A Series Limited Liability Company is a special form of business structure that provides limited liability protection to each individual constituent of an LLC. To elaborate, in a series LLC, each of the (multiple) series of companies is protected from the liabilities of the others. It is something akin to a corporation with subsidiaries. Generally series LLCs are formed to protect real estate investments. Each separate investment is constituted as an LLC and brought under a single entity. By doing this the specific LLC in the series is liable only to claims arising out of its own business. In this manner each investment is protected from the liabilities of other LLC’s in the series, essentially liability of one LLC does not cross over to the other series. The advantage of a series LLC form is that the legal and statutory obligations and administrative procedures can be performed as a single entity. There are limitations to this single entity filing though. If any of the series constituents has a member who is not a member of the founding LLC, it has to file returns and pay fees as a separate LLC. There are some tax benefits also in forming a series LLC. One among them is that if one of the series is using property of another for business purposes and paying rent, sales tax on the rent may not be applicable.
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.
Forming a corporation is a bit more complicated than forming a limited liability company; it is also more expensive. Choosing to incorporate your business instead of forming an LLC is usually done because for some businesses a corporation provides better tax advantages than a partnership does. Both a corporation and an LLC are protected under the corporate veil, so the deciding factor is usually the tax benefits.
If you are thinking about incorporation, you will need to learn how to form a corporation. Learning how to form a corporation is easy, you can often do everything yourself. Here are the steps you will need to take to form a corporation.
Step one:
You will need to come up with a name for your corporation. When choosing a name for your corporation you will need to comply with the rules of the state that you are incorporating in. Most states will require you to use a unique business name, it cannot be the same or similar to any business names already on file with the corporations office. To prevent this you will need to perform a name search before forming your corporation. The name also has to have a corporate designator in it, such as Corporation or Inc. You also must avoid certain words that might suggest your corporation is involved with the federal government or is a restricted type of business.
Step two:
You will need to appoint directors for your corporation. When appointing directors for your corporation you want to keep in mind that the directors are going to be making the major policy and financial decisions for the corporation, so you want to choose wisely. The directors do not have to be the owners of the corporation, but most corporation owners appoint themselves as directors before the corporation opens. How many directors your corporation can have depends on the number of owners and the state you incorporate in.
Step three:
You need to prepare your articles of incorporation. The articles of incorporation do not have to be complicated; you can often do them yourself. If you do not think you can do them on your own you can hire a company or a lawyer to help you prepare them. The articles of incorporation need to include a few basic details about your corporation. The main thing it needs to include is the name of the corporation, the address of the corporation, the name of the corporation’s directors. You might also need to include a registered agent for the corporation; this is true if none of the directors is listed in the articles of incorporation.
Step four:
You will need to file the articles of incorporation after you have prepared them. When filing the articles of incorporation you will need to pay a filing fee that ranges from $100 to $800 depending on what state you are incorporating in.
Step five:
You will need to draft the corporate bylaws. The corporate bylaws are the rules that your corporation is going to follow so that it can smoothly operate. The corporate bylaws include when and where the corporation will have meetings, what the voting requirements are, and anything else that deals with the day-to-day running of the corporation.
Step six:
You will need to hold a meeting for the board of directors. The reason this meeting needs to be held before your corporation does business is that you need to make a few decisions that deal with the running of the corporation. At this meeting, you need to set the corporation fiscal year, appoint corporate officers, adopt the bylaws, adopt a corporate seal, and make the decision about issuing stock.
Step seven:
You need to issue the shares of stock based on the decision in the board of directors meeting. Issuing the stock is a way to divide the ownership of the corporation, but it is also a requirement of doing business as a corporation. If you want, the protection that is offered to corporations you have to act like a corporation at all times.
The exact amount of money that your LLC will pay out in taxes is going to depend on how much money your business makes. LLC taxation is based on your LLC’s profit or loss for the current tax year. While you cannot figure out the exact amount of taxes that your LLC is going to pay at year-end, you can gain a better understanding of LLC taxation. When learning about LLC taxation you will find out the various rules that you have to follow and the benefits that are giving to an LLC when compared with other business structures.
The first thing that you need to be aware of is that according to the IRS there is no separate IRS LLC taxation. What this means is that the IRS for federal tax purposes does not recognize the LLC formation. If you choose to form an LLC for federal tax purposes, you must file as a corporation, partnership, or sole proprietorship on your tax return. This means that there are no LLC taxation rules that you have to follow; you will have to follow the taxation rules that apply to the formation that you choose for your tax return.
Forming an LLC can give you some tax benefits, but there are no specific LLC taxation benefits. This is because the IRS does not recognize the LLC as a classification for federal tax purposes. The tax benefits that you will receive depend on how you choose to classify your business for tax purposes.
If you have a single member LLC what this means is that there is only one member or owner for the LLC. Husband and wife teams can also be a single member LLC, if they live in a community property state. Single member LLC taxation is different from normal LLC taxation because of the number of owners involved. With single member LLC taxation the LLC is ignored, you file as a sole proprietorship for federal tax purposes. This means you must file a Schedule C, which reports your business income and expenses, with your 1040.
If you have more than one member, you can choose to classify your LLC as a partnership or corporation for federal tax purposes. If you choose to classify your LLC as a partnership for tax purposes, you will need to file a Form 1065 with the IRS. When filing your federal taxes as a partnership each member of the LLC will only need to claim their share of the income from the LLC. Everything that you need to include will be on the Schedule K-1 for the Form 1065. Each member must complete the Schedule K-1 and attach it to the Form 1065, which is based on the entire business. The biggest benefit to filing as a partnership is that each partner will only have to pay taxes on their share of the income, and you do not get the double taxation that a corporation would get.
If you elect to classify your LLC as a corporation or if it is deemed a corporation by the IRS Entity Classification, rules you will need to file a Form 1120. The 1120 is a corporate tax return, this means that there will be no flow-through items like those that you see with a Schedule C and a 1040. The biggest drawback to filing as a corporation for tax purposes is the double taxation that comes into play. As a corporation, you will have to pay the corporation taxes, but you will also have to pay personal income taxes on any dividends that you receive as a business owner.
