Frequent Questions About LLC
What is an LLC?
An LLC or limited liability company is a legal entity that blends the characteristics of partnerships and corporations. Some people use an LLC to hold assets while others form an LLC in order to conduct business.
In both cases, this type of legal entity offers members legal protection, by separating their personal assets from their business assets.
Can I start any type of business as an LLC?
No. Businesses in some industries cannot be formed as LLCs or enjoy the type of limited liability protection that they offer. For example, banks and insurance companies cannot be formed as LLCs.
Can all professionals form their business as an LLC?
In most states, professionals such as lawyers and doctors are allowed to form businesses like LLCs and can include the word doctor or lawyer in their business name.
However, some states, like California are more restrictive and will not allow some professionals to form their business by using this structure.
Who are the members of an LLC?
The members of an LLC are the individuals or entities who hold a membership interest in the LLC. All members do not necessarily have the same number of shares in the LLC. The LLC's operating agreement will usually give information on the shares allotted to each member.The members of the LLC are its owners but that does not mean that they own the LLC's property. They also might not be responsible for managing the LLC's affairs.
Are the requirements for forming an LLC the same in all states?
No. Each state has its own requirements for forming an LLC. Each state has different rules on who can be members of the LLC, whether you can file by mail or online and what type of document will be used to create the LLC. Even naming requirements can vary from one state to another.
How is an LLC managed?
LLCs are either managed by the owners or by external managers. If an LLC is owner-managed, a single manager is nominated to act as the manager. If it is manager-managed, an external manager is hired to handle the daily responsibilities associated with managing the business.
Can the members of an LLC get sued?
The owners of an LLC can typically avoid personal liability and they are usually not legally responsible for the actions of the business. However, there are a few exceptions.
For example, if you take out a loan in your LLC's name while knowing that it cannot pay it back, you would be held personally liable for that loan.
You should also avoid depositing money from the LLC in your personal account since that could give a court reason to "pierce the corporate veil" and make you personally liable for debts.
Who is the organizer of an LLC?
The organizer of an LLC is the person or entity that files the document which creates the LLC. In some states, this document is known as the Articles of Organization and in others, it is known as the Certificate of Formation.
Is a signature always needed to form an LLC?
A signature is always needed to form an LLC. This signature should belong to the organizer and should be affixed to the Articles of Organization or Certificate of Formation.
If you don't want your signature to be attached to the document, you can ask another party to act as your organizer in some states.
Are there tax benefits associated with forming an LLC?
Yes. Many individuals form an LLC to enjoy pass-through taxation. They can report their share of the profits or losses made by the company on their personal tax returns. This means that they aren't subject to the double taxation that people with corporations experience.
Is it better to form an LLC in some states than in others?
Yes. Your attorney or accountant can advise you on which state's laws are best suited to your goals. In some states, the fee for filing your annual report will depend on the number of members in your LLC or other factors, while in other states, the fee is relatively constant.
There are also other details to consider, such as the amount of time that you have for reporting each year. Nevada and Delaware are generally regarded as the states that offer the most advantages to LLCs.
Is it necessary to have an LLC in every state in which you plan to do business?
The requirements for trade vary from one state to another. In some states, you will be required to form an LLC and pay business taxes in the state. In some industries, you'll need to qualify to do business in every state in which you plan to trade.
What is a "series LLC"?
A Series LLC is a particular type of LLC, which gives separate rights to different lines of members, such as managers. Only a few states, like Delaware and Oklahoma, allow Series LLCs.