What Is an LLC or Limited Liability Company?


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Every aspiring business owner should know more about LLC, but what is an LLC? A Limited Liability Company is a formal business structure restricted only for US businesses based on either sole proprietorship or a partnership. Under this structure, a person involved in the LLC will be able to save his assets in case the business is not making profits, submerged in business debts, or is being targeted with a lawsuit.

what is an LLC

Is Forming a New LLC Worthwhile?

Since there are several other business entities prevalent in the market, it’s a very common question whether investing time and money in opening the Limited Liability Companies are worthy or not. To be very frank, an LLC is one of the many types of businesses that have both virtues and flaws. But, somehow, its advantages are far more pronounced than the drawbacks. Also, since it’s a very simple business structure, not many legal steps are involved in starting an LLC or in running the business successfully.

Advantages of Forming an LLC

Here are the upsides of setting up an LLC.

Limited liability protection

If somehow the Limited Liability Companies get tangled into a legal suit, the owners wouldn’t have the responsibility to pay off the debts or mitigate the lawsuits, compromising their personal liability assets. With an LLC, they will be able to protect themselves and the other business assets in a legal manner and not suffer losses.

Pass-through taxation

Unlike in a corporation, the LLC owners will be taxed only once. Whatever the company profits are, the amount will straightaway go to the owners, and then it will be divided amongst them based on a certain share percentage. It is now when the individuals have to report a tax file based on their profit share percentage. This is known as pass-through taxation in this type of business. 

Flexibility and simplicity

An LLC business comes with both a great amount of simplicity and flexibility. It doesn’t require extensive legal works to start LLC offices in any US state. Moreover, one can introduce either domestic or foreign LLC business structures with just a few certifications, licenses, and authorizations. Such a business structure doesn’t need to maintain every paper works, organize meetings, and perform other such hectic jobs. As for flexibility, the LLC offices can form based on a single member or multiple members. The company can have a member-managed structure or a manager-managed structure.

Increased credibility

Another reason to consider LLC’s worthiness is the availability of chances to gain more credibility amidst the targeted customers and the partners. Moreover, you will be able to take business loans, add credit value to the business card, and build a wonderful financial report with an LLC.

Wider tax options

According to the taxation rules laid by the IRS, a single-member LLC legal entity will pay the taxes based on sole proprietorship where the individual and the business will be taxed in the same way. As for a multi-member LLC, each individual needs to submit a taxation report based on the requirement of the share of profit percentage. Apart from this, one will get several benefits on federal taxes, franchise taxes, self-employment taxes, and others. 

Limitations of an LLC

Listed here are the limitations that you may experience with an LLC.

Higher operating fees

In some of the US states, the LLC operating expenses and filing fees charged are way too high as compared to the standard levels.

Self payable taxes

For LLCs based on the sole proprietorship structure, the member will have to pay the taxes based on his profit returns, which further lessens his overall earnings.

Restrictions on member transfers

For any form of member transfer within an LLC, transfer consent will be needed, which brings delay in the performance of the business, and in extreme cases, failure.

Types of LLC

Even though all the LLCs offer the same range of benefits and deliver similar functions, there are particular factors that set them apart from each other. Here are the most common types of LLC allowed in the US based on their features.

  • Domestic LLC: This kind of LLC refers to a business whose base of operation is the same as the place of formation.
  • Foreign LLC: If an LLC opens a functional branch in some other state, apart from the state of origin, it will be regarded as a foreign LLC.
  • Series LLC: A series LLC is a special structure where a “parent” LLC will offer limited liability protection to several other “child memberships” established under the umbrella of the parent company.
  • Professional LLC: In a professional LLC, at least a few members need to have state licenses on the field in which the LLC will offer professional services.

How to Start an LLC

Starting an LLC in the US needs a set of rules you have to follow by hook or by crook. Even though the steps to form a domestic and foreign LLC are almost the same, certain differences are there in the filing process and the certifications to be owned. Here, a brief guide is explained for your better understanding.

  1. Step 1: Select the state of business

    First of all, select the state where you want to form the LLC. For a domestic LLC, the base of operations and the state of formation should be the same. As for a foreign LLC, the operational center and the state of formation of the company will be different.

