The central theses
- A limited liability company, or LLC, is a hybrid corporate structure that combines the limited liability protection of a corporation with the flexibility of a sole proprietorship.
- Although each state has a slightly different incorporation process, in most cases you will need to choose an available company name, appoint a registered agent, and file articles of incorporation to incorporate your LLC.
- You can do all the work yourself, but many entrepreneurs choose to do oneBusiness creation service for othersto save time, ensure accuracy and reduce red tape.
Forming a Limited Liability Company (LLC) allows you to register your business with the state and is a first step in obtaining limited liability protection so that you can reduce or eliminate your personal liability for business liabilities and debts.
An LLC is a corporate structure that combines the protection of a corporation with the flexibility of a corporationsole proprietorshipor a partnership. Although you can form other types of businesses, choosing an LLC can make sense for many entrepreneurs.
Various state laws regulate limited liability companies, and there are general procedures that most business owners must follow to incorporate a business entity. In this article, you'll learn how to form an LLC in five easy steps.
LLC is an acronym for limited liability company. It is a corporate structure that can help protect the private wealth of its owners and offers flexible tax and administrative structures. For many small business owners, an LLC is a nice alternative between a sole proprietorship and a corporation.
Your LLC can have multiple owners, referred to as "Members." Almost any type of business can become an LLC, and you can form an LLC whether you are a one-person business or a large group business.
Benefits of the LLC business structure
Limited Liability Protection
An LLC exists separately from its owners andusually protects them from personal liability. When your LLC faces business debt collection, a lawsuit, or bankruptcy, in many cases the court or creditors cannot dispose of your personal assets such as your home, car, or other property.
Likewise, forming an LLC can help protect your corporate assets when facing personal debt, as many states limit the actions creditors can take against LLC owners for their personal debt. Other forms of business, such as sole proprietorships and partnerships, do not offer limited liability protection, so your personal assets may be at greater risk.
LLC owners candecide how their company should be treated for tax purposes. Many entrepreneurs choose to take advantage of thispass-through taxation.
Instead of the corporation paying income tax, you can report your LLC's profits and losses as part of your personal tax return. This avoids what's known as "double taxation," where your LLC's profits are taxed as part of a business tax return and then as part of your income tax return. You can also elect to have your LLC taxed as a taxpayerC Corporationor aS Corporation.
Low startup cost
In most states, forming an LLC involves minimal filing fees. You can typically expect to pay anywhere from $35 to $200 to incorporate your limited liability company, although incorporation fees can be as high as $500 in some states.
You can decide for yourself how your LLC will be structured. Sole proprietorship LLCs are referred to as "single member LLCs." If your LLC has multiple owners, it is a "multi-member LLC."
If you run your own LLC business, your LLC is a "member-managed LLC." Alternatively, you can appoint a manager to take over the operations of your business. In this case, your LLC is a "management LLC."
Low membership restrictions
Almost anyone can form an LLC. Individuals, corporations, trusts, partnerships and noncitizens can own LLCs in the United States.
Once you've filed all the required formation documents and officially incorporated your LLC, there's usually very little you need to do to maintain your LLC status with the state.
Each state has different requirements, but you'll likely need to file an annual report and keep up to date with any required business licenses. Keeping your LLC in good standing requires minimal paperwork in most cases.
Operating as an LLC gives your business legitimacy and increases your credibility in the eyes of the public.
How to Incorporate Your LLC
LLCs are easier to form than corporations, but forming an LLC requires several steps.
LLCs are formed at the state level, usually with the Secretary of State, and each state has its own process to follow. However, there are general steps to starting a business that apply to most states, including:
- Decide on your LLC name
- Appointment of Registered Representative
- LLC Document Filing
- Keep your LLC compliant
In the following sections, we'll break down each general LLC formation step to help you get your LLC up and running successfully and quickly.
1. Select a state to embed
One of the most important decisions you must make during the LLC formation process is where to incorporate your business entity. State laws apply to LLCs, so choosing the right state for your business is critical.
You can form an LLC in any state, whether you live there or not. However, in most cases, the state where you operate your business is the easiest choice.
Most small and medium-sized businesses choose to incorporate in their home state because they are already familiar with the state's laws and regulations, and government offices are usually easy to contact. If you choose to incorporate your LLC in another state but conduct business in your home state, you may need to register a foreign LLC, which typically carries a higher filing fee.
