Starting your Limited Liability Company
If you want to start a business, forming a Limited Liability Company — or LLC — could be a great choice. LLCs are designed to be simple and inexpensive to setup, and are easy to run. They have many of the advantages of larger businesses and corporations without all of the rules, regulations and legal compliance commonly found with other business entities. LLCs are registered with the government in your state.
Advantages of an LLC
LLCs have many benefits for businesses, especially small businesses and startups.
- LLCs are quick and easy — the paperwork involved in setting up an LLC is simple to complete, and you can complete the whole process, fast.
- An LLC limits your “personal liability” — that means any liabilities your business has (debts, obligations and other liabilities) belong to it alone. Typically, even as the business owner, you will not be liable for your LLC’s obligations.
- LLCs are easy to maintain — you don’t need to hold annual general meetings, assign boards of directors or meet particularly onerous rules and regulations.
- Flexibility and control over the LLC — LLCs are easy to manage — you can add and amend members and make other changes without too much paperwork.
- LLC taxes are simple — any income earned by your LLC “flows through” to your personal tax return and is taxed as normal. Members report any profits or losses from the LLC on their personal tax returns. This can keep your accounting costs down.
- You won’t be “double taxed” — some corporations have to pay tax on their profits and then individuals pay tax again when they receive stock dividends. LLC members are not subject to this double taxation.
Who Can Form an LLC?
Most people in good legal standing are able to form an LLC. You should consider creating an LLC if you want to limit your personal liability and personal exposure. Forming an LLC protects your personal assets from any claims or debts your business has against it.
It’s important to note that not all businesses can operate as LLCs. For example, businesses dealing with banking or insurance are typically prevented from forming as an LLC. There are also restrictions from state to state, for example California prevents some types of professionals from starting LLCs. To learn more about the specific regulations in your state when starting your LLC, check out Incfile’s complete LLC state information.
Where to Form an LLC
Generally speaking, if you plan to conduct business in your home state, it makes sense to form your LLC there. Although there can be some advantages to forming an LLC in Delaware, Nevada or other “business friendly” states, in most cases those benefits won’t apply to your LLC.
Additionally, you will need to file as a “Foreign LLC” if you conduct business in other states. So if, for example, you incorporate in Delaware and then conduct business in North Carolina, you’d have to file (and pay fees to) the NC government.
When to Form an LLC
The best time to form an LLC is right now. When it comes to starting a business, you will have dozens of things on your mind as a new entrepreneur. Taking a few minutes right now to make sure you form your business properly will give you peace of mind, and let you get on with growing into a thriving company.
Ongoing Responsibilities for an LLC
Once your LLC is formed, you will have ongoing responsibilities you need to carry out. These include:
- Filing an annual report with your state’s Secretary of State.
- Reporting income earned (or lost) by your LLC on your personal tax return. Each member of an LLC will need to do this. If you’re interested in how to save even more tax money by filing as an S Corporation, check out our S Corporation Tax Calculator.
- Providing business reports as needed to other LLC members (this is not a legal; requirement, just best practice.)
You will also want to explore other common areas when starting a new business such as understanding any rules and regulations pertaining to your industry and getting appropriate insurance in place.