LLCs are one of the most popular structures in the US for small businesses, and for good reason: they are flexible and easy to start and run. LLCs also offer more benefits than other types of entities, like liability protection, ownership control and tax deductions. Many small business owners begin as sole proprietors, but as they grow and hire employees they need an entity that can change with them: enter LLCs.
If you are a self-employed small business owner or part of a partnership, an LLC might be a great next step for your business. In this post, we will be breaking down everything small business owners need to know about LLCs: what they are, how to start one, and their benefits. Let's dive in.
What is an LLC?
LLC stands for limited liability company, and they operate like a hybrid between a sole proprietorship and a corporation. In an LLC, owners are not personally liable for the debts of the business (as is true in corporations). However, rather than being owned by shareholders like corporations, LLCs are still owned by one or more individuals who have ultimate control over the business. LLCs are managed by individual states and are not a federal business entity type.
LLCs are chosen by many small business owners for taxation purposes. LLCs are usually still taxed like sole proprietors or partnerships, which means owners can deduct business losses on their taxes while still protecting their assets from risk. LLCs are more adaptable and flexible than traditional corporations, which are taxed differently and have specific annual requirements like shareholder meetings.
How to Create an LLC
The process of creating an LLC does vary slightly from state to state. But the standard steps include filling out forms, selecting a name, paying fees and setting up rules for operating your business. Here’s how to do it, step by step:
- Select a Name for Your Business: The first step in creating your LLC is to choose a name. If your business already exists as a sole proprietorship or partnership, you probably won’t need to change your name too much, but it is required that at the end of your business’ name you add a designator that it’s an LLC, such as “LLC” or “Limited Liability Company." You will not be able to register your LLC with the same name as another LLC in your state. Most states also have prohibited words to put in LLC names, such as "Inc", so double check the requirements near you with your state's Secretary of State.
- Fill out the Articles of Organization: The main form you fill out to create an LLC is called the Articles of Organization. This simple form asks for your business’ name, address, members, and “registered agent” which is the entity designated to receive official legal correspondence for your business. You can be your own registered agent or hire a lawyer to serve as one. If you choose to serve as your own registered agent, you’ll just need to have a street address in the same state as your LLC.
- Pay the Fees: You’ll also need to pay a fee to create an LLC, which ranges by state but can be up to $900. Most states charge between $300 and $500 on average.
- Create an Operating Agreement: Although this is not required by the state, it’s a good idea to create an operating plan for your business and divide responsibilities between owners if there are more than one. Creating an operating agreement will set your LLC up for success.
Creating an LLC is a straightforward process once you fill out the forms with the information you need, but we are always available to help. Skip can help you painlessly deal with government services as a small business owner.
The Benefits of LLCS
LLCs are the chosen entity for millions of small business owners because of their flexibility and the way that they minimize risk. In a sole proprietorship or a partnership, owners are indistinguishable from their businesses, and can be held responsible for the business’ debts. As your business grows, it’s a good idea to create an LLC, even if you are the only employee of your business.
LLCs still allow owners to have complete control over their business, without being vulnerable if the business fails. If you’re a small business owner, consider starting an LLC to protect yourself financially while maintaining the flexibility you’re enjoying as a sole proprietor or member of a partnership.
Your LLC can grow with your business, as there are no limits to the number of members in an LLC. As you navigate the legal and regulatory landscape of being a business owner, we are glad to help. Get in touch with us at Skip if you need help with government services needs.
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