If you are planning to start a small business, chances are you’ve considered forming your own Limited Liability Company (LLC).
But before you take the leap, know that each state in the US may have different regulations. So, it’s a good idea to invest some time in researching the LLC regulations for your state. It is also important to note that LLCs have varying tax requirements depending on the state in which the LLC is being formed. Since tax filing for the self-employed is different, it is paramount that you know these requirements and/or have an expert help you.
A little homework doesn’t hurt anyone.
5 LLC Facts You Should Know Before Forming One
To get you started with your research, here are some LLC facts that you should know:
Fact #1: LLCs Have a Hybrid Structure
This business structure is a mix of Corporations and Partnerships.
While LLCs have limited liability protection just like Corporations, they also incorporate the flow-through taxation system of Partnerships.
Fact #2: There Is No Double Taxation In LLCs
LLCs have a favorable taxation structure because you don’t have to pay tax at the entity level and at the individual level separately.
Instead, all the income is considered to flow through to the members from the LLC. As a result, members have to only pay the taxes on an individual basis.
If you want your LLC to be taxed like an S-Corp, that is also possible.
Fact #3: LLCs Require State And Federal-Level Filings
When it comes to filing, LLCs do require you to put in some time and effort. That’s because you are required to do filings at both the state and the Federal level.
Furthermore, you need to pay fees for state filings for each year since the inception of the LLC.
Fact #4: LLCs Have Flexible Profit Distribution
LLC members get to decide how they want to split their profits. It doesn’t have to be split equally. You can pick a system that works best for you.
Fact #5: There Isn’t Any Upper Limit on the Number of LLC Members
There is no limit on the maximum member count in any LLC.
Plus, LLC members can include foreign entities, other LLCs, individuals, as well as Corporations.
Most states in the US also permit LLCs with only a single member. They are referred to as “single-member LLCs.”
How to Establish an LLC
The first step to form your LLC is to get your EIN Number from the Internal Revenue Service (IRS).
Once you’re through with the process, file Articles of Organization for your LLC with the Secretary of State.
You can do all of this on your own but it can be a time-consuming process.
If you hire a lawyer to do it for you, it can be heavy on your pocket.
Professional filing services win in both of these departments. They can take the burden off your shoulders and are also affordable.
To help you understand LLC facts clearly, GovDocFiling, a professional filing service, has published a detailed infographic.
Check it out:
Brett Shapiro is a co-owner of GovDocFiling. He had an entrepreneurial spirit since he was young. He started GovDocFiling, a simple resource center that takes care of the mundane, yet critical, formation documentation for any new business entity.