Well, basically it is a way to protect your business’s liability like a corporation, but gives you the tax advantages and flexibility that a partnership does.
LLC’s or Limited Liability Company started as a business structure just 42 years ago, starting in Wyoming in 1977 and eventually becoming available in most states by the 1990’s. It is one of the fast growing business formations with more than 2million businesses identifying as LLC’s. Filing your business as a LLC’s is probably one of the easiest, and most effective ways of protecting yourself as a business owner.
As an LLC you or your partners as owners are not personally responsible or liable for the actions of the company. If you are running your business(s) legitimately and keeping your finances separate. This can protect your personal assets like your home, car, and bank accounts from creditors attempting to collect from your business. Of course if you mix your finances or run your business illegitimately a judge can pierce the corporate veil and rule that your LLC doesn’t protect your personal assets. Most people shouldn’t have to worry about that.
There are also some tax benefits as well. If the business suffers from a loss the owner and other members can take the hit on their returns and lower their tax burdens. As an owner of a LLC profits go directly to the owners, unless opted out of at filing. This essentially keeps the company from being taxed directly by the IRS on a company level and instead they are taxed individually as self-employed on federal income tax records. This of course means that each member would then be responsible for paying their Social Security and Medicare taxes individually based on the business’s total net earnings.
Starting an LLC couldn’t be easier. First choose and register a unique name you can search online and with most Secretary of States’s websites to make sure no one already has it. Choose a registered agent this you would need to find before filing documents using a third party company is usually best. Next you would need to file, depending on your state the filing fee can be as low as $50.00 and as high as $500.00. Get your EIN or Employer Identification Number for tax purposes. Created an operating agreement while no mandatory in all state its best to have one. Then lastly open a business checking account, this will help you keep your business separate from your personal.
While each state has different rules and regulations, none are so complicated that most people couldn’t understand. Even so hiring an attorney is always the best thing you could do to make sure everything is done 100% correctly. Once you’ve settled on filing LLC with or without an attorney you then need to make sure you know how you would like to manage it. Now the flexibility from LLC really comes into play here. You can choose to manage the LLC by yourself with your co-owners or you could professional managers. If you choose to manage by yourself with or without a co-owner (whichever applies) you would be in charge of day-to-day operations and decision but if you aren’t that experienced with running a business you might want to hire people who are. Most state member-managed LLC is set by default so if you aren’t sure how you would like to have your LLC managed you would benefit from a consultation with a business lawyer in Dallas, TX.
As with any big decision it is imperative that you do your research. There are a lot of resources online and locally with most business attorney’s offices. Use those resources to make sure filing as LLC is right for you and your business.
Thanks to Brandy Austin Law Firm for their insight into business law and an LLC.