If the primary objective of the business form is personal liability protection, LLC form will serve the purpose. Forming LLC or Corporation needs certain legal formalities to be complied with. However, corporations are high maintenance business forms. Unless the business owners do not foresee considerable growth or intend to take the business to the public, forming and maintaining a corporation is not worth the hassle. Another plus for forming LLC is in LLC Taxation. Corporations have to file an individual tax return as a legal entity or ‘person’ and pay state and federal taxes directly. Again, when the profits are distributed as dividend among the shareholders, they have to declare it as personal income and pay tax. Sort of double taxation. The members, as the business owners of an LLC is called, can elect to be taxed as sole proprietorship, partnership or even a corporation, whichever is most beneficial to them.

How to LLC formation, the state laws regulate the formation and operation of LLCs. Each state has different rules and procedures for incorporation or organization of an LLC. Refer to your state LLC regulations to understand the requirements for forming and operating LLC. In all states one basic requirement is filing the Articles of organization. The nomenclature may change in each state but the purpose is the same. An available valid name has to be chosen for your LLC. Then file the articles of organization in that name and provide all the information in the articles as required by the state. You need a person or entity with a local address to act as your registered agent and that person’s written consent to act so must be provided. Some states stipulate an Operating Agreement duly executed and signed by the proposed members as a part of the business registration process. Even otherwise, an operating agreement is beneficial to the business in many ways.  It will provide clarity to business’s operational and organizational structure and a separate identity from that of the members. A publication of the intent to form the LLC may be required in some states.

Limited Liability Company or Corporation offers limited personal liability protection to its business owners. There are statutory procedures required to be complied with to form LLC or Corporation. State laws govern the formation and operation and each state may have different requirements. For forming a LLC or Corporation you have to consult the state agency handling incorporations and organizations. Usually business incorporations are handled by the Secretary of State or Corporation Commissioner’s offices. All states provide online information regarding incorporation or LLC formation and personal support over telephone or in person.

For forming a LLC in any state, the basic requirement is to file an article of organisation and pay the filing fees. You require a valid name to form LLC. Make sure that the name is not similar to another business in your state. Some states provide name availability check option and you may check on the internet also. The name as stated in the articles should end with ‘Limited Liability Company’, ‘LLC’ or another abbreviation which clearly states the limited liability status of the business. The articles of organisation must state all the critical information about the LLC members and the purpose for which it is formed. The articles should also state a person or entity as a registered agent with a local street address for process service. Some states may have more requirements for forming LLC. An LLC operating agreement is required as a part of articles by some states. Even if the operating agreement is not a legal necessity, it is advisable to have one for your LLC. It will provide your LLC a separate identity and establish the limited liability status firmly in the eyes of law. Publication of the intent to form the LLC is also a legal requirement in some states. Some states prohibit formation of LLC for business like banking, insurance or professions.

The state laws govern the incorporation of your small business. The incorporation rules vary in each state. The key procedure for incorporating a business is to file a certificate of incorporation with the state and pay a filing fee. In some states the certificate of incorporation is also called the articles of incorporation. The ownership in a corporation is structured as units of stock or shares, which is subscribed to and promised to pay for by the shareholders. The corporations can be of two types namely an S Corp or a C Corp. The basic legal structures of both forms are similar. The main differences are the share holding and taxation. Shares in an S Corp are restricted to natural US citizens and limited to a maximum of 100. There are no such restrictions in a C Corp. C Corporations are subject to corporate taxation where as the S Corporation advantage is that the profits are passed through to the share holders and taxed as their personal income.

Limited Liability Companies also offer personal liability protection to its owners who are called members. The advantage in LLC Vs. Corporation is that in the eyes of the general public, corporations are ‘perpetual’. LLCs are considered to be bound to the life of its members. One advantage in LLC is that procedure for taxation can be decided by the members and they can elect to be taxed as a partnership or a corporation. The advantage in LLC Vs. S Corp is that LLCs are relatively easy to form and less cumbersome to operate.  Members of an LLC can elect to be taxed as an S Corporation and avoid the double taxation of a C Corporation.

Setting up an LLC in your home state is easy and simple as is in most states. All states provide online resources on the formalities and procedures required for setting up an LLC. Generally business registrations are handled by the Secretary of State or Corporations Commissioner’s offices. In some states it is the revenue division that handles the process. These agencies provide detailed instructions in setting up an LLC. You may have to consult a lawyer to draft your LLC operating agreement if your state laws stipulate filing the same for a valid registration.

Some of the basic steps and requirement in forming an LLC are:

LLC Name

You need a name to register your LLC in your state. It should be a valid name and must end with ‘Limited Liability Company’ or ‘LLC’ or a derivative which clearly states the limited liability status of the company. The name cannot be identical or closely similar to that of an existing business. Some states do have a name availability check option with their registration process.

