LLC stands for a limited liability company. LLC’s operate much the same way as a corporation, in that it is a legal entity that can conduct business under its own name. More and more business owners’ are electing to form LLC’s every year but why exactly are so many business owners now doing this?
As the name limited liability suggests the reason why so many business owners are deciding to form an LLC is to reduce their personal liability. For example if you continue to operate your business as a sole proprietor or partnership you are personally responsible for any business debts and for lawsuit settlement obligations brought against your business. Simply put nearly everything you own could potentially be at risk and be used to settle business debts. When you set up an LLC you are in effect separating your business from yourself. By doing this you are helping to protect assets such as your personal savings and other property including your vehicles, bank accounts, home etc.
By forming an LLC, maintaining and operating it properly, you as well as any other members (owners of an llc are called members) involved should not be held personally liable for things that may go wrong during the course of business or any of the debts that are encountered. This means that personal assets of the members are protected and won’t be used as a way of settling business debts.
So just how exactly do you go about forming an LLC? Believe it or not if you want to form an LLC you will find it to be a somewhat simple process and it may be one of the best things that you ever do for your business. In fact all you actually have to do is the following to make it legal and a reality:
First you will have to choose a name for your business. There are two important factors when it comes to doing this. The obvious one is you need to make sure the name you want is available and secondly you need to make sure that it complies with your state’s limited liability company statutes such as ending with LLC. Further, some words may be prohibited by your state such as bank or insurance.
Next you need to file formation documents with the state. These are usually referred to as the articles of organization or a certificate of formation, There is a fee to file the documents with the state and can range between $50 to $500. Once your LLC filing has been accepted by the state you should then create an LLC operating agreement. Within this agreement you should set out the rights and responsibilities of each of the LLC members.
Lastly a few states require that you publish notice that the LLC formation has been completed. Make sure to check if this is required by your state. Once this is completed you then simply have to obtain a Federal Tax ID Number (FEIN) as well as any licenses and permits that may be required for your type of business.
Look into forming your LLC today and obtain the protections and tax advantages that come with operating a business as an LLC.