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What is LLC or Limited Liability Company?
LLC or limited liability company is a legal business entity that that can registered in any of the States in the U.S to start a business. An LLC offers limited liability to its owners. Owners cannot typically be held personally responsible for the business debts and liabilities. Owners of an LLC are often referred to as members.
Anyone can register a limited liability company (LLC) in the USA; you don’t need to be a US citizen or a US company. Foreign citizens and foreign companies can form an LLC in the USA. Registering a USA LLC (limited liability company) is the best way to open a company in the USA for a non-US citizen.
Limited liability: Creating an LLC protects your personal assets in case of legal trouble or bankruptcy.
Creditors cannot, usually, pursue the personal assets (house, savings accounts, etc.) of the owners to pay business debts. The personal assets of sole proprietors and general partners, on the other hand, can be pursued against the business’ debts.
Taxation advantage: LLC structure allows flexible taxation options. You can opt for taxation of your LC similar to a sole proprietorship or select to be taxed like a corporation.
LLCs typically do not pay taxes at the business entity level. Any business income or loss is “passed-through” to owners and reported on their personal income tax returns. This is called pass-through taxation. This could be beneficial to owners, particularly if they are foreigners residing outside the country.
Flexible Management structure: Members can manage the LLC or elect a manager or a management group to do so. When an LLC is managed by members (a “member-managed” structure), owners oversee daily business operations. When managed by appointed managers (a “manager-managed” structure), the LLC resembles a corporation, where business management is the responsibility of the directors and officers rather than the owners.
More credible than a sole proprietorship: Starting an LLC may help a new business establish credibility more so than if the business is operated as a sole proprietorship or even a partnership.
Easy compliance rules: LLCs face fewer state-imposed compliance requirements and ongoing formalities than other forms of business structures like sole proprietorships, general partnerships and corporations.
Once you have decided in which State in the U.S to form an LLC, the following steps will help to streamline your company formation:
- Decide on a Business Name
Even though the name rules might slightly vary from state to state, you will need to observe these guidelines for an LLC name:
- Your name must include the phrase “limited liability company,” or one of its abbreviations (LLC or L.L.C.).
- Your LLC name must be different from other existing LLC names in the state of formation
- Your name cannot include words that could confuse your LLC with a government agency (e.g., FBI, Treasury, State Department, etc.).
- Restricted words (e.g. Bank, Attorney, University) may require additional paperwork and permission.
Most Secretary of states office, upon submission of your LLC name will look for conflicts with other LLC names and also name compliance rules to determine if the name can be used for a new LLC formation.
If available, your name can be reserved for a definite period of time within which you may register your LLC.
- Assign or hire a Registered Agent
A registered agent for a LLC is required in all States. A registered agent is a person or business who sends and receives legal or official papers on the behalf of the LLC and must be available during business hours. Your registered agent must be a resident of the state you are registering your LLC and doing business in with a physical address in the state.
Most businesses hire a registered agent service, particularly if you are a non-resident. However, if the member or members are residents of the State, they can act as a registered agent of the LLC.
Should I Be My Own Registered Agent?
You can legally act as your registered agent in every state. However, the availability of this option doesn’t automatically make it suitable for everyone. If you decide to act as your LLC’s registered agent, you should know that your name and address will soon become a matter of public record.
- Prepare and create an Operating Agreement
Many states don’t require an operating agreement to be submitted. However, you should consider having an operating agreement for your LLC.
It is an agreement among the members and between the LLC and the member or members as to how the LLC will be operated. Even if you are the only member it is important to have an operating agreement.
An operating agreement contains the details of the financial, legal and management rights of all members of the LLC. It includes information on how profits will be distributed, how members leave the LLC and who contributes capital for the business. In essence, it should contain all relevant information pertaining to the operations of your LLC.
- File your LLC with your state
To officially form an LLC, you will need to file your LLC formation documents with the state. The most common name for this document is “Articles of Organization.” It is also known as a Certificate of Formation or Certificate of Organization.
Each state lists its specific requirements and procedures for those trying to form an LLC to be included in the Articles of Organization. Basic information you’ll need to provide includes:
- Your business name
- The address of your principal place of business
- The purpose of the business
- The way your LLC will be managed
- Contact information for the registered agent (and in some states, the agent’s signature)
- The duration of the LLC
- Get an Employer Identification Number (EIN)
EIN is the tax identification number of your LLC issued by IRS (Internal Revenue Service). It will be used on bank accounts and during income and employment tax filings. In addition, in each state in which the LLC will be doing business, you must apply to the state’s tax department for a sales tax identification number and register with the state’s labor department. You can apply and receive EIN by visiting the IRS website.
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