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.
Legal business structures are important while conducting business. Your business should have a separate existence from that of yours for many a reason. It is also important that proper structure is adopted to maximize benefits and minimize the business risks. Limited Liability Company (LLC) is popular with small business owners for this reason. LLC definition is that the business owners of the company have limited personal liability for business debts and obligations. In a Sole proprietorship or Partnership (except limited partnerships) the business owners are personally liable for all their business liabilities. This means that if the business defaults payments to creditors or lenders, or a claim arises during the course of business, the business owner’s personal assets can be liquidated to pay those creditors or lenders and to settle the claim. In an LLC, the business owner’s personal liability is limited to a preset amount and their personal properties are protected from liquidation for settling business obligations.
Starting a LLC is fairly simple and straightforward. All the fifty states now allow Limited Liability Companies through their statutes. The rules and regulations regarding setting up llc may differ from state to state. It is advisable to consult the state agency which deals with the registration of LLC’s. Usually llc forms are handled by the Secretary of State’s office. You have to file the required forms and pay due fees to register your LLC with the Secretary of State’s office.
For setting up llc, there are certain basic requirements. You need a name for your limited liability company to operate under. The name cannot be very much similar or identical to an existing company. The name must end with “Limited Liability Company” or its abbreviation “LLC”. Words like “bank” “trust” “insurance” and a few others are prohibited from being a part of the LLC’s name. Each state may have its own prohibited names list for LLC’s. Once you have an acceptable name, you file the Articles of Organization of the LLC and pay a fee to register the LLC. Most states have preprinted formats for Articles of Organization and all you need to do is fill and sign according to the instructions. Adoption of an Operating Agreement, which details the organization, operation and dissolution functionalities are critical in functioning of an LLC. The operating agreement bestows a distinctive identity to the LLC from that of the owners and provides clarity to the member’s rights and responsibilities.
Some states prohibit Limited Liability Companies from conducting certain businesses or professions. Limited liability Companies cannot operate banking or insurance businesses under their name.
Starting a business as a Limited Liability Company in the United States is easy and convenient as the procedures involved are minimal and straightforward in their content. Limited Liability Companies or llc’s are the most suitable for small business entrepreneurs as they have the advantage of limited liability for the debts and action of the LLC as in a Corporation but with flexibility in management and pass through taxation.
Setting up llc depends on the statute of your state of domicile. Most states do not restrict ownership and an llc can be owned by a single or several individuals, other llc’s, corporations and even foreign entities. Though, business like banks, insurance companies or non-profit organizations generally cannot be set up as llc’s.
To form llc, the legal requirements and regulations of the state in which the llc is to be set up need to be complied with. Each state may have its own rules and regulations regarding the formation of Limited Liability Companies. The owners of an llc are termed as members rather than partners or share holders.
There are certain llc forms and documents for starting up a business in every state. The basic documents are an Operating agreement and Articles of Organization. The operating agreement is drawn up by the members which sets forth the functions of the business, members interest or investments, voting rights, profit/loss sharing ratio, management policies, rights and duties of members and the dissolution or termination conditions. Articles of Organization are the basic charter for your business to engage in a lawful business activity in the state of registration. It should contain all basic information about your business including but not limited to Name and principal place of business, nature of business, registered agent’s name and address, name and addresses of the principal officers and the know members of the entity. Some states term this as Certificate of Organization also.
Limited Liability Companies are not recognized as a classification for tax purposes. Llc taxation must be done as a recognized federal tax entity as that of a corporation, partnership or sole proprietorship. Members can elect to be taxed as any one of the recognized tax classifications by filing a form 8832 with the federal government. Llc taxation filing includes wage and tax statement (w-2, W-3) and Forms 941 to 944 if it has paid employees and 1040, 1065 or 1020 for profit or loss from business in accordance with the classification the business has elected to be taxed.
