Setting up an LLC in Your Home State is Easy

On January 22, 2010, in Limited Liabilities Companies (LLC), by Entity Wiz

Limited Liability Company or LLC is relatively a new form of business entity. All the 50 states have passed resolutions to accept LLC’s as a valid legal entity. Rules and regulations for forming LLC vary in each state. Setting up an LLC in your state must be done in accordance with your state laws. Refer to your to state agency dealing with LLC registrations to get the exact details and formalities to form LLC.

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.

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Single Member LLC Disadvantages

On January 12, 2010, in Limited Liabilities Companies (LLC), Operating Agreement, by Entity Wiz

Limited Liability Companies are suitable for small business that has considerable transactions with potential liability. It combines the advantage of a sole proprietorship or partnership and a corporation. The LLC form provides flexibility in management and operations of the business as that in a sole proprietorship or partner and has the advantage of limited liability to business owners as that in a corporation.  LLC can be formed with single or multiple members. Single member LLC has the same legal structure as a multiple member LLC. The entity has a separate legal existence from its member. In Federal taxation LLC does not have a separate tax classification. LLCs are classified as a sole proprietorship, partnership or corporation for federal tax purposes. The LLC can elect the classification under which it wants to be taxed.

The only disadvantage in a single member llc when compared to a multi member llc is that, when bankruptcy or dissolution occurs, the separate existence might become moot. Courts may rule either way based on the operational history of the company. For all other purposes the single member llc has a separate existence from that of its single member.

Setting up an llc is quite simple and straight forward. All business entities are constituted under state laws. Set up llc in accordance with the rules and regulations of your state or the state in which you wish to register your llc. Though the rules and regulations governing business entities may vary in each state, formalities and procedures for setting up an llc in most states are identical. You have to file the Articles of Organization and pay a fee for the filing. In some states an llc operating agreement is also a mandatory document and should be filed along with the articles of organization for setting up an llc. Certain states stipulate that a public notice be issued about the intent to form llc.

The Operating agreement is a crucial document in any llc, whether single or multiple member. The operating agreement should clearly state the member’s interests, rights and responsibilities, business policies and management functions. This document should clearly identify the LLC as a business entity with it’s owns rules and policies that distinguishes it from its member’s personal life. In a single member llc, having an operating agreement and operating the business in line with it is essential in establishing its separate existence.  It will give the owner chance to prove its separate identity in a court when the need arises.

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Business Ownership Basics

On January 12, 2010, in Limited Liabilities Companies (LLC), Operating Agreement, by Entity Wiz

The basic of any business ownership is the legal structure of your business. All business should have a separate identity and existence from the business owners for obvious reasons. The cardinal principle of business is earning profit. To know whether your business is profitable you have to keep it separate from your personal life. Your business can assume different structures suitable for the type of business you operate. If you are running a small business as a paying hobby and does not involve any risky transactions, you may assume the structure of a sole proprietorship. It provides you with all the flexibility you need and does not involve many legal formalities in its operation. You have the ease of reporting the income from business and payment of any tax in your personal tax returns.

If two or more persons are jointly operating a small business enterprise without potential business liabilities, a general partnership is ideal. Like that of a sole proprietorship, a general partnership is also easy to form and operate. The income from business can be reported through the partner’s tax returns. You may have to file an information return on the business activities apart from that of your tax returns.

The issue with the business structures cited above is that the business owner’s personal liability is unlimited. Any liability or debts arising from the business is the proprietors or partners responsibility and their personal property is open to appropriation to settle business debts.  The solution to this is by setting up a business structure that limits business owner’s personal liability to business obligations. Corporations and Limited Liability Companies are designed to just that.

If you are operating a small business that involves considerable business risks and has potential for future liabilities, form a llc.  As business structure formation is governed by state statutes, you will have to check with the government agency handling business registrations for setting up an llc in your state. Starting an llc is relatively simple and straight forward. You have to file an Articles of Organization with the state agency and pay filing fees. It is as simple as that. The Articles will contain all the basic information about your llc. Most states have the Articles in a standard form with instructions on how to fill the form. Another important item is an llc operating agreement. You have to prepare and adopt an operating agreement for your llc stating its organizational structure and functionalities. In some states this is a mandatory requirement for starting an llc.

