Friday, August 31, 2012

A Startup Entrepreneur's Guide to Forming an LLC

Launching a business always comes with a number of potential risks. Establishing a corporation during these unpredictable economic times can be disadvantageous. This especially is true if you are setting up one on your own or for the first time. If you are looking for an option that is less formal but is as flexible as a corporation, forming an LLC may be your best option.

LLC is an acronym for Limited Liability Company. It is a hybrid business model combining the limited liability feature of a corporation and combining it with the operational flexibility of a partnership. It is a model growing in popularity with small businesses across the country. Despite its combining of the two essential features of a corporation ad partnership, it is not one or the other - it is its own type of business unit.

Its introduction in 1977 makes this business model relatively new to the United States. In other parts of the world, it dates further back and comes with different statutes and guidelines. In the US, "partners" of an LLC are referred to as "members." Members benefit from incorporation while maintaining a small business setup. Similar to a partnership or proprietorship, members report losses and profits on their individual tax returns. Like a corporation, members have protection from personal liability - meaning, they are not responsible or accountable for any company debts.

One of the greatest things about the formation of an LLC is the fact that if the company encounters any legal trouble, only company assets are at risk. Creditors cannot go after any members and their personal assets. Many choose to form an LLC because of this reason alone.

Although each state has its own set of guidelines, the following are some general principles when forming an LLC.

- Choose a Business Name - When it comes to this regard, your company's name must be distinct from other entities in the state and needs clear labeling as an LLC. Some states also restrict the use of certain words such as bank and insurance. Be mindful of prohibited words upon setup.

- Filing of the Articles of Organization - This document is a complete overview of your business. It includes essential information such as your business name, its address, and its members. It also documents the stocks that your company may issue and legitimizes the operation of your enterprise.

- Operating Agreement - This is the written code of conduct for your LLC. It serves as a binding contract among members and needs formal adaption and amendment. Although it is not necessary in most states, the general recommendation is to draft one if you are to form an LLC.

- Licenses and Permits - Regulations vary according to industry, and even by state. Consulting with a knowledgeable document filing company will come in handy when preparing and filing the necessary documents.

Operational ease is one of the greatest advantages of an LLC. Since this is the case, you have the option to file paperwork on your own or hire a third party to do the work for you. An external group can help you save time, energy, and resources. Other than their expertise in filing documents, they may also answer all your questions during setup.

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