2. Choose your LLC name
Once you've figured out which state you want to incorporate your LLC in, it's time to make another important decision and choose your company name.
Each state has specific naming requirements that your LLC must comply with. Most states require the following:
- Your LLC name must contain "limited liability company," "limited liability company," "l.l.c.", "l.c.", "LLC," or "lc." You can usually abbreviate the word "limited" to "ltd". and the word "company" as "Co."
- Your LLC name must be distinguishable from other company names registered with the state. In most cases, you can do a name search on the Secretary of State's website to check availability. Once you find a business name you like, you may be able to reserve it for a small fee.
- Your company name should be appropriate and not contain misleading or offensive words. Many states specifically state that your LLC name cannot contain words that could suggest your company is connected to the government, such as: B. "Department of State" or "Department of the Treasury."
The Secretary of State's website should include any country-specific naming conventions and requirements. If you work withThe block criticizesWhen you incorporate your LLC, we'll help you make sure the company name you choose meets state requirements.
You can also use a different name for your business if you apply to become a DBA (Doing Business As).
3. Select a registered agent
Your LLC must have oneregistered agentto receive important communications and documents on behalf of your company. For example, your registered agent may need to receive a letter from the IRS or a process request.
You can be your own registered agent, but many business owners choose to hire a registered agent for a variety of reasons.
For example, registered agents must be present at a physical office address during business hours. Hiring a registered third party increases the freedom of a business owner as you don't have to worry about losing time-sensitive communications.
Hiring a registered agent also helps you protect your privacy. In many states, the name and address of a registered agent must be publicly disclosed. And if a lawsuit, such as a lawsuit, is served on your LLC, your registered agent will handle it on your behalf, relieving you of the stress of being served before your employees or clients.
If you choose to start your business withThe block criticizesyou have the option to name a registered third party provider during the ordering process.
4. File your LLC documents
Forming an LLC requires filing documents with the Secretary of State. Each state has specific filing requirements, and all states require business owners to file bylaws.
Some states also require an operating agreement, but most states do not. However, a written operating agreement can be a good idea as it regulates the members of the LLC, including the management and financial responsibilities of the LLC.
When you start your business withThe block criticizesWe prepare all the required documents based on the information you provide and file them according to the regulations of your chosen state. All our packages include Articles of Association and Operating Agreement with standard provisions.
Articles of Association of E.P.E
The Articles of Incorporation is a basic LLC formation document that formally incorporates your LLC with the Secretary of State. This document is sometimes referred to as an "Organizational Certificate" or "Educational Certificate".
You must pay the filing fee when submitting the Articles of Incorporation. Application fees vary by state and typically range from $35 to $500.
Not all states require you to create an LLC operating agreement. Even if your state doesn't require a written operating agreement, it's a good idea to get one.
An operating agreement establishes standard procedures and regulations for your LLC so you can effectively manage it and resolve disputes between members. If you don't have an operating agreement, standard state rules apply, which may not always benefit your business.
LLC Operating Agreements are usually customizable and you can include various clauses ranging from rules for admitting new LLC members to voting rights.
5. Maintain your LLC over time
Additionally, once you have incorporated your LLC, it is important to ensure that your LLC has a good record with the state and meets current requirements. While these requirements vary from state to state, most require small businesses to apply for an employer identification number, pay state taxes, stay current on business licenses, and file annual reports.
You can think of your ownemployee ID number, or EIN, as the social security number for your business. This is a tax identification number used by the Internal Revenue Serviceto identify your company for tax purposes. Not all companies arerequired to have an EIN. Generally, businesses that sell goods, have employees, are taxed as a corporation or partnership, are likely to pay excise taxes, and/or have a corporate pension plan must have an EIN.
Not all states require LLCs to have an EIN, and some require it only for multi-member LLCs. Typically, you need an EIN to prepare payroll and payroll taxes. Additionally, some banks prefer businesses to have an EIN to open a merchant bank account.
Some states also require a separate tax identification number if you plan to hire employees, sell goods, or pay excise taxes. Be sure to check your state's requirements to make sure you can get a state ID, if available.
in theCompany formation at Block AdvisorsPackages include EIN application preparation so you can easily cross something else off your list.
