Limited liability company

A limited liability company, also known as an LLC, is a form of association or a business entity that allows you to carry commercial activity under the state law. LLCs combine characteristics of both corporations and partnerships which are also two popular business entities.

With corporations, the LLC has in common the limited liability, meaning that as an owner or member of an LLC you are not personally liable for company debts. With partnerships, LLC is similar through its flexibility in operations and by its pass-through tax system which means that LLC profits are not taxed directly, but only after they have been passed through to LLC owners and as a part of their individual incomes.

More about LLC

LLCs are by definition a simpler way of doing business. Their management means fewer formalities, less paperwork and less risks of accidentally violating the law. So, unless you really want this and you include it in the LLC’s operating agreement, you don’t need to hold formal meetings.

An EIN (employer identification number) or federal tax registration number is the business equivalent of the Social Security number for personal taxes. There are only two types of businesses that don’t need an EIN and those are single-member LLCs and sole proprietorships without employees. In essence, in this case we are talking about a one person business and the owners’ Social Security number can be used as business identifier.

What is specific to LLCs and one of the advantages of this form of business is the flexibility in the way they are taxed. As opposed to corporations which enter into a predefined class of taxation, LLCs owners can choose the tax treatment depending on the number of LLC members. An LLC can be taxed as a corporation, a sole proprietorship or as a partnership. If the owners do not specify otherwise, an LLC with at least two members will be taxed as a partnership and one with only one member as a sole proprietorship. Both can be also taxed as corporation if the owner files documents requesting this.

The time to decide on your tax treatment after you have formed your company is 75 days. Even if it might seem like a simple decision, taking into consideration that it will influence your business activity for a long time, it is better to consult an accountant before deciding.

When registering your business, you will generally be asked to provide the name of your registered agent meaning a person or a business that you authorize to accept legal and tax document for your business.

You can choose to be your own registered agent, but before making this decision you need to take into consideration that you will have to be available during regular business hours to receive business documents and your personal information will go on public record. Another option is to use the services of a professional registered agent which can do all these for you.