Thanks to more favorable tax rates, the US is regaining momentum in new LLC formations and is likely to outpace the EU and other jurisdictions for startups once more. So what should you know about forming a new LLC?
The legal entity known as an LLC (Limited Liability Company) is one of the options available to small businesses when forming and maintaining their business structure.
The benefits offered by an LLC are that they are simple to maintain, have pass-through taxation and the business is a legal entity separate from its owners, creating a corporate veil which protects their personal assets in the event of a lawsuit or debts.
There are six basic steps to forming a new LLC that is easy to follow and low-cost.
Here are six basic steps to forming a new LLC
Selecting a state
This is where the business will be registered and if it has a physical presence in more than one state then it has to be registered as a foreign LLC in each state.
Naming the LLC
In most states, the name must include the name LLC and cannot include the names of government agencies. Other restricted words (e.g. Attorney, Bank, University) may need additional paperwork and a licensed individual.
Choosing a registered agent
This is where all official correspondence will go to and the registered agent must be in the state where the business is operating. To save time and energy, you can also hire an online registered agent service to handle these responsibilities.
Filing the formation document with the state
The Article of Organization is filed with the state to officially create the LLC where it also states how the organization will be managed (member-managed or manager-managed).
Creating the LLC operating agreement
Even though this is not a legal requirement in every state. It is good to have one as it outlines the basics of the organization, management, voting, funding, distribution of profits, and other changes for the LLC.
Obtaining an EIN
The EIN is like a social security number for the LLC and is necessary for hiring employees and opening bank accounts. You can easily file ss4 online form to apply for an employer identification number through the online portal.
Why LLCs are one of the most popular ways of starting a business?
LLCs have reduced paperwork requirements when compared to other business structures making them far easier to manage. There is no need for formal officer roles, annual meetings, or the keeping of minutes and resolutions.
Taxation is much fairer as they are not taxed twice like C-Corporations. Taxes are paid by the owners who report their share of the profits onto their individual tax returns.
As an LLC the business owners are protected against the company’s lawsuits, legal actions, and debts. Owners are only held liable in the event of criminal behavior or fraud. The business becomes more credible so it will be easier to access loans and credit.
When is the most popular time to form a new business?
For companies that are exposed to a lot of liabilities, then the sooner they form an LLC the better. The same applies to companies that will gain significant tax benefits by incorporating and have been advised to change to an LLC by their tax advisors. For new companies and those that want to simplify their paperwork, the best time to start is with the New Year.
Unfortunately, this is also the busiest time of the year in Secretary of State offices so the process can take a bit longer. The services of a business formation service can be quite convenient here because they can complete the paperwork and file it for you.
Why an operating agreement is important for small businesses?
The LLC operating agreement outlines every aspect of the ownership of the business, the duties of members, and the relationship between the members and managers. Even though this is actually not handed in with the LLC application it’s important that it exists. The 6 key sections are:
Organization
This deals with the creation of the company and related details. It mentions the members and ownership structure, which is especially important if there are multiple members.
Management and voting
Votes can be allocated to members for decision-making and resolving various issues. The members decide on management and what authority each member has.
Capital contributions
The document will specify where the startup capital came from for the LLC and how additional money will be raised in the future.
Distributions
This rules how profits, property, and other assets are distributed.
Membership changes
This outlines what would happen if members need to transfer ownership of the company in the event of death, divorce, bankruptcy, or any other reason.
Dissolution
This section should refer to the circumstances in which the company would need to be dissolved.
How to protect a small business?
Forming an LLC is the best way for the owner of a small business to have personal asset protection and simplicity. In the event of any type of legal action, the business owner cannot lose any of his personal property.
How to protect personal liability when starting a small business?
Personal liability is when the owner of a business is held liable for debts, personal injury, or a lawsuit against his business. The creation of an LLC is the best way for his personal assets to be protected.
Should you form an LLC when starting a small business?
If the pass-through method of taxation suits you as a business owner, then together with its simplicity and personal liability protection it is one of the best ways to start a small business.
Why is Florida a good state to form your LLC?
Florida has a favorable tax climate for business owners and is a good state for people to form an LLC in because they are free from taxation on a state level. Members of the LLC can also choose how they want their business to be taxed. Considering that even non-US citizens and non-US residents can form an LLC in the U.S., then Florida is the perfect choice for them whether they have a physical presence in the state or none at all in the country.
