LLC Filing Documents Prepared By Local Arizona Paralegals
- Easy to form with minimum paperwork necessary
- Less annual forms to file than a Corporation
- Most popular business formation in the U.S.
What is a Limited Liability Company or LLC?
A Limited Liability Company or LLC is a type of business entity which is recognized under state law as a third party. The LLC is like a partnership and a corporation, however it does not have the same responsibility of reporting of income data and expenses to the State as does a corporation. The LLC is now one of the major entities that is used in forming new businesses today.
The LLC combines the limited liablity protection of a Corporation with the simplicity and tax advantages of a Partnership.
What are the advantages of forming a Limited Liability Company (LLC)?
- The LLC is easier to prepare and maintain than a corporation or partnership. The cost of preparation is generally less than forming a corporation or partnership
- An LLC has members rather than stockholders
- The members of an LLC are not liable personally for the debts of the LLC unless they personally guarantee the debts of the LLC.
- Income and losses can be passed through to its members in the same way they are passed through in a sole proprietorship or partnership.
- An LLC does not have the same requirements as a corporation to the State and normally no annual reports are necessary.
- An LLC has members with more ability to manage than a corporation with stockholders
Can a LLC have only one member?
Yes, the LLC can have only one member, and they can own 100% of the LLC.
Can an LLC protect me from personal liability?
Yes, the LLC can protect you from personal liability, as the LLC is a separate entity and stands responsible for its own income and debts.
What do I need to get started?
- We will need the name of your company.
- Address of where it will be located.
- The names and addresses of the owners.
- Their percentage of ownership.
- The duration of the LLC.
- The year end tax date
What is an Operating Agreement?
An Operating Agreement is an agreement made between the members of the LLC as to how the business will be conducted. Operating Agreements are not part of the public record and do not need to be filed with state offices. This document is similar to the minutes and bylaws of a corporation and should contain provisions that address issues such as contributions, type and manner of distributions, allocations of profits and losses and other important operational matters.
What are the possible disadvantages of an LLC?
The LLC is a relatively new entity and rules and regulations regarding it’s operation and tax regulations are still evolving. In some cases the state regulations need catch up with current IRS rules. In 1997, the IRS Check the Box regulations made it easier for an entity to elect how it would like to be taxed. As a result many previous requirements for LLC’s became obsolete. Some states have yet to adopt these new rules.
What are the benefits of forming an LLC?
Limited Liability. Similar to a corporation, all of the members (owners of an LLC are called members) of an LLC enjoy limited personal liability. Generally, owners are not exposed to legal liability for the debts of the business. You only risk your share of the investment in the business.
Tax Flexibility. An LLC with two or more members can choose how it wishes to be taxed. It can have the pass-through taxation of partnership or elect to be taxed as a corporation. Most LLC’s will choose to have pass-through taxation in order to have the profit or losses of the business pass-through to the to the tax returns of it’s individual members. Electing pass-through taxation avoids the possibility of the double taxation associated with traditional corporations.
For LLC’s with only one member, you can elect to be taxed as a sole proprietorship or a corporation. Most single member LLC’s will elect to be taxed as a Sole Proprietorship to avoid double taxation, however, many are electing to be taxed as an S Corporation which also allows for pass-through taxation. Electing to be taxed as a Sole Proprietorship would mean that profits and losses from the LLC will be reported on your individual tax return on Schedule C.
Flexible Management Structure. An LLC can be managed by it’s members or it can designate a manager or managers who will run the LLC. It is common for the members of an LLC to be closely involved in the running of the day to day affairs of the business, this is referred to as a member managed LLC. Generally, an LLC with only a few members will be member managed. If an LLC chooses to be run by a manger or managers, it is referred to as a manager managed LLC. A member of the LLC can also act as a manager or a group of members can act as Managers.
Flexible Distribution of Profits and Losses. Members of an LLC can distribute profits and losses any way they choose. You do not have to divide up the profits and losses according to the assets contributed by each member.