LLCs are not as easy to set up as they seem. Setting one up might be a long and tedious process, involving articles of incorporation, filing taxes, creating shareholder agreements, and more!
You'll have to consult with legal counsel before you even start the setup process. The good news is that there are many benefits to setting up an LLC-such as being able to avoid paying taxes on the income your business makes before it's received, and having the ability to shield your assets from liability if your business takes a tumble. You should weigh all the pros and cons before making this big decision!
What Is An LLC?
An LLC, or Limited Liability Company, is a business entity that provides limited liability to its owners. An LLC differs from a corporation in that it has fewer formalities needed to maintain the company and the incorporation process is different. For example, an LLC does not need to have bylaws, annual meetings of members/shareholders, records of proceedings of meetings or resolutions. It is important to note, however, that even though there are fewer requirements for an LLC it can still be sued or go bankrupt.
What's Required?
Although it may seem daunting at first glance, setting up an LLC doesn't have to break the bank. The main thing you'll need is a business name and one member/owner who lives in your state of residence. The cost of filing articles of organization should be between $50-$100 depending on the governmental agency where you file them. You'll also want to obtain a federal
Employer Identification Number
This is a unique number assigned by the IRS-and open a separate bank account using this number instead of your social security number. It's important to note that these steps will not protect you from lawsuits, but they will protect your assets such as your house and car. Make sure you're protected by talking to an attorney!
The Benefits of An LLC
For a small business, LLCs have some significant benefits. One of the biggest benefits is the ability to avoid paying taxes on income before it's received-called "pass-through" taxation. In addition, if your business takes a hit and incurs debts or liabilities, your assets are shielded from them thanks to limited liability protections. Another benefit is that you will have some control over your business while still being allowed to delegate the operation of the company to another entity. On the other hand, depending on the state you live in and which industry you're in, it can be very expensive or time-consuming to set up. Also, if you fail to file state tax returns and pay annual fees required by the county/state where your business is registered then your LLC can be suspended or even terminated! If this happens then none of the protections that come with limited liability will apply for that period.
Although setting up an LLC isn't easy, it certainly pays off in the end with these many perks! Now that you've learned all about this type of business entity allow me to say congratulations on starting a new company! If you're still unsure about going forward with an LLC don't hesitate to reach out for professional help!