State tax requirements
Depending on your location, you may be subject to certain state tax obligations. Most states follow the classification your LLC chose for federal tax purposes. If your LLC is federally taxed as a sole proprietorship, your state will likely treat your LLC as a sole proprietorship as well.
Regardless of how your LLC is taxed, you may still be responsible for withholding and paying any taxes you owe to your state and local authorities.
Depending on the nature of your business, some states, counties and/or localities require LLCs to obtain a business license. After forming an LLC, make sure you meet all business license requirements.
Most states require LLCs to file annual reports with the Secretary of State and pay a filing fee to ensure compliance and maintain a good reputation. Annual report due dates vary by state. So make sure you know when your annual report is due.
When you start your business withCompany formation at Block Advisorsyou can easily submit annual reports online through our account management portal.
If you wish to do business in another state, you may need to register your LLC as a foreign LLC. Whether you need a foreign degree depends on several factors, such as whether you have a physical office or employees in the state.
Generally, obtaining your qualification abroad requires you to register for a Certificate of Authority, apply for a Certificate of Good Standing and pay the applicable registration fees. However, requirements and procedures vary by state.
Forming an LLC is one of the most important events in any entrepreneur's journey. There are many steps involved, and busy business owners may not have the time or expertise to safely and successfully complete all the necessary paperwork themselves.
For this reason, many entrepreneurs choose to establish an LLC. WithCompany formation at Block AdvisorsGetting started takes only 10 minutes.
Browse your options
Whichever route you choose—whether you form an LLC, remain a sole proprietorship, or choose another form of business—it's important to consider your business needs and your personal situation. Laws vary from state to state. This article is intended to provide information but is not legal advice and is not a substitute for legal advice. A business attorney can look at your specific circumstances and guide your decisions to ensure they are the right thing for you. Similarly, in most states, the Secretary of State's office offers resources for small business owners, including information online, that can help owners determine the best options -- and possible needs -- for their specific circumstances.
At H&R Block and Block Advisors we look forward to continuing to support you throughout your career journey. We strive to help your business and ours succeedCertified tax professionals for small businessesthey're available virtually and in person year-round to help you keep more in your pocket.
An LLC offers limited liability protection, tax pass-through and a flexible management structure. However, an LLC has annual fees and more paperwork than a sole proprietorship. In addition, the limited liability protections of an LLC are limited and may not apply if, for example, you do not clearly separate business transactions from personal transactions or if you commit fraud that harms others. These are just a few of the pros and cons of an LLC. Read the full article for more information.
An LLC is a more flexible business structure than a corporation, however it is a limited liability company that can, in many cases, protect your personal assets from certain business debts and liabilities. Significantly tighter restrictions apply to companies in terms of ownership structure, management and taxes. These are just some of themDifferences between an LLC and a corporation.
LLC formation costs vary by state. State filing fees typically range from $35 to $500. You may also need to incur additional costs if you want to keep your LLC name or if you need to apply for a business license. When you start your business withThe block criticizes, our packages start at $149 plus government filing fees.
The steps for forming an LLC vary depending on the state of incorporation. In most states, you must choose an available company name, appoint a registered agent, and file articles of incorporation.
As an LLC owner, your LLC will be taxed as a sole proprietorship (for single entity LLCs) or as a partnership (for multiple entity LLCs). You can also choose to be taxed as an S corporation or a C corporation.Learn more about LLC taxation and your options.
How do I elect to have my LLC taxed as a C Corp?
In order for your LLC to be taxed as a C Corp, you must complete and submit the formIRS-Formular 8832. After you file the form, make sure you're running your business as a C Corp and following all federal, state, and local requirements.
How do I elect to have my LLC taxed as an S Corp?
To have your LLC taxed as an S Corp, you must complete and submit the formIRS-Formular 2553. After you file the form, be sure to conduct your business as an S Corp and follow all federal, state, and local requirements. Also, make sure you pay a decent salary and keep regular payroll records to take advantage of potential tax savings.