Articles of Organization

This is called a Certificate of Organization in some states. To obtain a valid registration for your LLC you have to file an Articles or Certificate of Organization with the state and pay the required fee. This is a basic requirement with all states. All states indicate the information needed in the Articles in a pre-printed form or through instructions. You have to carefully understand the requirements, complete the form and sign it as the organizer.

Operating Agreement

Some state laws stipulate that the LLC operating agreement be filed along with articles for a valid registration. Anyhow, an operating agreement is crucial in the existence of an LLC. The most important fact is that it will provide individuality to the LLC.

Registered Agent

The LLC requires a local person or entity to act as its registered agent. The Articles or Certificate must contain the agent’s name and local address and the persons consent to act as the registered agent.

Public Notification

Some states require that a public notice be issued regarding the intent of forming the LLC with the proposed name.

As the requirements vary with each state, it is advisable to refer to your states regulations to form LLC.

The advantages in incorporating a small business are many. The foremost is the personal liability protection it offers. As business expands the associated risks also increases proportionately. By forming a corporation, you are creating a legal entity that has a separate existence in the eyes of Law. That entity is responsible for all its business operations and personal liability of the business owners (or share holders as they are called) is limited to their capital contribution.  Your personal assets are safe from being drawn into the business. Limited Liability Companies also provide such personal liability protection. However, the business continuity and sale and purchase of business interest are moot. Generally LLC has no separate existence from that of its members unless expressly specified otherwise. Corporations are ‘perpetual’. It has a separate existence from its shareholders. Death or disability of a share holder does not affect its existence in normal course. Stocks or shares are relatively easily transferable. Due to this advantage, investors are willing to invest in corporations when compared to other business forms. So, it is easy to attract funds for expanding your business as a corporation.

There are two types of corporations. S Corp and C Corp. The basic structures of both are similar. There are certain limitations in forming an S Corp. The main difference is the tax classification. C Corporations are subject to corporate taxation. It has to file a business profit or loss return and directly pay tax on its profits if applicable. Then again when the profits are distributed among share holders, they have to declare that as income and pay tax on it. In a LLC or S Corp, the profits can pass through to the members or share holder in proportion to their stock holdings. The members or share holders can declare the same in their personal returns and pay tax. Basically C Corp profits are subject to double taxation.

A legal business structure is imperative in operating a business in any of the states. Some forms of business do not involve many legal or statutory formalities in formation and its operations. Sole Proprietorships and General Partnerships can be formed by simple intent of the principal(s). However you will need to obtain all the obligatory permits and licences to operate the business. Forming a Limited Liability Company or a Corporation entails formal procedures. The organisation of LLC or the incorporation of a corporation is governed by state statute. These rules and regulations vary in each state. For forming a LLC you have to select a name and file an Articles of Organization with the state agency handling business registrations and pay a filing fee. Some states have a few more requirements for forming LLC such as filing an LLC Operating Agreement and publication of the intent to form LLC.

Forming a corporation involves lengthier procedures than forming a LLC. A corporation has a separate legal entity from that of its business owners, formally termed as share holders. The corporation is constituted by units of stocks or shares which each share holder subscribes to and promise to pay for. The basic charter for operating business as a corporation is its Articles of Incorporation. The promoters or incorporators have to provide all critical information on the purpose of formation and the organizational structure as required by the state. There are two types of corporations, C Corp and S Corp.

Taxation formalities in each of the business form vary. The sole proprietorship is considered as having no individual existence or a ‘disregarded entity’ and the business owner files business tax returns along with personal returns. Partnerships have a similar system where the profits or loss from business is declared proportionately through partner’s personal tax filing. Partnership has to file an information return separately. LLCs or S Corps has a pass through taxation system as that of a partnership. Corporations are taxed directly and have to file separate tax and information returns.

How to form a LLC series depend on the state statute where you wish to register your series LLC. Basically the requirements are almost the same as forming a normal LLC. An Articles or Certificate of Organization has to be filed and due fees paid. Series LLC should have a Limited Liability Company Agreement like that of the Operating Agreement in a normal LLC. Addition of new series or deletion of an existing series is uncomplicated. An amendment to the agreement would suffice. Each constituent of the series LLC should have a distinguishing mark that separates it from others. For example, XYZ LLC Series A or XYZ LLC Series B.  Keeping the business of each LLC seperate in the series is imperative. You must maintain separate books of accounts, bank accounts and other legal documents and transactions to get the limited liability protection for each LLC. Ensure that all assets and contracts distinctively state the name of the series it belongs to. The transactions between the series must be in a comparable uncontrolled price method or a fair market price method and should be properly recorded.

