Thursday, May 31, 2012

Forming an LLC - Choose a Business Structure With Maximum Benefits

You will enjoy many business benefits when you form a limited liability company (LLC). This company model is one that many start-up and growing companies choose. An LLC helps you avoid double taxation issues encountered by corporations. It also protects you from unforeseen complications such as bankruptcy and lawsuits. If you want to form a company that lets you enjoy executive freedom, lesser taxes and legislative protection, then forming an LLC is right for you.

The Basics of a LLC

A limited liability company combines the traits of three other company models - sole proprietorship, partnership, and corporation. It takes the best characteristics of each and puts these together. This allows companies to maintain their small business structure while still enjoying the benefits of being a corporation.

There are no partners or shareholders in this type of company structure. Instead, participants go by the name of members. The members do not need to hold regular shareholder meetings or implement any corporation bylaws. You only have to create operating agreements, but that depends on whether or not your state requires it. This easy and flexible structure makes forming an LLC perfect for small and medium-sized businesses.

How to Form a Limited Liability Company

Location is the first thing you need to establish when forming your own LLC. This is important because states have different regulations regarding the formation and registration process. Make sure you are fine with the laws of a state before selecting to register your company.

Think of a name that complies with state regulations. It has to be unique and it must contain any of the three designators of a limited liability company. These are LLC, L.L.C., and Ltd. Liability Co. Ensure that the name you select does not violate any trademarks. Check with your selected state regarding forbidden words as well. Your chosen state may prohibit words like Bank, City or Insurance.

You can make the registration process easier by finding an LLC registered agent. This is especially useful if you want to register your company in a state different from yours. Your agent will be your representative and contact person throughout the entire registration process. All you need to do is to prepare all articles of organization and disclosure documents the state will require. Your agent will file these; you only have to pay the registration fee afterwards.

Benefits of Forming an LLC

The most obvious benefit of forming a limited liability company is in its name. You receive protection from unexpected circumstances and members only have limited liability. Sole proprietorship and partnership business models entail personal liability in case something like a lawsuit comes up. This leads to bankruptcy. This is not the case with an LLC. Your assets will be separate from the company's assets, and only your company will be answerable for any shortcomings and unexpected events.

You will also avoid double taxation problems. When you form a limited liability company, you can choose whether the government will treat you as a sole proprietorship or as a corporation. The government usually treats LLCs as a sole proprietorship. You can then choose whether the IRS will tax you as a corporate entity or as an individual. This leads to bigger savings and protection of your personal assets.

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