A limited liability company is very much like a partnership but it carries with it the legal protection often associated with a corporation. An LLC protects personal assets like a corporation but with more flexibility to operate minus the operational burdens of a corporation. It is basically a hybrid type of business structure. While the specifics of forming an LLC can vary by state the basic principles are typically the same.
A new limited liability company must file articles of organization. Most states, with a few exceptions, require that you file with the Secretary of State’s office. Most the time this is simply a form that provides the names of the members and their contact information. There will also be a filing fee which can be anywhere from $30 to $200. Every state will have its own specific registration requirements.
The majority of jurisdictions do not require a formal operating agreement. Even so, creating an operating agreement is highly recommended for an LLC with multiple members. This agreement will provide structure to the organization and its finances. An operating agreement typically will include information as to each member’s percentage of ownership, allocation of profits and losses and the rights and responsibilities of each member.
Even though most jurisdictions do not require any annual paperwork it is usually a good idea to document business operational changes and have some formal procedures like an annual meeting to help protect the LLC status.
After you have registered your business you will also need to obtain business licenses and permits pertaining to your industry, state and locality. The business licensing and permits needed for your business will vary depending on your type of business and industry.
A number of states including Arizona and New York require that you publish a statement in your local newspaper announcing the formation of your limited liability company. You will need to check with your state for information regarding any such requirements.
The federal government does not view an LLC as a separate tax entity therefore the business itself is not taxed. All federal income taxes are passed on to the members of the organization and are paid through their personal income taxes. Even though the federal government does not tax an LLC, some states do so it is important to check with your state department of revenue.
Forming an LLC is certainly not as complex as creating a Corporation and you probably will not need to hire a lawyer to register your company. If you do need assistance there are a number of resources and websites available to help with registering your LLC.
Learn more about “how to register an LLC” or compare different Type of Entities