Hints on LLC Formation
LLC formation can be fast and easy if you know just a few hints to get started. LLC formation is almost a do-it-yourself task, actually, except for the necessary paperwork you need to file with your state and the few formalities you need to follow to make your LLC an official legal entity. Even with those steps, however, LLC formation is simple for those who know what needs to be done from the moment you decide to form an LLC.
An LLC is different from a corporation or s-corporation in that an LLC is less formal and exists as a private entity without stock or shareholders. The owners of an LLC are known as “Members” instead of shareholders and are typically only required to participate in an Annual Members Meeting, versus a corporation that requires regular shareholder and board meetings. LLC Members run the business on a daily basis according to the LLC Operating Agreement, which is the foundation document set forth at the time of LLC formation. The Operating Agreement is a written agreement between Members to follow a set of internal rules and practices for operating the company, and should also include the percentage of ownership allotted to each Member.
If there is only one Member of an LLC, the LLC exists as a 1-Person LLC, and this entity is recognized in all 50 states. Many self-employed individuals will incorporate as an LLC to save money on taxes. An LLC is taxed like a sole proprietorship, with the company’s profits and losses added to the owner’s personal tax return, but LLC formation offers the personal liability protection and business credit that a sole proprietorship does not.
LLC formation can be done in any state, with the home state of the Member(s) usually the most popular choice. You might be given the advice that it’s smart to form an LLC in Delaware, Nevada or Wyoming—states with the most business-friendly laws—but know that to form your LLC in any of these states might result in you spending more money overall during the formation process. Virtually every state requires any LLC formed in another state to re-register as a “foreign corporation” (a company that was not originally formed in the state of its physical location), and this will usually add even more fees and annual taxes to the LLC.
An online incorporation service will help you with your LLC formation by filing your state paperwork, offering guidance and providing advice during the start-up process. The best online incorporation service will also offer helpful services such as a personalized LLC Operating Agreement, Articles of Organization and corporate kits. You should be wary of any service that does not include state fees in their sample pricing. All states require their own filing fee that varies in price, depending on the state, and this should be included in the sample price of LLC formation by an online incorporation service. When your state filing is returned, you and any Members of your LLC will need to adopt your Operating Agreement and file your Articles or Certificate of Organization. After these tasks have been completed, you will be ready for business.
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