Things You Need to Know Before Forming an LLC


Incorporating your small business have several advantages, the greatest one being the limited liability protection an LLC business structure offers to each member. Other important advantages include lower taxes, simplicity of formation and operations, and ease of raising capital when needed.

LLCs, or limited liability corporations, are not exactly corporations but single-individual or partnership business entities and have much simpler processes and documentation requirements.If you’re considering formalizing your business operations, the LLC structure is an option worth considering, particularly if yours is a small business that can do without the complexities of running a corporation. Here is what you need to know before incorporating an LLC.

What exactly is an LLC?
Sometimes called a limited liability company/corporation, an LLC is a business entity that can be incorporated by submitting an Articles of Organization and paying a filing fee to the concerned state department. You can form an LLC in a state other than the state of your residence. A single individual running a business can also form an LLC. You need to obtain a taxation ID and check if the name you’ve chosen for your LLC is available.

What is the taxation structure for an LLC?
The owners of an LLC have the choice to be taxed in one of the following two ways: adopt the taxation structure of a corporation or choose pass-through taxation followed by S corps.

What is limited liability protection?
Because by law an LLC is a legal entity separate from its members, the members are free from the responsibility of the LLC’s financial obligations. This means that in case of dissolution or insolvency, the members’ personal assets cannot be used to pay off creditors and settle debt.This is considered one of the biggest advantages of an LLC, which has increasingly become a popular choice of business structure with small and medium enterprises.

How does an LLC operate?
An LLC is operated by the member partners or a manager appointed by them. An LLC is easier to register and operate compared to a corporation, and the task becomes even easier if the roles, rights, responsibilities and profit-sharing terms of the partners are clearly stated in a document known as the operating agreement. If there are any inactive partners in the LLC, the manager operates the business and takes decision on their behalf.

Are there any drawbacks of forming an LLC?
There are many benefits of operating as an LLC; the only thing some consider a disadvantage is the paperwork required at the time of incorporation, which is definitely less than that needed to form a corporation but slightly more than the paperwork needed for a sole proprietorship.

Can I outsource the LLC incorporation and filing process?
Yes, you can entrust the paperwork, name check, state fee submission and every other requirement to an incorporation services agency, which will take care of all the research work and documentation on your behalf as well as provide professional advice regarding critical aspects of LLC incorporation.



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