The legal forms for operating a for-profit business are Sole Proprietorship, Partnership, Corporations and Limited Liability Company. Each legal form has its risks and benefits. Sole Proprietorship is suitable for an individual operating a business without a great deal of risks or potential liabilities. If you are jointly operating a business with two or more persons, partnership is suitable. Both these forms of business are simple to form and easy to operate. The inherent risk in proprietorship or partnership is that the business owners are personally liable for all business debts.

Limited Liability Company or LLC and Corporation offer limited liability protection to business owners. They are not personally liable for the business’s debts or obligations. Forming a LLC or a Corporation requires compliance with state laws. To set up an LLC or a Corporation you have to file certain documents with the state as required by the state statute and pay a filing fee. You may have to pay a regular yearly fee to the state for the maintenance of these business entities.

Corporation has a separate legal existence from that of its share holders. In the eye of law, corporations are ‘persons’ and are treated as such. Due to the separate legal entity status, the office bearers of the corporation are obliged to conduct the business operations strictly in accordance with the regulations governing corporations. LLC has comparatively more flexibility in business operations. While it has the personal liability protection as in a corporation, it offers the flexibility and taxation benefits of a partnership or sole proprietorship.

How to form an LLC depends on the state in which it is registered.  Rules and regulations on how to LLC vary in each state. The basic requirement in all states is to file articles or a certificate of organization and pay a filing fee. Some states require an operating agreement and publication of the intent to form a LLC additionally to that of the articles. LLC is not a tax classification in the Revenue Code. LLC’s can elect to be taxed as any of the other tax classifications which is convenient and beneficial to its business owners.

The basic guidelines for how to LLC formation is

Name availability: Your LLC needs a name to operate under. You have to check whether the name you have chosen is actually available for use. The issue here is that the name you have chosen must not be identical to that of an existing business. Your option to check whether the name is in use is to consult your state’s agency handling LLC registrations or search online resources. The name must contain the words ‘Limited Liability Company’ or ‘LLC’ or such other abbreviations that conveys the company’s limited liability status. Some word or terms such as corporation, bank or insurance or others specified by your state are prohibited from being the part of a LLC name.

Articles of Organization: Some states call this as Certificate of Organization also. For an LLC to come into existence in any state, this document must be filed and the filing fee paid. The Articles or Certificate must contain all the critical information regarding the LLC.

• Proposed name and address of  the LLC
• Name and addresses of all the initial members
• Name and address of the resident agent or agent of service of process.
• Purpose of LLC formation
• Business activity
• Membership interests (rights and responsibilities of the members)

The above information may vary with each state.

Operating Agreement: Only some states mandate that an LLC operating agreement also be filed along with the Articles. As a rule, this document is imperative in every LLC’s existence. It provides the LLC with individuality separate from its members. The basic information required is

• Membership interests
• Management policies
• Business ethics
• Membership transfer conditions

Public Notice: You have to issue a public notice on the intent to form you LLC. This is required in some states only.

Limited Liability Company or LLC can be constituted with a single or multiple members under state statute.  LLC is a relatively new form of business structure. Internal Revenue Service has not created a new tax classification for LLC. A LLC is still classified as a Sole Proprietorship, Partnership or Corporation for taxation purposes and the choice to elect the tax classification is left to the members. LLC members can be natural persons, other business entities and even aliens. In most of the states there are no restrictions on ownership. LLC provides the benefit of limited liability as a corporation with the flexibility of management and operations as a Partnership.  LLC can elect to have pass-through taxation as in a partnership or sole proprietorship. Members can report their pro rata share of the LLC profit or loss in their personal tax returns and pay tax if applicable. Unless otherwise restricted in the Articles or Organization or Operating agreement, the membership in a LLC is easily transferable.

An S Corporation is no different from a C Corporation in form and structure. S Corporations are constituted by shares, which are easily transferable unless otherwise restricted in the Articles of Incorporation. The ownership has a few restrictions. S Corporations cannot have more than 100 shareholders; all shareholders must resident citizens and natural persons. There can only be one class of shares and dividend has to be distributed in proportion to the share holding. The main difference between a C and S is in taxation. C Corporations are subject to corporate taxes and have to pay tax on its profits. When the profits are distributed as dividend to share holders, they have to pay income tax on that which essentially is double taxation. S Corporations do not pay corporate tax but the shareholders report the profit in proportion to their share holding in their personal tax returns and pay tax. In LLC Vs. Corporation, the major advantages of LLC lie in its unrestricted ownership and flexibility in management. Corporations are subject to many formalities in incorporation and operations.