How to Form an LLC

LLC stands for Limited Liability Company. It is very popular business structure, in US primarily. An LLC is a hybrid business capital which combines the best features of corporation and partnership. As well as corporations, LLC exists legally separately from its owners, so that its managers and owners are not personally responsible for its debts and obligations. Reducing the effects of double taxation is one of the greatest advantages this particular form can offer.

Somewhere can be found by “limited by share.” It can be formed as an alternative to joint venture or some other general partnership.

Distribution of profit and loss, like many other aspects relevant for organizations, can be settled with an LLC contract. That means that profit can be shared among shareholders any way they choose. Same applies to losses. Ways of paying, regarding taxes, are also optional.

If you are weighing whether this type of business structure is right for you, reasons why you should choose LLC as a way of doing business are:

  • Anonymity: the question of anonymity is very important for many clients whose business has the adjective “international”
  • Limited responsibility: the client isn’t responsible for any kind of company’s debt with his personal assets
  • Protection of property: LLC is not a taxpayer nor has an obligation to provide reports of any kind
  • By forming an LLC company, the client gains better credibility in the eyes of current and potential clients
  • Real estate: their owners situated worldwide, have a wide range of possibilities when it comes to property, including property transfer onto the LLC company.

You can form an LLC either in your country, or in a foreign country. Before all, you need to get informed of ways to found this type of company. That means that rules vary from state to state.

First you should pick a name from available business names that comply with your state’s LLC rules. Important things, regarding the name of the company are: the name must be original, must imply that it is an LLC, and mustn’t include words that are prohibited by state law.

Then comes preparation and filing the “Articles of Organization”. Usually it’s a short form which includes filling in name of the company, its members, and their contact information. They will be associated with your LLC, and can be found under different names, like “Certificate of Formation”, or “Certificate of Organization”. You also have to pay a filing fee, which, again, depends on the state that you are forming your LLC in.

An operating agreement can also be required, but in most states it is not. However, you should create one because it will contain all the details regarding roles, rights, responsibilities of members, and their ownership in percentage. Also, the agreement should contain terms of the voting power of the members, how the LLC will be managed, how many managers will be, terms relating to the share of profit etc.

After creating the operating agreement, you need to obtain the licenses and permits that are essential for new businesses, including an Employer Identification Number (EIN), a business license, and additional permits and license, like a zoning permit.

Many people hesitate when it comes to LLC, thinking that there is lot of paperwork involved, and that it is rather long process. But it can be done and in the end, an LLC can be quite beneficial, so just keep these tips in mind and go for it.

Featured Image: Thinkstock/ribkhan

Posted on May 5, 2023