Create an LLC Business
LLC Products: Approximately 95% of our clients form an LLC for their business. Limited Liability Companies, or LLCs, offer the most favorable features of a sole proprietorship and a partnership or corporation. LLCs protect its members from individual liability, like corporations, and enjoy pass-through taxation like sole proprietorships and partnerships.
- Sole Proprietorship vs LLC – A sole proprietorship is a type of business entity run by one person with no legal distinction between the owner and the business. This business classification leaves the owner’s personal assets at risk. An LLC, which is easy and relatively inexpensive to form, can create a legal barrier between the LLC’s business obligations and the owner’s personal, non-invested assets. We always recommend forming an LLC over operating as a sole proprietorship.
- LLC vs Inc. - Incorporating a business is ideal for a company that is preparing to go public or has investors that prefer corporations. However, forming a corporation is not ideal for a vast number of business owners because of administrative costs and operational rigidity. LLCs, on the other hand, offer arguably the most important feature of a corporation: limited liability and administrative flexibility. If you still think a corporation is needed, we recommend additional legal consultation, just to be sure.
- EIN number - Forming an LLC with an EIN number is generally ideal for most small to medium sized businesses. An EIN is required if the business has employees. [internal link to /products/EIN-number]
- Business License - Most states require a business license to conduct business within that state. Other states do not issue nor require a generic business license. In many cases, business licenses are issued by various state and municipal agencies for specific types of business, activities, and professions.
- LLC Operating Agreement - An LLC Operating Agreement is a document or contract between the LLC’s members that establishes the authority, restrictions, and financial duties of the LLC and its members. Though not all states require an LLC Operating Agreement, it is recommended so that the LLC’s operations run more smoothly and in an effort to avoid any unnecessary future litigation among its members.
- Series LLC – Some states allow what is called a series LLC, which is used by business owners who are engaged in more than one business or investment. Instead of placing all your business assets and investments into one LLC and instead of forming multiple LLCs, the series LLC allows owners to create divisions within one LLC umbrella that may provide limited liability for each of those divisions. Under this structure, a member may save on costs by having to only set up one LLC and filing one tax return.
Frequently Asked Questions
Q. What does LLC stand for and what does it mean?
A. LLC stands for Limited Liability Company. Investors in an LLC have limited liability; that is, their responsibility for business obligations is generally limited to the amount of their investment.
Q. What is Pass-Through Taxation?
A. Pass-through taxation means income, losses, deductions, and tax credits flow through to the business owners on an individual level, not the corporate level. Under this structure, shareholders are only taxed at their personal income level tax rate.
Q. Why should I have an EIN?
A. An EIN is short for an Employee Identification Number and acts like your business’s Social Security Number. If your entity has more than one owner or has employees, the IRS requires that you have an EIN. Nearly all banks require an EIN for business bank accounts. An EIN also has privacy benefits for owners because it allows owners to use the EIN rather than personal Social Security Numbers for credit applications, bank accounts, and tax filings.
Q. What happens if I choose the wrong type of entity?
A. Every state allows changes to a business entity. However, there may be tax consequences and filing fees for changes.
Q. Should I reserve a name for my entity?
A. Please leave that to us. We will ask for your preferred entity name and check for its availability. If it isn’t available, we’ll let you know and try some other names. If you try to reserve the name for yourself, it likely will substantially delay the process of forming your entity.
Q. What is the difference between an LLC, an S-Corp, and a C-Corp?
|
|
LLC |
LLC (with EIN) |
S-CORP |
C-CORP |
|
Double Taxation (Both entity and owners taxed) |
No |
No |
No |
Yes |
|
Business Tax Return Required |
No |
Yes |
Yes |
Yes |
|
Corporate Formalities |
Lowest |
Low |
Medium |
High |
|
Self-Employment Tax Savings |
No |
No |
Yes |
No |
|
EIN Needed |
Optional |
Yes |
Yes |
Yes |
|
Client Preference |
5% |
90% |
5% |
<1% |
Q.What is a DBA and When is it Used?
A.You should set up a DBA (Doing Business As) if: 1) you are a sole proprietor operating a business that doesn’t contain your own name, or 2) you formed a business entity and plan to use a name that varies from the name on your LLC/Corporation paperwork. DBAs are preferred because they are the easiest and least expensive way to use a business name (no separate business formation required) and you can operate multiple business names/brands without having to form multiple business organizations. A DBA may also be required in order to open a bank account and receive payments in the name of the business brand or operating name.
