Filing Services

When starting a company, many entreprenurs decide to form a Limited Liability Company (LLC) rather than incorporate as a corporation or s-corporation. Because an LLC provides easy management and limited compliance requirements, it has surpassed the corporation as the choice entity for small business owners. An LLC provides the same liability protection as a corporation without the corporate formalities. The owners of an LLC are known as “Members” and operate by rules set forth in the Operating Agreement, which can be modified with Members’ approval as the business changes and grows.

Small business owners who form an LLC have the additional benefit of less complicated taxation. Much like a sole proprietorship or partnership, LLC profits and losses are added to the owner(s) personal tax returns. Additionally, you may choose to form an LLC as an individual to reduce your personal liability and shield yourself from business debt or any potential lawsuits. The 1-Person LLC is now recognized in all 50 states.

To form an LLC, first the Member(s) must choose the state in which to form an LLC. The majority of small business owners choose their home state for convenience, in addition to avoiding any extra fees to forming an LLC in another state. For example, if you were planning to form your LLC in Nevada but operate your physical business in Texas, the state of Texas would require you to re-register your LLC as a “foreign corporation” (a company that was not originally formed in Texas) and you would typically be subject to all the same annual fees and taxes as an in-state company. There are valid reasons for some LLC’s to be formed in the business-friendly states of Nevada, Delaware or Wyoming but if you form an LLC in one of these states you will need to know that virtually every state has laws that require an LLC to re-register a Delaware, Nevada or Wyoming LLC in their home state.

Once you have chosen the state for your LLC formation, you can form an LLC online. Forming online is an efficient way to file your Articles of Organization or Certificate of Organization in accordance with state law. Starting the process to form an LLC can be done the same day with an online order, but processing the state paperwork will take longer depending on the state in which you form an LLC. Some states take 3 days, but others will take several weeks.

When you receive your LLC filing back from your state, you and any Members of your LLC will need to adopt the LLC Operating Agreement to determine the percentage of ownership by each member. The Operating Agreement is also the central document of an LLC and stands as the Members’ written agreement to resolve disputes and follow procedures. The Operating Agreement should include methods for adding or removing any Members, distributing profits and handling internal matters. Managing an LLC typically requires only one Annual Members’ Meeting to discuss and approve any changes to the Operating Agreement.

An LLC can be managed in one of two ways: Member-Managed or Manager-Managed. In a Member-Managed LLC, the business is managed with each Member participating in the company’s daily activities. In a Manager-Managed LLC, the company designates a manager or managers (who may or may not be a Member) to run the business day-to-day with the Members typically only involved as an investor. The most common way to manage an LLC is Member-Managed, especially for small companies that are looking for ease of management.

There are advantages to forming an LLC that might be right for you, including the safeguarding of your personal liability, building a separate business credit profile, adding creditability to your business, simplified management and protection of your 1-person company if you form an LLC as an individual. You can form an LLC online using an online incorporation service.

BusinessWeek has an Article Posted on who is responsible for settling an LLC’s debts after a Dissolution:

Creditors of a valid LLC can collect only from the assets of the company, not personal assets or wages, and garnishments cannot be used against wages unless a money judgment has been awarded in court.

However, this is contingent on the LLC having been properly maintained:

Unfortunately, it’s also possible that you took some action while your company was in business that removed the protection of your LLC, such as signing a personal guarantee with the landlord or mingling personal and company funds.

Fortunately for MyNewCompany.com clients, our LLC Formation Packages include access to the “New LLC Handbook”, which tells you everything you need to know about running your LLC properly so that you can maintain your Liability Protection.

BusinessWeek has an article about starting a one person corporation. The reader’s question is about setting up a corporation instead of an LLC so he can issue stock to employees.

The basics of the article are:

• Setting up a corporation is not as complicated as most think.

• Most states recognize a “1 person corporation” (Editor’s note:  ALL states now recognize 1 person corporations or LLC’s).

• As a 1 person corporation, make sure to issue stock certificates and keep meeting minutes.

• LLC’s can also offer employees equity stakes in the company, though not as straightforward as corporations. The overall simplicity of the LLC makes this option attractive to small businesses.

Of course, none of this is news to us. Our incorporation and LLC formation packages are perfect for one person companies and include the necessary minutes, stock certificates, a handbook and even a checklist for doing the proper startup procedures step-by-step.

Ideoblog: “The latest report shows that filings for LLCs are up in 2005 from the prior year in almost every state, while they are down for corporations in most states.”

More on this topic here.