a family member, or someone else.
- Prepare and File the LLC Certificate of Formation
When you have a business, whether it be a sole proprietorship or partnership, or a limited liability company, you have to register with the Secretary of State. This lets you describe your business, file appropriate tax documents, and protect your assets if necessary. After you create your business, you have to file a Certificate of Formation, which certifies your business as a legal entity. This is an important step because, as the business entity owner, your business could be dissolved if you fail to file.
The Articles of Organization (or “Articles of Incorporation”) is the document forming your legal business entity. It is filed with the state and is your business’s official legal name. An Articles of Organization form should be filed with the secretary of state to LLC.
- Create the Operating Agreement
An operating agreement, also referred to as a shareholders’ agreement, is a legal document that outlines the rights and responsibilities of a business owner, such as whether the company will be public or private, as well as how much stock each owner will have.
To properly create an LLC in the USA, you need to create an operating agreement. This document should lay out the rights and responsibilities of the LLC’s members. Your LLC’s operating agreement should contain all the information about LLC ownership, duties, profits, losses, and expenses.
- Keep The Company Running
Creating an LLC in the United States may be easy, but keeping one active requires a bit more effort. You need to file annual reports, pay taxes, and file quarterly estimated taxes. And, because LLCs are pass-through entities, all income earned is taxed at the owners’ tax rates, not at the business rates.
Advantages of Creating LLC
- Limited Personal Liability
Limited Personal Liability is the advantage that an LLC or Limited Liability Company has. LLC has limited liability, which means limited personal liability. Limited liability means that if the company you work for, or own, is sued, the company and all of its assets, including your wages, are protected from your assets, such as your house and car.
- Management Advantage
One of the primary benefits of creating and using an LLC is the flexibility of management relative to your business’ nature. For example, in a small/family business, it may be preferable to have one person control the company’s day-to-day activities. On the other hand, it may be beneficial to have the management team share decision-making duties in a larger enterprise.
- Profit Distribution
Setting up an LLC is a quick and easy process. Once the formation is done, you can create an unlimited number of sub-entities, each of which will have its tax and financial reporting responsibilities. The rate of interest that an entity pays on borrowed money is fixed, while that of its owners may vary. Thus, creating LLC offers the advantage of flexible profit distributions.
- Tax Advantage
A limited liability company (LLC) is an entity that is separate from its owners or members. The LLC itself does not pay income tax. Instead, profits and losses pass through to the owners, known as members. Members then report the income and expenses on the tax returns.
One person can own a business, a group of two or more people, or a corporation. A separate business manager can be designated, and that person can be compensated for their services. However, the LLC structure cannot be used for pass-through taxation. LLCs are subject to self-employment tax.
In conclusion, an LLC is a legal entity formed by two or more persons or entities under a contract. The primary purpose of an LLC is to protect both owners and investors from personal liability. The LLC separates personal assets from the business’ assets. The LLC provides a shield for the owners from personal liability for the debts and obligations of the business.