LLCs are one of the most flexible business structures. They offer limited liability protection, less paperwork than corporations, and a lower tax rate.
Creating an LLC requires filing articles of organization with your state’s business registration agency. This process is relatively straightforward, but there are a few details that you’ll need to pay attention to.
Taxes
One of the benefits of forming an LLC is that you can decide how to pay your taxes. You can file your taxes as a “disregarded entity,” which is the same tax treatment as a sole proprietorship, or elect to be taxed like a corporation.
If you choose to be taxed like a corporation, you’ll file Form 8832 with the IRS. After making this election, any profits that are left in the company (called retained earnings) will be taxed at separate corporate income tax rates rather than at the higher individual income tax rates that apply to LLC owners.
Another advantage of choosing to be taxed like a corporation is that it can save you and your co-owners money on your overall taxes. This is because corporate income tax rates for the first $75,000 of corporate taxable income are lower than the top three individual income tax rates that apply to LLC owners at various income levels.
Management
Owners of an llc have a variety of management options. They can select member-managed, in which all owners participate in day-to-day operations; manager-managed, in which members surrender management responsibilities to nonmembers; or a combination of the two.
Choosing the right management structure will affect how the business operates and whether owners are liable for company debts and actions. It can also impact how an LLC will attract investors.
If you choose a member-managed LLC, make sure that the management authority is properly documented in the operating agreement. This can prevent a “too many cooks” situation, in which one or more managers make decisions that affect the whole company without input from all owners.
Ownership
An LLC is a type of business entity that is organized under private ownership. Its owners are called members and they have the right to appoint managers of the company, as well as to bind it into contracts and agreements.
There are two main management structures for an LLC: member-managed and manager-managed. The choice of which structure is appropriate for a particular LLC depends on the nature and size of the business, as well as how owners want to be involved in managing it.
The LLC members should sign a document that describes the way the company will be run and the allocation of management rights and responsibilities among them. This legal contract is called an operating agreement. It should also include buy-sell and succession plans in case of death or incapacitation.
Dissolution
Whether you are closing your LLC because of legal or financial problems, or just to free up more time to pursue other opportunities, it is important to wind up your business properly. Failing to do so could expose you to future fees, obligations and litigation.
An owner should consult the organizational documents of the company, such as the certificate of formation and operating agreement, to determine how the dissolution process should work. Often, the dissolution of an LLC is triggered by an event, such as the death or retirement of a member, or by a majority vote of the members.
After the decision to dissolve has been approved by all members, the dissolution paperwork is filed with the state. This filing typically requires the name and address of the LLC, its members and their percentages of ownership. The state will then send the dissolved LLC a certificate of dissolution.
