35% of small businesses are an LLC. Are you ready to start your own business?
You probably think forming an LLC is the smartest way to legally operate your business.
Thereâ€™s a good reason why an LLC is a popular business entity to create.
The LLC process is easy, affordable, and your business receives plenty of protection. But LLCs differ from other business entities in many ways, from the formation to the operation and even the taxation.
How does an LLC work? How do you apply for one? This guide offers a look at forming a limited liability company, the steps you need to take, and other requirements to know.
What Is an LLC?
An LLC is a business entity thatâ€™s authorized by state law and is recognized by the IRS for tax purposes. LLCs are convenient because they offer the protection of a corporation but with less formality.
In an LLC, you donâ€™t have any personal liability.
What that means is all liability is taken upon the business â€” not the business owner. For example, letâ€™s say your business is sued. The lawsuit will only affect your business, not the business owner personally.
Your personal assets are also protected in an LLC. Letâ€™s say your business runs into serious debt. Your personal assets, such as your house and car, will have no effect on your business debt.
Are there any exceptions? If you formed a partnership, thereâ€™s no guarantee your personal liability wonâ€™t be protected.
LLCs also donâ€™t require many of the responsibilities of a corporation. These include filing various reports and undergoing numerous shareholder meetings.
LLCs also differ from corporations in their structure. There are two different types of structures you can choose from.
The owner of an LLC, also called the â€œmember,â€ conducts all major decisions for the business. This is also known as a single-member LLC. He/she may also assign officers and directors of the firm.
While the LLC has the main member, the day-to-day duties and responsibilities are controlled by the managers.
The managers may also make important decisions for the organization. This is most common in larger companies.
When you apply for an LLC, you can assign specific managers to your business. In addition, you can assign LLC members as managers.
How to Form an LLC
In most cases, you file for an LLC directly through the stateâ€™s agency that handles business matters. This usually involves filling out an application, called the Articles of Organization, and paying a filing fee.
There are some requirements to create an LLC:
- A business name (one that isnâ€™t already in use in your state)
- Operating agreement
- Registered agent
- Statement of Information form
- Businesses licenses and permits (if applicable)
- Tax forms
Youâ€™ll also want to identify each member and each manager as well as their responsibilities. Include additional information such as the percentage of profits each member receives.
Create an LLC Today
The LLC is one of the most common business entities. Hopefully, this guide informed you of the LLC definition, requirements, and application process.
Now that you know how to create an LLC, itâ€™s time to finance your business. Here are some effective financing options.