Limited Liability Company Formation: Documents, Agreement to Form LLC

Many people do not yet understand what a limited liability company is and hold many misconceptions about it. The limited liability company formation is not a corporation and should not be confused with it.

There are many advantages and some disadvantages of forming a limited liability company. Many states are also allowing the formation of LLCs thus the need to understand this business structure a little bit more.

How to Form a LLC in the US (Limited Liability Company Formation)

  • An LLC or limited liability company is a type of business ownership that combines several features of a corporation and partnership structures.
  • In an LLC, the owners are called members rather than partners or shareholders.
  • The number of members in an LLC may be unlimited and may include individuals, corporations, or even other LLCs.
  • When forming such a business structure, limited liability company formation documents must be filed.
  • These documents are otherwise known as articles of organization and should be filed with the Secretary of State and the required fees paid. A lawyer may prepare the documents or the members of the LLC themselves.
  • With an LLC, it is advisable to form a limited liability company formation agreement or operating agreement.
  • The operating agreement helps define the company profit sharing, ownership, responsibilities, and ownership changes.
  • Many states in the US now allow the formation of an LLC.
  • Forming an LLC involves determining the members, getting an employer ID for the LLC, filing articles of organization with the Secretary of State, filing a certification of organization, creating an operating agreement, filing form 8832 Entity Classification Election if the LLC is to be taxed as a corporation, and registering the LLC in other states if conducting business elsewhere.
  • The advantages of a limited liability company encourage many business owners to register their business as such. These advantages include limited liability, flexible profit distribution, no minutes, and flow through taxation.
  • The disadvantages are quite minimal and include limited life, going public may be difficult, and added complexity.

    Deciding whether to form an LLC may be lucrative for the members and the business. Think about the advantages and disadvantages this formation has to offer before deciding on actual set-up.

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