What does an LLC look like from the inside, what documents and conditions are mandatory for its activities.
LLC or Limited Liability Company is the American analogue of the Limited Liability Company known in the CIS countries, where the property of the participants is protected from the claims of creditors by the so-called Corporate Veil (corporate veil), the obligations of the Company are not the obligations of its participants.
How to create an LLC
A limited liability company or LLC is a relatively new business structure, first introduced in Wyoming in 1977 and now recognized by statute of each state and the IRS.
An LLC is neither a partnership nor a corporation, but a distinct type of business structure that offers an alternative to these two traditional entities, combining the corporate benefits of limited liability with the benefits of pass-through taxation typically associated with partnerships.
Limited liability companies are becoming more popular and it's easy to see why. Aside from combining the best opportunities of partnerships and corporations, LLCs avoid the major disadvantages of both of these business structures. Limited liability companies are much more flexible and require less current paperwork than corporations to maintain, while avoiding the personal liability risks that come with a partnership. Some examples of well-known LLCs may surprise you - both Amazon and Chrysler are organized as limited liability companies.
Ownership of LLC
The owners of the LLC are called “members”. Since most states do not restrict ownership, members can be individuals, corporations, and other LLCs - domestic or foreign. Usually LLCs can have an unlimited number of members. Most states also allow so-called "single-user" LLCs with only one owner.
Members in an LLC are similar to partners in a partnership or shareholders of a corporation, depending on how the LLC is managed. A member will be more like a shareholder if the LLC chooses to be managed by a manager or multiple managers, because then those members who are not managers will not be involved in the day-to-day running of the company. If the LLC does not want to use managers, members will closely resemble partners because they will have a direct opinion in the company's decision-making process.
Single-vs. Multiple-Member LLC
An LLC with more than one person or entity is called a multi-member LLC. All states also allow one-way LLCs - those with only one owner (member). By default, a Single member LLC is taxed as a sole proprietorship (in other words, the IRS is considered a “disregarded entity”), and a multiple member LLC is taxed as a partnership by default.
Benefits of opening an LLC
An LLC is a relatively new type of business structure that combines the best features of a corporation with those solely owned or owned by a partnership. An LLC has many benefits that cannot be used together in any other business.
Personal liability protection:
LLC is a division separate from its owners. As a legally distinct entity, the personal assets of each owner (such as a home, car, or personal bank account) are not available to business lenders. The liability of an LLC member is generally limited to the amount of money that the person has invested in the LLC. Thus, LLC members are offered the same limited liability protection as corporation shareholders.
Tax advantage:
LLCs are tax pass-through and this advantage is one of the main reasons for the popularity of LLCs. Pass-through taxation means that the income of an LLC is taxed only once, mostly treated as income from a partnership, sole proprietor or S-Corporation. While neither partnerships nor sole proprietorships also provide limited liability protection, the S-Corporation is the closest thing to an LLC. However, the S-Corporation is a much more restrictive business structure that is more difficult to maintain.
Ease of translation:
An LLC can easily sell property rights to third parties without disrupting business operations. By comparison, selling interests in a sole proprietorship or general partnership requires much more time and effort. The owner must individually transfer assets, business licenses, bank accounts, permits and other legal documentation. Transferring ownership to S-Corporations is also subject to many restrictions.
No ownership restrictions:
LLCs have no restrictions on the number or types of owners. In comparison, S-Corporations cannot have more than 100 shareholders, and each must be a resident or citizen of the United States. None of these restrictions apply to LLCs.
It's easier to increase capital:
LLCs provide many ways to raise capital. An LLC can accept new members by selling membership rights or even create a new class of members with different voting or profit distribution characteristics.
More confidence:
As a registered LLC, the business will enjoy legitimacy and more trust when working with other companies, banks and potential partners or investors than, for example, an individual entrepreneur. LLC is recognized as a legitimate company and not as a person doing business.
Flexible management and ownership structure:
Like general partnerships, LLCs are free to establish any organizational structure agreed by the members. Thus, the profit of interests can be separated from the voting shares. This gives owners maximum flexibility to separate or combine the interests of the investors in the company and the people actually working on a daily basis.
How to form an LLC?
It is quite simple to create an LLC, as well as its support. Once you have decided to create an LLC, Organization Articles must be submitted in the condition you have chosen and the initial fees must be paid. Following the submission of the Articles of Organization, LLC owners must have an organizational meeting at which the Operating Agreement is adopted, certificates of interest, if any, are distributed, and other preliminary issues discussed. The LLC kit includes all information and documents to facilitate this process.
Newspaper Publishing: In addition to the simple procedures above, three states require an announcement that an LLC has been formed through a newspaper or multiple newspaper publication. The states that require publication for LLC are New York, Arizona, and Nebraska.
Federal Tax Identification Number (FEIN): A Federal Tax Identification Number, also known as an Employer Identification Number or EIN, is required to obtain an LLC account and pay federal taxes. An EIN for an LLC is like a social security number for a person. This is the number that the IRS uses to identify the business and must be included in all tax documents that the company makes in its operations.
If you are now running your business as a sole proprietorship or partnership and now wish to form an LLC, you must obtain a new EIN for the new entity. Single Member LLC: The IRS allows one-way LLCs to qualify for tax treatment. However, the taxation of one person LLC at the state level may be different.
