Starting a new business isn’t easy.
Certain decisions that you make at the onset of your business can either make or break it. One such decision is – choosing a business structure.
Why is this decision so crucial?
Because it will impact a number of factors, which include ownership, taxation, profit-sharing, investment, and state filing and annual reporting requirements.
Some of the most common legal entity types that small business owners choose include Sole Proprietorship, Limited Liability Company (LLC), and Corporation.
In this post, we’re going to tell you about what forming an LLC brings to the table.
Things to Remember Before Forming an LLC
A limited liability company (LLC) is a business structure that offers the features of both Partnerships and Corporations.
Due to the amount of flexibility it offers in taxation and management structure, an LLC is the preferred choice of many first time entrepreneurs.
Here are the five things you need to consider before forming an LLC for your business:
1. Owners are called “members” in an LLC. You can either form a Single-Member LLC or a Multi-Member LLC.
Anyone can be an LLC member except banks and insurance companies. You can form an LLC as an individual, corporation, another LLC, or in partnership with unlimited members.
2. You can choose between two types of management structures for your LLC.
You can either run a Member-Managed LLC (where all of the LLC members actively participate in decision making) or run a Manager-Mangaed LLC (where an appointed manager makes all decisions).
3. By default, an LLC is classified as a “disregarded entity,” which is a separate entity from its owner(s). You can choose to either treat your LLC as a Sole Proprietorship, a Partnership, or a Corporation for taxation purposes.
4. LLCs have fewer annual and ongoing state-enforced filing requirements than corporations, which makes an LLC easier to operate for small business owners.
5. All 50 states in the U.S. allow the formation of an LLC. You just need to file Articles of Organization with the state and acquire a Federal EIN/Tax ID to get started.
GovDocFiling created an insightful infographic on this topic. It explains, in detail, what an LLC is, how to form one, and the advantages and disadvantages this business structure offers.
Check it out below to discover more essential LLC facts.
Image Courtesy: GovDocFiling.
About the author
Brett Shapiro is a co-owner of GovDocFiling. He had an entrepreneurial spirit since he was young. He started GovDocFiling, a simple resource center that takes care of the mundane, yet critical, formation documentation for any new business entity.