What is an LLC (Limited Liability Company)?
A limited liability company (LLC) is a form of business entity that is separate and distinct from a person, like a corporation. The LLC is often described as hybrid between a corporation and a partnership (or sole proprietorship). It allows for the limited liability protection similar to that of a corporation (i.e. your risk is limited to the amount that is invested in the LLC, and personal assets beyond that are usually protected). It also allows for a more flexible setup and operating structure than a corporation while providing the pass through taxation of a partnership (if a multi-member LLC) or a sole proprietorship (if a single member LLC). One of the main advantages of an LLC over a Partnership or a Sole Proprietorship is the Limited Liability protection.
Is it the right choice for you? Wyoming enacted the first LLC legislation in 1977. Other states followed with legislation but LLCs were not widely known and accepted until the IRS finally ruled on the LLCs tax status in 1988. They are now one of the most popular business forms. In many states the number of newly formed LLCs exceeds the number of corporations formed in a year. The Limited Liability Company is available in 50 states and is the fastest growing business form in the United States. It is a separate, distinct, legal entity as is a Corporation, a General Partnership or Sole Proprietorship. The LLC provides, the opportunity for tax benefits, requires less paper work, is less expensive than a Corporation to set up and it has better business asset protection against the claims of personal creditors. In order to determine the right business form for you it is necessary to understand the choices available and how they will impact your financial success. Important factors to conside
Is it the right choice for you? The Limited Liability Company is one of the newer business forms. It is not a separate taxpaying entity. Income is reported on the owner or owner’s personal tax return. Completing the necessary documentation for the state, which is called the Articles of Organization, and paying the required fees is all that is necessary to set up an LLC. An LLC may be formed in any state. Massachusetts requires at least two members to form an LLC; all other states allow an LLC with only one member. Usually an operating agreement is drawn up such as one in a partnership, it should state the duties and obligations of the members, how the LLC will be managed and how the profits are to be divided and how member’s interests may be sold. Many people form LLCs in their home state. This may save money because you do not have to register as a “foreign LLC”. If your home state has high annual LLC fees or income taxes and your LLC does not “do business” in that state then you may
