How to start an LLC:
To form an LLC, members must file formal documents with the state, pay filing fees, and comply with other regulations.
1. Select a state.
It is simplest to incorporate in one's home state, but some business owners look to more "business friendly" states to incorporate in. Each state differs in terms of fees and taxes and offers its own advantages and drawbacks.
2. Name your LLC.
Different states have different naming rules for LLCs but usually the name cannot be the same as another LLC's. The name must end with "Limited Liability Company," "Limited Company," "LLC," "L.L.C.," or "Ltd. Liability Co.," and the name must not violate any trademarks. Some words such as Bank, Insurance, Corporation or City are also prohibited by some states.
Approach your state's LLC office to find out whether your proposed name is available for your use. You can, in most cases, reserve your LLC name for a short period of time.
There is no need to register the name because it is automatically registered when you file your articles of organization.
3. Choose a registered agent.
A registered agent is a person or business officially chosen by the company to receive and send papers such as state filings and legal action documents on its behalf.
The registered agent must be a resident of the state in which the LLC is to be formed. You can act as your own registered agent if filing for a Domestic LLC. And there are companies that offer registered agent services.
4. File the articles of organization.
Articles of organization is a legal document you need to fill in and file along with a fee with the Secretary of State. Different states have different requirements, fees, and processes for filing articles of organization. Visit your state's Secretary of State website for more specific information. Usually, the information required is:
- The name of the LLC.
- The address of the LLC.
- The members of the LLC (some states require addresses, too).
- The registered agent.
- The starting date of the LLC.
- Whether it will be member-managed or manager-managed.
- Business activities.
5. Create an operating agreement.
Although not required by most states, an operating agreement guides business decisions and states clearly the rules, regulations, and provisions by which the business will be governed. It shows who owns and manages the LLC, how profits are shared, and how future problems will be resolved.
Types of LLCs:
Type of LLC
For companies operating in the state where the LLC is formed.
For companies with operations in more than one state. A foreign LLC will have to be formed for each entity outside the original LLC's state.
Management responsibilities are divided between individual members.
The members opt for a non-member to take on all of the management responsibilities.
An LLC with one owner.
An LLC with more than one owner.
A type of LLC that protects the "parent" company and all of its "child" companies against liabilities. The individual companies in the Series LLC are protected from each other's liabilities as well. Exists in only some states.
A restricted LLC prohibits certain business distributions among members for the first ten years after formation. Exists in Nevada only.
A mix of LLC, nonprofit organization, and social enterprise, an L3C is for for-profit companies with clear philanthropic and social goals.
Does not make details of the members available to the public.
LLCs and Tax:
An LLC is a "pass-through entity," which means the business itself is not taxed. Instead, members of the LLC report profits and losses on their individual tax returns and pay income tax on their share of profits. The LLC does not pay federal income tax but is compelled to pay annual taxes in some states.
Single-member LLCs are treated by the IRS as sole proprietorships. The LLC does not pay income tax and does not need to file a return. The member, however, reports all profits and losses on Schedule C and submits it with a 1040 tax return. The member must pay income tax on all profits, even if the money stays in the business.
Multi-member LLCs are treated by the IRS as partnerships. Individual members of the LLC each pay taxes on their share of the profits, their distributive share, regardless of whether the profits were paid out to them or not. They must report profits and losses on their personal income tax returns with Schedule E attached. And while the LLC does not pay its own income tax, it must file Form 1065, and provide each member with a Schedule K-1.
LLC members are considered by the IRS to be self-employed. This means that they aren't subject to tax withholding but are responsible for estimating the amount of tax they'll owe for the year and making quarterly payments to the IRS in April, June, September, and January.
LLC State Level Taxes:
A flat rate paid annually, or a percentage of annual earnings.
Unemployment & Income Withholding Tax
Only if the LLC has employees. If elected for, it is a federal income tax withheld from unemployment benefits at a flat rate of 10%.
If the company sells taxable goods and services, it must be registered for a seller's permit and collect sales tax on behalf of the state.
Advantages and Disadvantages of an LLC:
Personal asset protection.
Owners pay tax on distributive share.
Investors don't like K-1 forms process.
Need to keep careful personal records.
If even one member leaves, entire LLC closes.
Business banking fees and monthly expenses.
Access to business loans.
How much does it cost to start an LLC?
LLC formation filing fees can cost between $50 and $500. Filing fees vary from state to state.
How do I establish an LLC?
Do I need a lawyer to start an LLC?
No, a lawyer is unnecessary for starting an LLC. You can prepare and submit the documents yourself.
How much does an LLC cost yearly?
Annual fees for an LLC can cost between $15 and $800 depending on the state, but this includes the franchise tax that is mandatory in some states.
Do you have to pay the $800 California LLC fee the first year?
Yes, California has a mandatory franchise tax payable four-and-a-half months after formation.
How long is an LLC good for?
Generally, an LLC can operate for as long a time as decided by the LLC members, provided state fees and taxes are paid every year.
How long does it take to get an LLC?
Forming an LLC can take anything from a couple of working days to 3 weeks, depending on the state in which the LLC is being formed. For an extra fee, most states offer an expedited formation process.
Should I set up an LLC?