The two main LLC structure examples include a single-member LLC, which only has one member, and a multi-member LLC which can have an unlimited number of members. One of the best benefits of setting up an LLC structure is that you and other members of the LLC will enjoy greater flexibility in how you run the business.What is the basic structure of an LLC? ›
The two main LLC structure examples include a single-member LLC, which only has one member, and a multi-member LLC which can have an unlimited number of members. One of the best benefits of setting up an LLC structure is that you and other members of the LLC will enjoy greater flexibility in how you run the business.What are the 4 characteristics of LLC? ›
Characteristics of limited liability company include separate legal existence, limited liability, flexibility in taxation, and simplicity in operation.What are the essential elements of an LLC? ›
- Limited Liability Companies (LLCs) are one of most popular entity types - and for good reason. ...
- Formation Document. ...
- Operating Agreement. ...
- Members. ...
- Manager. ...
- Meeting Minutes. ...
- Company Seal (Electronic or Stamp) ...
- Employer Identification Number (EIN)
Typically, your business's name must end with the words “Limited Liability Company,” company” or “Limited.” Or you can use abbreviations like “LLC,” “L.L.C.,” or “Ltd.” Usually, you can even opt to abbreviate the words “Limited” and “Company” as “Ltd.” and “Co.” (Most people just stick with “LLC”.)Who has the most power in an LLC? ›
An LLC Managing Member is someone who both owns the LLC, as well as runs the day to day operations, makes business decisions, and has the authority to bind the LLC into contracts and agreements.
In most states, LLCs are member-managed by default under state law. So, if you don't designate a management structure for your LLC either in your formation documents or operating agreement, then it'll be considered a member-managed organization.What type of LLC is most common? ›
Single-member LLCs are recognized in every state and are the most common type of LLC. Here, the word "member" is a stand-in for "owner." Single-member LLCs have an individual owner. The Internal Revenue Service (IRS) treats them as sole proprietorships for tax purposes.What is the best classification for an LLC? ›
What is the best tax classification for an LLC? The best tax classification for an LLC depends on whether you want your business profits to be taxed at your personal income tax rate, or at the corporate tax rate. If you'd prefer personal tax rates, you can classify it as a disregarded entity or as a partnership.What type of structure is an LLC? ›
Limited Liability Company (LLC)
An LLC is a hybrid between a corporation and a partnership. Similar to a C-Corporation, business owners in an LLC are not responsible for the debt of the company – in other words, they have limited liability. However, unlike a corporation, the business does not file separate taxes.
An LLC has pros such as flow-through taxation and limited liability protection. However, there are also disadvantages such as the legal process of “piercing the corporate veil” and being forced to dissolve the LLC if a member leaves.How are LLC distributions taxed? ›
LLC Distributions aren't taxed. Instead, LLC profit is taxed. Because you owe taxes on the LLC's profit, you don't have to pay taxes again when you distribute that profit. Keep in mind, Distributions are derived from the LLC's profit.What is unique about an LLC? ›
The main advantage to an LLC is in the name: limited liability protection. Owners' personal assets can be protected from business debts and lawsuits against the business when an owner uses an LLC to do business. An LLC can have one owner (known as a “member”) or many members.Can you have multiple businesses under one LLC? ›
The answer is yes--it is possible and permissible to operate multiple businesses under one LLC. Many entrepreneurs who opt to do this use what is called a "Fictitious Name Statement" or a "DBA" (also known as a "Doing Business As") to operate an additional business under a different name.How do I choose a business name for my LLC? ›
- Your business needs a legal name for the formation documents.
- You can have one legal name but more than one assumed name.
- Your legal business name must be distinguishable.
- Your legal business name should include the correct required words.
An S corporation provides limited liability protection but also offers corporations with 100 shareholders or fewer to be taxed as a partnership. An S corporation is also known as an S subchapter. In some instances, a business may be both an LLC and an S corporation.What is bigger than an LLC? ›
In general, corporations are subject to more regulations and requirements than LLCs. Corporations are usually required to hold a shareholder meeting every year, and they are required to give notice of those meetings.What is the biggest LLC company in the world? ›
1. Google LLC. Google LLC was originally founded in 1998 by Sergey Brin and Larry Page and is a subsidiary of the holding company Alphabet Inc.Should I be a manager or member of my LLC? ›
"A manager-managed LLC may be preferable when there are members who want a more passive role or don't have the ability or desire to participate in management. In a larger LLC with many members, manager-managed may be the better option because it can streamline business decisions.What are the two options for management of an LLC? ›
An LLC may be managed by its members (owners) or by selected managers. If the LLC is to be managed by its members, it operates much like a partnership. Each member has an equal say in the company decision-making process.
There are two types of LLC management structures: member-managed LLC and manager-managed LLC.What is better than LLC? ›
Corporations offer more flexibility when it comes to their excess profits. Whereas all income in an LLC flows through to the members, an S corporation is allowed to pass income and losses to its shareholders, who report taxes on an individual tax return at ordinary levels.What is an LLC with one owner known as? ›
A limited liability company that has a sole owner is called a single-member limited liability company (also known as an SMLLC). This business entity is registered in the same state where the company conducts business.What are popular examples of LLC? ›
- Hertz Rent-a-Car.
The major difference is how they are taxed. S Corp income flows to stockholders and is taxed on their personal tax returns. Dividends paid to S Corp stockholders are not taxable. C Corps pay income tax on their corporate tax return.Does a single member LLC get a step up in basis? ›
When a member of an LLC which qualifies as a disregarded entity dies, the assets held within the LLC will typically receive a step-up in basis, since the LLC is treated as an extension of the individual for tax purposes.What is the accounting method of an LLC? ›
There are two accounting systems you can choose for your LLC: cash basis and accrual basis. Cash basis accounting: You don't add cash to your books until you've received the money, and you don't deduct any expenses until they're actually paid. Small businesses often prefer this method because of its simplicity.What is an LLC for dummies? ›
LLC stands for limited liability company, which means its members are not personally liable for the company's debts.What are the 5 entity types? ›
U.S. state governments recognize many different legal entity types, but most small businesses incorporate under one of five entity types: sole proprietorship, partnership, C corporation, S corporation, or limited liability company (LLC).What are 3 main types of business? ›
There are three common types of businesses—sole proprietorship, partnership, and corporation—and each comes with its own set of advantages and disadvantages.
- Separate legal identity. ...
- Limited liability. ...
- Perpetual existence. ...
- Flexible management structure. ...
- Free transferability of financial interests. ...
- Pass-through taxation.
A major disadvantage of an LLC is that owners may pay more taxes. When setting up as a pass-through to owners, they are subject to self-employment tax. Self-employment tax ends up higher compared to being taxed as an employee.How many times are profits taxed in an LLC? ›
Any direct payment of your LLC's profits to you are considered a dividend and taxed twice. First, the LLC pays corporate income tax on the profit at the 21% corporate rate on its own corporate return.How do LLC profits avoid taxes? ›
An LLC is considered a pass-through entity—also called a flow-through entity—which means it pays taxes through an individual income tax code rather than through a corporate tax code. In addition to LLCs, sole proprietorships, S Corporations, and partnerships are all pass-through businesses.How do you take profit from an LLC? ›
To get paid, LLC members take a draw from their capital account. Payment is usually made by a business check. They can also receive non-salary payments or “guaranteed payments” — basically a payment that is made regardless of whether the LLC has generated any net income that month or quarter.Will I get a tax refund if my business loses money? ›
A business loss occurs when your business has more expenses than earnings during an accounting period. The loss means that you spent more than the amount of revenue you made. But, a business loss isn't all bad—you can use the net operating loss to claim tax refunds for past or future tax years.Why do people choose LLC? ›
An LLC lets you take advantage of the benefits of both the corporation and partnership business structures. LLCs protect you from personal liability in most instances, your personal assets — like your vehicle, house, and savings accounts — won't be at risk in case your LLC faces bankruptcy or lawsuits.What are the three main advantages of the LLC? ›
Business owners who start a business as an LLC complete the process through their state, so the rules and fees associated with incorporating vary somewhat, but the advantages are consistent: personal liability protection, flexibility in operational and taxation structure, and wide eligibility.Why is LLC good for small business? ›
Unlike an LLC (Limited Liability Company), all partners have limited liability protection, which means they are not personally liable for the debts and obligations of the LLP. This makes an LLP a good choice for businesses that involve multiple owners, as each partner has their own protected interests.Can I change my business name and keep the same EIN? ›
Generally, businesses need a new EIN when their ownership or structure has changed. Although changing the name of your business does not require you to obtain a new EIN, you may wish to visit the Business Name Change page to find out what actions are required if you change the name of your business.