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Setting it up Right With a Limited Liability Company

On January 8, 2010, in Limited Liabilities Companies (LLC), by Entity Wiz

Legal business structures are important in managing your business. Your business needs an identity and a separate existence from that of your person. Even if you are conducting business as a Sole Proprietorship, it is advisable to keep the business transactions separate from your personal life. When your business involves considerable transactions, the attendant risks are proportionate.  To protect your personal assets from any risk arising from your business you can form llc or Limited Liability Company which limits business owner’s personal liability to business debts and obligations.

LLC formation is not too complicated and can be easily achieved.  Limited Liability Companies are allowed by all the fifty state laws. Each state may have different regulations regarding LLC formation and you should consult your states agency which handles LLC formations. Generally this is handled by the Secretary of State’s office. For setting up an LLC, there are some basic actions to be taken. First you have to choose a name for your business. Care should be taken to choose a name that is not identical or closely similar to that of an existing business in the state. You can consult the Secretary’s office and check the availability of the name you have chosen.  Then file an Articles of Organization with your Secretary of State’s office.  You are required to pay a fee for filing the Articles and some states charge an annual fee or minimum tax until a Certificate of Cancellation is filed for dissolving the LLC.

The next step is drafting and adopting an llc Operating Agreement. Some states stipulate filing of an operating agreement along with the Articles. Even if you are a single member llc, it is advisable to adopt an Operating Agreement which will provide individuality or a separate existence to the LLC and protect your limited personal liability status. In a multi member llc, the operating agreement is imperative for the smooth functioning of the company. The operating agreement is between the members which should clearly state the rights and responsibilities of each member. The operating agreement will help override some of the default provisions in state statutes that may not be reasonable to your llc members. The operating agreement can include each member’s share of interest and profit, voting rights, operational rights and duties, organizational rules and regulations, divestment in the LLC, voluntary dissolution or when a member becomes disabled or deceased.

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Offshore Incorporation

On November 5, 2009, in C-Corporations, General Entity Advice, Limited Liabilities Companies (LLC), S-Corporations, by Entity Wiz

Incorporating offshore offers you the chance to form an LLC in a different country. Setting up an LLC or business partnership offshore is not against the law, but you do have to have a valid reason for doing it. One of the best reasons for setting up an LLC offshore is having an international business.

If you are thinking about setting up an LLC or business partnerships offshore many of the same steps are required. In the United States while it is not required by law to have a corporate seal, if you plan to incorporate offshore you will need to have one. The reason for this is that the corporate seal is what will identify your business when doing business offshore. Your corporate seal is going to include the company’s name and place of incorporation, which lends creditability to the corporation. Corporate seals are also required for opening bank accounts and distributing shares of stock.

Here are some other benefits that you will receive by incorporating offshore.

  • Incorporating offshore allows you to protect yourself from illegitimate creditors because of the strict privacy laws. You can even remain completely anonymous while controlling your international corporation. With the strict privacy laws in place, you can keep your business interests hidden from anybody.
  • Unlike corporations in the United States there is no annual reporting that, you need to do. This means that you do not have to file the annual reports, such as income statement and the balance sheet. Even though you do not have to file them you should still prepare them for your shareholders, and it allows you to track what is going on with your corporation. There is also no minimum capital requirement for your corporation.
  • You can use an offshore incorporation for your estate planning. This is where the law can get confusing because some people try to use an offshore corporation to avoid paying taxes on anything that they own. Offshore corporations are not subjected to the same taxation that United States corporations are, most offshore corporations do not have to pay income tax. While it is legally to have an offshore corporation, you want to make sure everything is legitimate. You can use the offshore corporation to protect your investment income and long-term benefits from any taxes, such as inheritance and capital gains tax.
  • Having an offshore corporation means that your assets are even more protected. With normal corporations the assets, that the corporation owns is vulnerable when it comes to settling business debts and liabilities. If you have an offshore corporation, all of your assets will be protected from any future claims against your corporation because the courts have no jurisdiction over offshore corporations.
  • Setting up an LLC or a business partnership offshore can also provide you with a reduction in your tax liabilities. Most offshore corporations that are formed in offshore jurisdictions are tax-free because no taxes are assessed in those areas. This saves your corporation a lot of money. Offshore corporations also offer you the chance to do business with fewer restrictions and regulations, which can help free up your time. You free up your time because you do not have to file all of the papers that are required in the United States. The more time and money you have to dedicate to your business the more your business can expand.
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