Form a Limited Liability Company
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Can I be the only owner of the LLC?
Yes, most states permit single-owner limited liability companies. However, for tax purposes any business entity with only one member can choose to be classified as either an association taxable as a corporation, or it is disregarded as an entity separate from its owner. If a business enrity has at least two members, it can be classified as an association taxable as a corporation or a partnership.
Do I have to name managers of the LLC at the time that the company is formed?
No, you do not have to name managers at the time you form your LLC. Some or all of the members (owners) of the company can serve as managers of the LLC, in which case those members essentially act as general partners in a partnership because they are actively involved in making company decisions. If you do name managers, then the members more closely resemble shareholders in a corporation since they are not involved in the management of the company. You can name managers at the time your form the limited liability company, or at any point thereafter as long as it is pursuant to your LLC's Operating Agreement.
Exactly what has to be done to form an LLC?
The process of forming an LLC varies from state to state. Generally, however, you must file Articles of Organization, and pay a fee to the Secretary of State or equivalent state agency. Once formed, the members of the company should enter into an Operating Agreement, which governs the internal affairs of the company. If the LLC's Operating Agreement does not set forth rules or guidelines with respect to a particular company matter, the law of the state of formation will govern. Other than entering into an Operating Agreement, it is also important for the corporation to obtain a Federal Tax ID number from the IRS.
How is an LLC different from a Corporation?
Probably the biggest difference between an LLC and a Corporation is the taxation of each business entity. A Corporation has double taxation, in that its profits are first taxed at the corporate level and then the profits are taxed to the shareholders when they are passed on as salaries, bonuses, or dividends. An LLC is often referred to as a "pass-through entity" because the company's profits and losses are passed through to the members (owners), who then report those profits and losses on their personal income tax returns. Another noticeable difference is that an LLC has much more flexibility with respect to the management of company affairs. An LLC has very few formal requirements, in contrast to a corporation, which has the following requirements: board of director elections, bylaws, shareholder meetings, and annual reports.
Once I have formed an LLC, is there anything else that must be done to maintain my company?
Unless the company's Operating Agreement specifically requires annual meetings, a limited liability company is not required to hold annual meetings (corporations are required to hold annual meetings). Thus, after formation, the company must pay whatever annual fee is charged by the state of formation, which usually must be accompanied by some sort of annual report. This annual fee is often based on the number of members that the company has, or it may be in the form of a standard annual report filing fee.
What if my LLC has only 2 members when it is formed but we might like to add additional members in the future?
Whether additional members can be added to your limited liability company depends on what your company's Operating Agreement says about the admission of additional members. If the Operating Agreement does address the admission of additional members, you will have to look to state law. Most state laws do permit the admission of new members, provided that there is unanimous consent among the existing members.
Why does an LLC have to obtain a Federal Tax ID number?
A Federal Tax ID, also known as an Employer ID, is essentially a social security number for a limited liability company. The Federal Tax ID number is critically important because an LLC must have one to hire employees, open a bank account, obtain a loan, line of credit, or credit card, enter commercial transactions, or operate its business in general.
Will I need a lawyer to form an LLC?
It is not necessary to have an attorney form your limited liability company. NowLegal.com's legal document preparation and filing service takes you through a simple online questionnaire, collects a nominal fee and the state filing fee, and effectuates the filing on your behalf. If you are interested in setting up a complex limited liability company, it may be in your best interest to contact a business attorney in your area who is on NowLegal.
