What is an LLC? Everything You Need to Know
You’ve heard the term LLC before in legal matters. But what does LLC stand for? A Limited Liability Company (LLC) is a form of corporate structure where none of the owners are liable for the company’s performance.
Limited liability implies that the company’s money doesn’t directly affect the owner’s standing. Limited Liability Corporations provide businesses a layer of protection between themselves and their businesses.
Understanding an LLC can be a little tricky but read on to learn more on what an LLC is and how it works.
Understanding the Basics
When you’re starting a company, it’s important to lay out the responsibilities and legalities.
Knowing what your business prospects are is an important first step. It lets you know whether your company should be a corporation, a partnership, or if you are a sole proprietor.
An LLC is somewhat of a hybrid, combining key elements of a partnership and a corporation. The key difference of an LLC is that the owners, also known as members, are not directly responsible for the company’s debt.
To further elaborate, it means that if an LLC were to be sued, the members aren’t at risk of losing their personal finances.
Instead of paying income taxes, an LLC will list its profits and losses on the owners’ individual tax returns. However, limited liability companies file taxes as a corporation if they choose to do so.
You can be a sole proprietor and form an LLC. It does not require multiple members to do so.
Most industries can form an LLC, but there are some professions that are prohibited from doing so. Usually, accountants and people in the medical field are not allowed to form LLCs precisely because of the limited liability.
How to Form an LLC
Forming an LLC depends on your residency state. Once a name for the company is chosen, a few things must be filed with the state before receiving LLC status.
A member must file the Articles of Organization with their state. You then usually pay a filing fee, which also varies by state.
This document includes your company’s basic information, like the names and addresses of the members and that of the LLC’s registered agent.
But it also differentiates responsibilities and duties amongst the members. It’s important to legally file these so as to know which members hold what powers.
This filing can be done online or by mail. To create an LLC, simply start by choosing your desired state.
Some states also require that you release an intention to form an LLC in that state or city’s newspaper. This lets everyone know that your company is newly formed, and what it is for.
It is often recommended that you also form an LLC Operating Agreement. This lets you further detail your company’s financial structure and any co-owner relationships.