An LLC is a business structure allowed in all US states. However, they employ different rules and regulations governing the limited liability company. Under the LLC, each of the owners is a member.
A member doesn’t have to be a person. It could be a corporation, a foreign entity, or another LLC. You can only form an LLC, even if it has only one member. This type is known as “single-member LLC.”
The LLC is an attractive option because it’s easier to set up compared to a corporation. However, the members also get the same mantle of protection from liabilities as you would in a corporation.
As to the question of how to start an LLC, there are some steps you should follow.
Documents to Prepare
Setting up a traditional LLC require two documents:
- Articles of Organization — You can obtain the form from your Secretary of State’s LLC Division. The form is straightforward. You need to write the essential information regarding the LLC. For instance, the LLC name, contact details, nature of the business, and the like. The filing fee is also quite affordable. Depending on where you are, the state will charge from $100 to $800.
- LLC Operating Agreement — This is another document you must prepare. However, most states don’t oblige you to submit this for your LLC registration. It’s an internal document that outlines the rights and responsibilities of each member. The text also includes how members share the profits.
So, how to start an LLC?
- Determine your location, you need to select the state where the LLC headquarters will be located.
- Second, you need to submit the name of your LLC. In some instances, the name is already taken, so you must come up with several variations for your business name.
- Choose an agent who will help you register the LLC.
- Fill up the form and submit it along with your Articles of Organization to the state.
- Decide on an LLC operating agreement with the other members.
- Apply for an employer identification number from the IRS, which you can do online.
IRS Classifications of the LLC
However, the Internal Revenue Service has several classifications for your LLC, depending on the number of members and the manner elections. You may be classified as a partnership, corporation, or a disregarded entity.
For instance, if the LLC only has two members, you will be classified as a partnership. It doesn’t have any significance on how you operate because it’s just for tax purposes. However, if you want to be treated as a corporation, even if you have only two members, you need to fill up Form 8832.
Meanwhile, a single-member LLC is known as a disregarded entity. It means the organization is identified as separate from the member. Again, you can file Form 8832 if you want to be treated as a corporation.
A traditional LLC is different from a series LLC. The latter is another business structure that is recognized only by a few states. However, the two are considered as a “pass-through entity.” That means all the obligations, litigation judgments, and liabilities pass through the members. For instance, in the case of profits, you need to file it under your tax return.
- This is a business post.
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