If you think about it, business ideas are easy to come by. Converting them into reality and setting up a going concern is where the catch is. If you have a viable business idea and is willing to convert that into a going concern, first decide the business structure you want to adopt. A separate legal entity is necessary to conduct business as to gauge your business success. All business entities are formed under state laws. The legal structures for operating business are Sole Proprietorship, General Partnership, Limited Partnership, Limited Liability Partnership (LLP), Corporations and Limited Liability Companies (LLC).
Sole proprietorships and Partnerships are easy to form and operate. Very few statutory formalities and procedures are involved in forming and operating these business structures. The issue with proprietorship or partnership is that the business owner’s personal liability for business obligations is unlimited. This means that if the business defaults payments to creditors or lenders or is unable to meet a business obligation from its own resources, the proprietor or the partner will have to meet them personally. The business failure will affect the business owner’s personal assets.
Legal business forms that limit business owner’s personal liability are LLP, Corporations and LLCs. LLP’s are restricted to certain professions and class of business owners. Corporations and LLC’s are the popular business entities. Corporations involve lot of formalities and procedures to form and operate and are comparatively the most expensive form of business entity. Limited Liability Company formation is relatively simple and inexpensive. Setting up LLC can be accomplished on your own without much trouble. As the rules and regulation to form LLC varies in each state, you may check with the state department handling business registration to understand the procedures involved in limited liability company formation in the state you choose to start LLC.
To form LLC, you have to furnish information regarding the purpose of setting up LLC and its organization. Most states require an Articles of Organization containing all essential information to be filed with the state department handling business registrations. Usually the article is available in a pre-printed format with the department which the LLC incorporator has to fill in, sign and submit. You have to pay a fee for filing the Articles. After the registration of your LLC you have to get all the required business licenses and permits for conducting business in your state. If wish to employ persons in your business you have to comply with the Federal and State employment regulations.
The limited liability company formation does not allow you to form a LLC corp. The reason for this is that an LLC is a separate business structure. The LLC is a hybrid of a partnership and a corporation. When you are forming a LLC, you are choosing the LLC business structure because it provides you with the taxation benefits of a partnership, but provides you with the protection of a corporation.
The closet that you can come to forming LLC corporations is choosing to have your LLC taxed like a corporation. By choosing to have your LLC taxed like a corporation, you will be receiving the protection that is available to corporations and receiving the same tax benefits that corporations receive, but your business will be an LLC instead of a corporation.
One of the benefits of forming your LLC this way is that it saves you time on paperwork, but it can also save you money. Forming a corporation is more expensive than forming an LLC because of the filing fees and the amount of paperwork that has to be filed. With an LLC, the only paperwork that you have to file is your articles of organization, which usually costs around $100 to file. With a corporation, you will need to file articles of incorporation, bylaws, and numerous other forms. You can use sample articles of incorporation to help prepare your articles of organization so your LLC is similar to a corporation instead of a partnership.
When forming LLC corporations you will need to decide if you want to run your LLC as a C corporation or an S corporation. The structure for both is quite similar, but there are some differences that you will need to keep in mind. Choosing the S corporation for tax purposes allows you to benefit from pass through taxation, where as a C Corporation suffers from double taxation. The double taxation is why some people prefer to form an LLC, they can choose to have their LLC taxed like a corporation, but still benefit from the protection that are provided to corporations.
LLC businesses are protected in a way that is similar to the corporate veil. This means that the LLC member’s personal assets are protected, just like shareholder’s assets are protected in corporations. Protecting the personal assets of members offers the members protection from any business debts and liabilities that are incurred by the business. If the personal asset protection wasn’t available then creditors could come after the members’ house or car to help settle any business debts or liabilities. The one thing that you need to remember is that a personal protection that is offered to LLCs and corporations is not iron clad. The protection is considered null and void if any personal guarantee is signed on behalf of the business.
When it comes to forming LLC corporations, one choice you have to make is where you will be forming your corporation. While most people will choose forming LLC corporations in the state that they live in, others choose NJ incorporation because of the benefits it provides. Incorporating in a state like NJ offers you the chance to incorporate your business in a business friendly state. For example, NJ does not have the extra annual tax that other states charge when forming an LLC.