  2. Step 2: Naming of LLC

    Next, you need to choose a proper name for the LLC. There are certain rules pertaining to the LLC naming procedure.
    The name must include the abbreviated or the full form of LLC.
    It shouldn’t match or coincide with any pre-existing government body.
    The name should be available and not already registered with the state government.

  3. Step 3: Choosing a Registered Agent

    Several governments and legal LLC registered agents are there, and you need to choose one from the list. This agent is your primary point of contact and the face of your LLC plan. A registered agent is entitled to handle all the works, including taxations, filing of the LLC, registrations, lawsuits, dealing with formation documents, handling legal documents, and others.

  4. Step 4: Filing of Articles of Organizations

    After choosing an agent, you need to file for the Articles of Organization or Articles of Formation document, which entails that you have a legal right to form an LLC and protect your liabilities. Here, you need to state the name along with the services, the name reservation certificate, and the filing fee. However, this filing fee varies as per the state and the legal requirements.

  5. Step 5: Creating an Operating Agreement

    An LLC Operating Agreement will bring all the members on the same page, thereby preventing any future conflicts, and also assist in personal asset protection. One of the major benefits of filing the operating agreement is that it will contain every detail about the services to be provided and the operational management of the LLC.

  6. Step 6: Getting an EIN

    The last step to form an LLC is to get the EIN number or the Employer Identification Number. This nine-digit unique ID will help you to perform all the actions related to the taxes like double taxation, personal income tax, and so on. It has a simple filing process since the number will be used for the purposes of taxation.

What Is the Meaning of a Closely Held LLC

Closely Held LLC means that the company’s shares are owned by five or fewer individuals. The company’s shares are not traded publicly.

What Is the Meaning of a Closedly Held LLC? Closely held companies are companies controlled by a small group of owners. These corporations are often owned by family members, and as a result have great restrictions on how the ownership shares can be sold or exchanged. The family members cannot cash in on these shares, nor can they sell them in exchange for cash. Therefore, companies are required by law to buy back their shareholders’ shares.

Closely held businesses are companies with a small number of shareholders, including family members. This is different from personal service corporations, which are owned by a large number of individuals. Closely held businesses may be categorized as a C corporation, an S corporation, or a limited liability company, and the tax treatment depends on the type of business it is. There are several types of closely held companies, and the most common are family businesses.

What Is the Definition of a Closely Held LLC? This definition is vague. A closely held company is one that has fewer than 35 shareholders. Its name is on its certificates, its number of shares, and its percentage ownership. Other assets of significant value include automobiles, household furnishings, and collections. These assets are not included in the value of the business. The IRS has its own definition of a closely held company, which differs from state laws.

The Close LLC is similar to a regular corporation, but has special rules that apply to it. Close LLCs don’t have annual meetings, and are not required to report their earnings to the IRS. They can also be incorporated in a variety of states, though not all states offer this option. However, close companies can take advantage of other benefits. In many states, the close corporation does not have to meet with shareholders, which means it does not need to hold annual meetings.

The Closely Held LLC is a pass-through entity. That means the profits and losses of the company pass through the owner personally. A closely held corporation cannot issue dividends because this would cause double taxation. Rather, profits are passed on to the shareholders of the corporation. Consequently, most closely held corporations do not issue dividends. They instead elect to pass the profits and losses through the shareholders.

Whether a company should be a closely held LLC or a closely held corporation depends on the circumstances. The advantages of closely held corporations include liability protection and privacy. Closely held companies also have more privacy and flexibility, which can be important factors if they grow and expand. A corporate lawyer can help navigate these issues and help to ensure the best possible outcome for the business. The legal advice of a business attorney is priceless in times of trouble.

How an LLC is Managed

  • Member-managed LLC: In the member-managed Limited Liability Corporation, it is the owners who look over the operations, functions, and other related departments of the company.
  • Manager-managed LLC: In this, the members will work on a veto, and a common manager from amongst the employees will be appointed who will then overlook and supervise all the functions of the LLC as per his duties mentioned in the Article of Organization.

In Conclusion

Limited liability companies are the easy to form business structures with less hassle and lesser documentation. Small businesses that have limited budgets and manpower can always go for LLCs. Not only do they have tax benefits but also they protect your personal assets. Form your LLC today with the best LLC services available in the market.

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