![]() The IRS assumes that LLCs with more than one member are partnerships for tax purposes. Once you've established an LLC, you may have to pay annual registration fees to the state. ![]() Items in this document typically include: the rights and responsibilities of the LLC members what percentage of the business each member owns how the business will be managed how members will make decisions on major issues what the procedures are for adding new members and what tax treatment the LLC chooses. They usually have a preprinted form where you just fill in the blanks to provide your company's information, or they have a sample form to follow.įor LLCs with more than one member, you'll also need to draw up an operating agreement. You'll need to draft articles of organization in the state where your business is headquartered, file them with the appropriate state office (usually the secretary of state or department of commerce), and typically pay a filing fee. Like corporations, LLCs are governed by state law. Also, in some states certain types of businesses, including banks and insurance companies, can't form LLCs. For example, you may want to be able to issue stock, so you can reward key employees by giving them stock options. And LLCs don't issue stock, so profits are divvied up any way the members choose, with no need for shareholders' meetings.Įven with all these advantages, there may be situations where you'll opt to incorporate instead. You can even choose how you want the business to be taxed: either as a partnership or a corporation (or, if you have a single-owner LLC, as a sole proprietorship). Members can run the LLC themselves or hire an outside manager. A member can be an individual, a partnership, a corporation, or even another LLC. With an LLC, however, you can often hold on to that flexibility: You can have an unlimited number of members, or just one. The same is true if you form a corporation, but when you opt for that business structure, you can lose a lot of the management flexibility you enjoyed as a sole proprietor (or you and your partners enjoyed in your partnership). Reasons for choosing an LLCĪs an owner (or "member") of a Limited Liability Company, typically you're only partially on the hook for unpaid debts or court judgments against your business: Your losses are generally limited to your investment in the company. ![]() This type of business structure has been around for over 40 years, and is now permitted in all 50 states. Self-employed business owners who want to reduce their personal liability for business-related debts and legal problems, but don't want the more complex structure of a corporation, have an alternative: the Limited Liability Company or LLC.
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