Putting up a business is a good way to earn money. While it can be rewarding, it can also come with a few potential risks. For instance, starting a corporation during challenging economic times may not be ideal. This can cause substantial losses especially when you are putting up the corporation on your own for the first time. Forming an LLC can be your best option when looking for an alternative that is less formal but is as flexible as a corporation.
What is an LLC?
A Limited Liability Company or LLC is a relatively new business model slowly becoming popular among small business in the US. This type of business combines the limited liability feature of a corporation and the operational flexibility of a partnership.
The concept of an LLC was introduced in the late 70s. In other countries, this business model came much earlier and has different statutes and guidelines than that of the US.
Advantages of forming an LLC
LLCs in the United States normally call its partners "members." These members benefit from the incorporation while maintaining small business setups. They also report losses and profits on their individual tax returns much like in a partnership or proprietorship. On the other hand, members also have protection from personal liability. This means they are not responsible for any company debts just like in the setting of a corporation.
Moreover, if the company encounters any legal trouble, only the company assets are at risk. Credit companies cannot go after any of the members of the LLC and their respective personal assets. This is the reason many people today want to form an LLC.
How to form an LLC
The first step is to choose a business name. It must be distinct from other businesses in the state. It also needs to have a clear labeling as an LLC. There are states that do not allow using certain words in the name of the LLC. "Bank" and "Insurance" are two examples. Make sure to choose the proper words for the company.
The next step is to file for the Articles of Organization. This document contains a complete overview of your business. The Articles of Organization include basic information such as your business name, address, and its members. It also documents the stocks that your LLC may issue and legitimizes the operation of your enterprise.
Another important document is the Operating Agreement. It contains the written code of conduct of your company. This actually works as a binding contract among the members. This document also needs formal adaptation and amendment. While this may be not required in most states, people who want to form an LLC are advised to at least draft one.
Like other business models, you also have to secure the necessary licenses and permits. These may vary depending on the nature of the business and the state laws. Document filing companies can be of great help when you are too busy to file the necessary documents.
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