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 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.
