subject: Limited Liability Company – LLC [print this page] Limited Liability Company LLC
A Limited Liability Company, orLLC is a legal form of business organization with daily activities like a partnership but with limited liability similar to a corporation. The Limited Liability Company or LLC is neither a partnership nor a corporation, Limited Liability Company (LLC) is a relatively new business structure allowed by state statute. An LLC is a distinct type of business that offers an alternative to partnerships and corporations, by combining the corporate advantages of limited liability with the partnership advantage of pass-through taxation.
An LLC is formed in the state in which it operates. An LLC is formed by filing Articles of Organization with the state in which you will be doing business. (A few states use a Certificate of Organization to form an LLC.)
Limited liability companies, or LLCs, are becoming more and more popular, and it's easy to see why. The Limited liability Company (LLC) provides the desired limited liability while avoiding some of the drawbacks (like double taxation and excessive paperwork). They combine the personal liability protection of a corporation with the tax benefits and simplicity of a partnership. In addition, they're more flexible and require less on going paperwork than corporations.
The owners of an LLC are called "members" rather than partners or shareholders. The members draw up an operating agreement (similar to a partnership agreement) by which they run the LLC. A single-member LLC is taxed as a sole proprietorship, while a multiple-member LLC is taxed as a partnership.
An LLC is not recognized as a taxing entity by the IRS. Instead, LLCs are taxed based on the number of members. If the LLC has one member, it is taxed as a sole proprietorship. If the LLC has more than one member, it is taxed as a partnership. The LLC can also choose to be taxed as a corporation.
A member's ownership of an LLC is represented by their "interests," just as partners have "interest" in a partnership and shareholders have stock in a corporation
Starting an LLC
Decide the number of members, those who will work for the LLC as partners.
File your articles of organization with your secretary of state (State in which you will be conducting your business)
Get your Employer ID Number for your LLC.
You may also need to create your operating agreement like partnership agreement.
If you will be operating your business in more than one state, that may be required to file Foreign LLC in other state where you are not physically present.
What is the Difference Between a Limited Liability Company and aCorporation?
There are two common types of businesses:
"Pass-through" Businesses
Pass-through businesses are those in which the profits and losses of the business pass through to the owners or shareholders. In other words, the business income is considered as the owner's or shareholder's income, and the owner/shareholder pays the tax on his or her personal tax return.
Separate Business Entities
Corporations are separate businesses entities. The profits and losses of the corporation are taxable to the corporation, not the owners (shareholders).
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