Setting up an LLC is a good way to separate your personal assets from those of your business, but it also lends your business credibility and protects your personal assets, among other advantages.
How is an LLC taxed?
A Limited Liability Company (LLC) is what is known as a "pass-through entity," which means the business itself is not taxed. Members of the LLC report profits and losses on their individual tax returns and pay income tax on their share of profits. The LLC does not pay federal income tax but is compelled to pay annual taxes in some states.
Should I be a sole proprietor or LLC?
A sole proprietorship and an LLC are the same in terms of tax and management, but an LLC offers the added benefit of separating the business owner from the business in terms of finances. The choice is yours.
Do you need an LLC for Amazon FBA?
No, a registered LLC is not required.
What are the benefits of an LLC?
- Personal asset protection.
- Flexible management structure.
- Pass-through taxation.
- Ease of maintenance.
- Business credibility.
Do I need to include LLC in my business name?
Most states require that your business name includes an LLC designator such as "LLC", "L.L.C", "Limited Co.", "Limited", or "Limited Liability Company".
What do LLC lawyers charge?
A lawyer can cost between $150 and $5,000. It is difficult to say for sure. Some lawyers charge an hourly fee, and some charge a flat rate, and junior lawyers tend to be cheaper than senior lawyers.
How does an LLC work?
A Limited Liability Company, or LLC, is a business structure that combines the flexibility of a sole proprietorship or partnership with the personal asset protection of a corporation. It is a way of structuring a business so that members are not personally responsible for any debt or lawsuits.
What is the difference between LLC and S Corp?
An LLC (Limited Liability Company) is a type of business structure, while an S-Corp is a tax election that defines how a business should be taxed. An LLC can be an S-Corp.
How long does it take to get an LLC in Florida?
It will take 30 minutes to be approved if you file the correct documents in person, up to two days if you file online, and up to seven days if you file by mail.
Does an LLC need an EIN in Florida?
If you intend on opening a business bank account, filing taxes, accessing credit and business loans, applying for business permits and licenses, and employing people, then it is essential you have an EIN.
How much does it cost to start an LLC in Ohio?
The filing fee in Ohio is $99.00. The state does not require LLCs to pay annual or biennial fees.
What does LLC mean?
LLC stands for Limited Liability Company. An LLC is a legal entity that defines the characteristics of a business's structure. An LLC is taxed like a sole proprietorship or partnership and protects its owners from business liability.
What can an LLC write off?
Most of the expenses related to running the business can be deducted as business expenses. Things like rent, phone, and office supplies are examples of such expenses.
What is an LLC used for?
The purpose of a Limited Liability Company is to protect the personal assets of a company's owners from business liability, such as bankruptcy and lawsuits.
What are the disadvantages of an LLC?
Members must pay tax on their distributive shares, and keep detailed personal records. The LLC has to issue K-1 forms, which investors dislike. And, if one member leaves the LLC, it closes altogether.
How do LLC owners get paid?
LLC members/owners are paid a percentage of profits according to the number of shares they own individually. How profits are divvied up among members is stated clearly in the LLC's operating agreement, and needs to be reported to the IRS by filing Form 1065.
How does an LLC protect you?
A Limited Liability Company protects you, the owner, from personal liability for the business's debt and lawsuits that may be taken against the business.
Can you be an employee of your own LLC?
If you are an owner of an LLC, while you do work for and with the LLC you are not considered to be an employee of the LLC. In general, LLC owners are paid a percentage of the company's profits, not a salary or wage.
What happens if my LLC makes no money?
If your LLC loses money or makes no money, then the loss becomes a deduction on your personal 1040 tax return. Failing to file a tax return for your LLC, when it makes no money, means you will be overpaying your taxes.
How do single member LLCs get paid?
As the owner of a single-member LLC, you will pay yourself by making an owner's draw. That is, taking money out of the LLC's profits.
What are the tax benefits of an LLC?
The main benefit is that you avoid double taxation. The LLC does not pay income tax on any profits, the owners pay income tax on their individual share of the profits only.
What should I know before starting an LLC?
You should know that having an LLC does not mean saving on your taxes. The primary purpose of an LLC is to provide legal protection from personal liability. You should also know that there are additional annual fees and maintenance costs that vary from state to state.
Can LLCs pay a salary to its members?
Yes, depending on the LLC's tax classification. A sole proprietorship or partnership must pay its members from the company's profits.
How does an LLC pay its employees?
LLCs pay their employees and file returns and payroll taxes just like every other business type.
Do I need an LLC to start a business?
No, you do not need an LLC to start a business.
Can I withdraw money from my LLC?
Members of an LLC are paid their share of the company's profits. Exactly how profits are divided among members is stated in the LLC's operating agreement. The owner of an LLC can make an owner's draw.
Is an LLC good for a small business?
Yes. An LLC is good for offering a small business owner personal protection from liability, and pass-through taxation.
What states require publication of intent to incorporate?
- New York.
What is a member of an LLC?
A member of an LLC is an owner of the company registered as an LLC.
What is the owner of an LLC called?
The owner of a Limited Liability Company is called a member. An LLC can have more than one member.
Can I convert my sole proprietorship to an LLC?
Converting your sole proprietorship to an LLC is the very same process of forming an LLC: