Limited Liability Company LLC Definition, Advantages, & Disadvantages

Your entity name must contain the words Limited Liability Company or the abbreviation L.L.C. or LLC. You must obtain a Certificate of Name Reservation [10A-1-4.02] prior to filing Limited Liability Company Llc your formation documents. Domestic Limited Liability Company Certificate of Formation and Foreign Limited Liability Company Application for Registration forms are available.

A simple example would be if an employee of the company is found conducting illegal environmental activities. Legal action can be threatened against the company to pay for damages. The court can go after the assets of the firm, but not the owners, to pay for the damages. The exception would be if the owner was aware of the illegal activities and continually allowed them to happen. By clicking “Find a Lawyer”, you agree to the Martindale-Nolo Texting Terms.

Exceptions to the first year annual tax

An LLC with either single or multiple members may elect to be taxed as a corporation through the filing of IRS Form 8832. Some commentators have recommended an LLC taxed as a S-corporation as the best possible small business structure. It combines the simplicity and flexibility of an LLC with the tax benefits of an S-corporation (self-employment tax savings).

• They are limited to collecting from your LLC’s assets, like your LLC’s bank account.
• Do not include Social Security numbers or any personal or confidential information.
• Understanding the benefits and disadvantages of an LLC, how to start an LLC, where to form your LLC and other key topics is essential for business success.
• Because you’re not personally liable, creditors or people who file lawsuits against your LLC can’t collect against your personal assets like your personal bank accounts, personal car, or home.
• However, a few states impose requirements that members and/or managers must be at least 18 years of age, or the age of consent.
• The profits the business incurs pass through the business to the owner’s personal tax return.

To help you form an LLC successfully and in compliance with state law, follow these eight steps. Enabling tax and accounting professionals and businesses of all sizes drive productivity, navigate change, and deliver better outcomes. With workflows optimized by technology and guided by deep domain expertise, we help organizations grow, manage, and protect their businesses and their client’s businesses.

Business Entities

In both cases, the profits or losses are “passed-through” the business and reported on the owners’ tax returns. Any tax due is then paid by the owners at the individual tax level. Limited liability companies are important legal structures for forming a business. Limited liability means that the assets and debts of the business remain separate from the personal assets and debts of the company’s owners. If a company goes bankrupt, creditors cannot therefore go after the owners’ personal assets, just that of the business. LLCs also have several beneficial features including simplified taxation and a relatively straightforward process to establish one.

• LLCs are fast becoming a preferred entity type for investing in and holding real estate.
• In general, an LLC will operate as a Domestic LLC where it is formed and operates within your state, or a Foreign LLC where it operates in a different state than the one in which it was formed.
• It combines the simplicity and flexibility of an LLC with the tax benefits of an S-corporation (self-employment tax savings).
• Specifically, a domestic LLC with at least two members is classified as a partnership for federal income tax purposes unless it files Form 8832 and affirmatively elects to be treated as a corporation.
• Many states don’t restrict ownership, meaning anyone can be a member including individuals, corporations, foreigners, foreign entities, and even other LLCs.

Many states allow a business form called the limited liability company . The LLC arose from business owners’ desire to adopt a business structure permitting them to operate like a traditional partnership. Their goal was to distribute income to the partners but also to protect themselves from personal liability for the business’s debts, as with the corporate business form. In general, unless the business owner establishes a separate corporation, the owner and partners assume complete liability for all debts of the business. A limited liability company, or LLC, is one type of legal entity that U.S. business owners can select for the operation of their enterprise. Creating an LLC protects an individual’s or group’s personal assets in case of legal trouble or bankruptcy.

LLC Frequently Asked Questions

We’ll ask you a few onboarding questions; be prepared to tell us your legal structure, industry, and location. If filed online, it may be possible to get your LLC formed in two to four business days. Otherwise, LLC papers submitted by mail often take two to several weeks to process. When forming your LLC, you should be sure to determine your tax obligations, as paying taxes is important for keeping your business in good standing.

C. Section , a Delaware LLC operating agreement can be written, oral or implied. It sets forth member capital contributions, ownership percentages, and management structure. Like a prenuptial agreement, an operating agreement can avoid future disputes between members by addressing buy-out rights, valuation formulas, and transfer restrictions. The written LLC operating agreement should be signed by all of its members. Limited liability companies are required by statute to conduct business under their true legal or “real” name.

What Would You Like to Name Your LLC?

For privately-held limited liability companies in general, see Private limited company. For limited liability companies in general, see Limited company. The filing period is the calendar month in which the original Articles of Organization were filed by the Department of State.

The public will be able to see any information or documents you provide for the LLC. While each LLC is required to have a registered agent, it is possible to act as your own agent or appoint an LLC member to the role. Otherwise, you may hire an individual or company to act as your agent. A registered agent https://quick-bookkeeping.net/ is someone who receives official or legal documents on behalf of the LLC. Once received, the registered agent then passes on these documents to the LLC. Depending on the laws of the state where the LCC is located, an individual member may be a single person, a partnership, a corporation or another LCC.