Q: What Is A Limited Liability Company?
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A: A Limited Liability Company is an example
of a business type otherwise known as the LLC. Limited
Liability Companies comprise a new trend in business
that has existed since the early 1990s in the United
States (although it has been used worldwide for much
longer). In essence, the LLC has rewritten the books
on corporate responsibility and organization.
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The LLC is a type of company that combines the best of a corporation
and a partnership. More often than not they are called "Limited
Liability Corporations," though that term is incorrect for
the acronym LLC. The correct term is "Limited liability Companies."
As it is, members of an LLC describe their company to the law as
a distinct entity, separate from themselves. The members are therefore
limited in their responsibility for moral, financial, and legal
decisions made by the business.
Q: What Are Some Advantages Of An LLC?
- Tax Advantages
The LLC is not taxed twice, even though it is a combination between
a partnership and a corporation. In most cases, a Limited Liability
Company is taxed as a partnership, which means that its profit margin
can be somewhat higher than it might be otherwise. Which leads us
into the next subject…
- Profits
In a Limited Liability Company, profits flow through the business
to the individual owners. Losses, gains, what have you -- they all
directly affect the members. This can be both advantageous and not.
However, with the distribution of profits being flexible (rather
than 50-50 or what have you), it is more often than not the former:
an advantage.
- Legal Advantages
Beyond profit advantages, there are legal advantages to owning a
Limited Liability Company. For instance, you don't have to sign
a personal guarantee of your services if you run an LLC. You are
only liable for your company's debts if you do so. LLCs are also
not required to keep minutes at meetings or make resolutions, as
corporations are.
- Flexibility
The LLC also gives you flexibility beyond profits. You can call
your business a Limited Liability Company or a Limited Liability
Company. Also, you can be the sole proprietor (which is the most
common type of structure), have a partnership, or even use a corporation's
structure. What's more, an LLC can be a collective of corporations
sharing one overarching name.
Q: What Are The Disadvantages Of An LLC?
- Limited Life
Most LLCs cannot live beyond their owners. In most cases, therefore,
when the founder or founders die, the company is dissolved. However,
a few noted ones have survived well -- Ford Motor Company, for instance,
has long outlived its founder, as has General Electric.
- Complexity
Paperwork, personal involvement, and difficulties in going public
plague Limited Liability Companies. If you are willing to overcome
these obstacles, then you are ready to begin constructing your LLC.
- Complicated State Laws
State laws are often different from federal laws surrounding companies
with limited liability status. In one state, you may be required
to have more than one founder, for instance, whereas in another
you may be encouraged to enter into a sole proprietorship. Be sure
to read up on the individual state codes before pursuing any progress.
Q: How Do I Set One Up?
- Know the laws.
Perhaps the most important thing to know when setting up an LLC
is how to read the laws. As mentioned above, read up on individual
state codes before pursuing the foundation of your business. You
will likely want to file your paperwork in your home state, so that
is the best place to start.
- File your Articles of Organization.
The Articles of Organization are vital documents that are to be
filed with the United States Government, declaring your intent to
form a Limited Liability Company. This is different from the Incorporation
Agreements typically signed by a budding corporation in that it
guarantees that you will be taxed as a partnership. You must file
these Articles before going any further.
- Set up your Operating Agreement.
Your Operating Agreement is rather like your mission statement.
In order to go public, you need to be able to show something to
the people you're going to be servicing, so this is absolutely required.
- Choose a name.
Everything's in a name. If the name of your company is already taken
anywhere in the country, you cannot register it; it is already copyrighted.
Put thought and effort into your LLC's name. If "PowerTracks"
is taken, then odds are you won't be able to register "PowerTrax."
Keep this in mind. And with this, good luck!
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