You need a legal business structure to start and operate a business. There are a few legal structures allowed by state laws for you to form and do your business with. All forms have their advantages and disadvantages. You may adopt a form that is suitable your business. If you operate business with low risks and potential liabilities you may adopt a sole proprietorship or a partnership if you wish to conduct the business jointly with another person or persons. The advantage of a proprietorship or partnership is they are easy and inexpensive to form and operate. The disadvantage is business owners liability is unlimited in these legal business structures.
If you are planning to start a business that may entail considerable debts and business risks, you have to protect your personal assets from getting drawn into the business. Corporations and Limited Liability companies limit business owner’s personal liability to a predetermined amount, usually the capital contribution. The business owners of a corporation are ‘share holders’ and that of LLC ‘members’. When compared to LLC, Corporations are more expensive to form and laborious to maintain. The Formalities and procedures for forming a LLC is simple and straight forward. These depend on the state law in which you wish to register your LLC. Contact the state agency handling LLC applications to know the correct formalities and procedures for forming a LLC in your state.
To start a LLC you have to select a name first. Name availability can be checked with the state business registry or other databases. You should not choose a name that is identical or deceptively similar to that of an existing business. If you do that you may be sued under the Trade Mark and Patent laws and end up paying damages. Once the name availability is confirmed, you have to file certain documents and pay fees for filing and registration. Each state has its own requirements for forming LLC. The basic document to be filed is Articles of Organization or Certificate of Organization. This document must contain all essential information about your LLC such as the proposed name and the address of the registered office of the business, the name and addresses of the initial members and resident agent of the LLC, general purpose of forming the LLC and the membership interests. Some states require that an LLC Operating Agreement also be filed along with the Articles and a public notice issued regarding the intent to form LLC.
The series LLC is the newest business entity form that has been created. A series LLC is based on the concept that a single business entity can be formed in any state, but a separate series can be internally created inside the LLC. The series LLC was created by the State of Delaware over nine years ago, and is slowly being adopted by other states. Currently the only other states that recognize a series LLC is Iowa, Illinois, Oklahoma, and Nevada. The series LLC is slowly gaining more popularity as more states are becoming aware of what it is and how it works.
Forming a LLC is as simple as filing out the appropriate paperwork and filing it with the LLC filing office in your state. If your state recognizes series LLCs you will need to go through the same LLC application process. The difference is once you have started the main LLC you will need to go about forming a LLC for each separate entity. You need to start a LLC for each separate entity so that each entity has separate liability protection, the series LLC is designed to protect each entity from any debts and liabilities that are incurred by the other entities.
The series LLC allows you to form LLC entities that are protected from each other, the protection that each separate entity receives is the same protection that a regular LLC would receive. In order to get this protection you will have to start a separate LLC for each entity. The best way to describe a series LLC is to compare it to a corporation that has several subsidiaries. With the subsidiaries, each one has its own protection from the other; the parental corporation is not responsible for its business debts and liabilities. To ensure protection from one another you want to make sure that each entity has its own bank account and any contracts, deeds, notes, etc should be signed in the name of the series that it is for.
One of the biggest drawbacks to forming a series LLC is that there are costs and administrative burdens that go along with forming and maintaining each separate LLC. For example, you will have to file articles of organization for each LLC you form underneath the main LLC. You will also have to prepare the articles of organization for each separate LLC. Despite the additional fees and forms, you have to fill out when forming each separate LLC the process for adding and deleting each series is not very complicated. To add a series you need to amend the Series’ “limited liability company agreement,” this is the same thing as an operating agreement for LLCs. To delete a series you simply need to have a majority or 2/3 approval of ownership interest, depending on what is in the operating agreement.
The biggest problem that series LLCs face is taxes because of how new they are. The tax treatment of a series LLC has not been firmly established by the IRS. Currently Series LLC classification is determined independently. Each series is evaluated and classified on its own. For example, if Series A has one member it can be classified as a sole proprietorship for tax purposes, if Series B has two members it can be classified as a partnership for tax purposes. Some states only tax the series that are doing business in their states, others tax all of the series the same.
If you are looking for protection of your personal assets when starting a business, your best choice is to start a LLC or a corporation. By starting a limited liability company, you will be granted the same protections as a corporation. When starting a limited liability company your personal assets will be protected, if there are business debts and liabilities due the creditors cannot come after you personally. The biggest problem with starting a limited liability company is that not all businesses can be classified as a limited liability company, and the federal government for tax purposes does not recognize LLCs.
The only other option that you have to protect your personal assets when opening a business is to start a corporation. If you plan to start a corporation, the first thing that you will need to do is to learn how to incorporate yourself. Learning how to incorporate yourself is not hard, but it is going to require some dedication and hard work. When incorporating yourself you will need to follow three basic steps, but the steps can get complicated.
The first thing that you need to do when starting a corporation is to come up with a business name and make sure that the corporate name is available. You will need to start by checking that the exact name you wish to use for your corporation is not already in use in the state that you plan to incorporate in. You also want to go through and see if there are any corporation names similar to yours, if so can they be confused with your business. If the answer to that is yes, you will want to seek a different name for your corporation. As a beginning corporation starting the name check process, all you need to do is go to the website of your state’s incorporation agency and type your corporation name into the search bar. The state incorporation website then does the work for you; it will let you know if your corporation name is already in use or if there are any business names similar to yours.
The second step in incorporating your business is to prepare and file all the paperwork that is needed in your state for incorporation. To start corporation paperwork you will need to prepare the Articles of Incorporation. Once you have prepared the Articles of Incorporation, you will need to file it with your State’s Secretary of State and pay any required filing fees. Once that is done, you will need to prepare your corporations by-laws and organizational minutes. These do not need to be filed with the state, but you must keep them with your other business records and produce them if they are ever asked for.
The third thing that you will need to do is to obtain a Federal Employer Identification Number from the IRS. To obtain this number you will need to fill out Form SS-4 and submit it to the IRS. Without the Employer Identification Number, your corporation will not be able to file a corporate tax return for your business.
Once the corporation has been formed, you will need to find out about any annual filings that your state requires. Most states require that you file a statement of officers and directors every one or two years. You should also check to see if there are any other requirements that your state has, so you can remain in compliance with them.