An umbrella LLC is another word for a holding company. An umbrella LLC owns other LLCs that are below it, known as subsidiaries. It effectively shelters those LLCs from cross liability in the event that future litigation results in a judgment creditor trying to collect against assets of a company.What do you call a business that does multiple things? ›
What Is a Conglomerate? A conglomerate is a corporation of several different, sometimes unrelated, businesses.Should you name your LLC after you? ›
Should I name my LLC after myself? You can name your LLC anything you want, as long as it complies with your state's LLC naming guidelines. Naming an LLC after yourself comes with the benefit of being able to easily use that name to sell any products or services you want in the future without brand confusion.Should I name myself CEO of my LLC? ›
You aren't required to call yourself president or CEO. But the reality is that you do need a title for business and organizational purposes. Here are some guidelines to help you choose a title that's appropriate for you and your business.Does your logo have to match your business name? ›
No, your logo (or brand) does not have to match your LLC name. Your logo (or business name) is the brand you use to market to your clients, whereas your LLC name is the legal entity name of your firm. They can match, but they do not need to match.What are common LLC names? ›
- Shimmering Beauty.
- The Career Coach.
- Phoenix LLC.
- Roll It Up.
- Mentor LLC.
- Squeaky Clean.
Can two LLCs have the same name in the same state? No. The first limited liability company to register their business under a given name (or reserve it and register before the reservation expires) will claim the name exclusively. Any later filings with the same name will be rejected by the state.How do I name my small business? ›
- Understand your business. You need a solid understanding of your business — its purpose, vision, mission and target audience. ...
- Use descriptive words. ...
- Be literal. ...
- Choose a name style. ...
- Avoid hard-to-spell names. ...
- Tell a story. ...
- Get feedback on the name. ...
- Don't be too narrow.
A limited company structure is a separate legal entity with the authority to run a business and is governed by company law. With a limited company, the liability is limited to the company with shareholders liable for their share of capital.What type of ownership structure is an LLC? ›
A Limited Liability Company (LLC) is a business structure allowed by state statute. Each state may use different regulations, you should check with your state if you are interested in starting a Limited Liability Company. Owners of an LLC are called members.
Share of ownership can be split 50/50 or at any percentage, as long as the total adds up to 100%. Partnerships are relatively easy to set up. No paperwork needs to be filed with the state, and a partnership can be formed as soon as the co-owners start the business.What is the most common type of LLC? ›
Single-member LLCs are recognized in every state and are the most common type of LLC. Here, the word "member" is a stand-in for "owner." Single-member LLCs have an individual owner. The Internal Revenue Service (IRS) treats them as sole proprietorships for tax purposes.What are the five structure of business? ›
There are five main types of business structures: sole proprietorships, partnerships, corporations, S Corporations and limited liability corporations (LLC).How do you set up a business structure? ›
- Determine Your Level Of Involvement.
- Separate Intellectual Property And The Business Itself.
- Just Structure It.
- Determine How Personal Factors Affect The Business.
- Consider Your Future Funding Needs.
- If You Need Investment, Start With A C-Corp.
However, there are three components of corporate organizational structure that are common across most organizations: the board of directors, the management team, and the shareholders.What is the disadvantage of an LLC? ›
Disadvantages of creating an LLC
Cost: An LLC usually costs more to form and maintain than a sole proprietorship or general partnership. States charge an initial formation fee. Many states also impose ongoing fees, such as annual report and/or franchise tax fees. Check with your Secretary of State's office.
- Separate legal identity. ...
- Limited liability. ...
- Perpetual existence. ...
- Flexible management structure. ...
- Free transferability of financial interests. ...
- Pass-through taxation.
The IRS disregards the LLC entity as being separate and distinct from the owner. Essentially, this means that the LLC typically files the business tax information with your personal tax returns on Schedule C. The profit or loss from your businesses is included with the other income your report on Form 1040.How many companies can you run under one LLC? ›
Yes, you can have multiple businesses under one LLC.
You can run two or more businesses under one LLC by either: running all the business activities under one LLC name, or. registering DBAs (“doing business as”), also known as Fictitious Names.
The excess funds could be used to pay debt or re-invested to expand the business. Or, depending on the circumstances, the profits could be distributed to the business owners. Regardless of the choice, sole proprietors and members of the LLC are required to include the business's profits on their tax returns.