Limited liability companies, or LLCs, have been around for decades, although it took some time before they were widely known and gained pass-through tax treatment by the IRS. Today, every state in the United States has a version of a limited liability company, and it is now the most popular entity for small businesses. Here are five facts you should know if you are considering forming an LLC.
Fact 1: An LLC combines the benefits of a sole proprietorship and corporation.
A limited liability company is a business entity that combines the pass-through tax treatment of a sole proprietorship or partnership with the limited liability protection of a corporation. LLC owners are protected against personal liability for business debts and judgments.
Fact 2: An LLC can be formed with a single owner.
All states allow limited liability companies to be formed with a single owner. If you form an LLC with one owner, your business will be taxed as a sole proprietorship.
Fact 3: You do not need a lawyer to form an LLC.
All states allow you to form an LLC by filing articles of organization with the state. You generally need only basic information, including the name of the LLC, the location of your office, the names and addresses of the LLC owners, and the name and address of your registered agent. It can help to talk to a corporate services company or lawyer anyway, however, to make sure the process is done properly.
Fact 4: An LLC can be taxed as a corporation.
As with a sole proprietorship, an LLC is not considered a separate entity for tax purposes, which means it does not pay income taxes. Instead, LLC owners pay their share of profits or losses on their personal income tax returns. An LLC can be taxed as a corporation, however, which can reduce taxes for owners who want to retain a large share of profits in the business.
Fact 5: A partnership or sole proprietorship can be converted to an LLC very easily.
Converting a partnership or sole proprietorship to an LLC is a fast, easy and affordable way for owners to protect their personal assets -- all without changing how income is taxed. In many states, a partnership can be converted to an LLC through a simple form called a certificate of conversion. If your state does not allow this, you will need to file articles of organization to form an LLC in the standard way.
Learn more about forming an LLC by clicking here.
Fact 1: An LLC combines the benefits of a sole proprietorship and corporation.
A limited liability company is a business entity that combines the pass-through tax treatment of a sole proprietorship or partnership with the limited liability protection of a corporation. LLC owners are protected against personal liability for business debts and judgments.
Fact 2: An LLC can be formed with a single owner.
All states allow limited liability companies to be formed with a single owner. If you form an LLC with one owner, your business will be taxed as a sole proprietorship.
Fact 3: You do not need a lawyer to form an LLC.
All states allow you to form an LLC by filing articles of organization with the state. You generally need only basic information, including the name of the LLC, the location of your office, the names and addresses of the LLC owners, and the name and address of your registered agent. It can help to talk to a corporate services company or lawyer anyway, however, to make sure the process is done properly.
Fact 4: An LLC can be taxed as a corporation.
As with a sole proprietorship, an LLC is not considered a separate entity for tax purposes, which means it does not pay income taxes. Instead, LLC owners pay their share of profits or losses on their personal income tax returns. An LLC can be taxed as a corporation, however, which can reduce taxes for owners who want to retain a large share of profits in the business.
Fact 5: A partnership or sole proprietorship can be converted to an LLC very easily.
Converting a partnership or sole proprietorship to an LLC is a fast, easy and affordable way for owners to protect their personal assets -- all without changing how income is taxed. In many states, a partnership can be converted to an LLC through a simple form called a certificate of conversion. If your state does not allow this, you will need to file articles of organization to form an LLC in the standard way.
Learn more about forming an LLC by clicking here.