| Given that some states do not allow single-member | | | | operating agreement. |
| LLCs, this form cannot be considered as an outright | | | | Starting Your Own LLC The basic legal documents |
| substitute for a sole proprietorship. Nonetheless, the | | | | and procedures involved with starting your own LLC is |
| LLC is designed to give you the best of both worlds: | | | | a simple process. You can prepare the paperwork |
| the limited liability of a corporation while retaining a level | | | | yourself, or you can hire a lawyer to prepare, sign and |
| of tax simplicity that resembles a partnership. | | | | file the basic documents to set up an LLC. |
| Features of the LLC Limited Liability Status. The main | | | | The requirements in forming an LLC are as follows: |
| attraction of an LLC is its limited liability status, a | | | | LLC Articles of Organization. The first formal step to |
| feature that it shares with corporations. The LLC limit | | | | create an LLC is the submission of the LLC Articles of |
| your personal liability from business debts and | | | | Organization with your state's LLC filing office. |
| damages incurred by the business. It basically lets you | | | | Request a copy from your state's filing office, typically |
| off the hook from legal liabilities such as court | | | | the Department or Secretary of State's office, |
| judgments and legal settlements obtained against the | | | | normally located in your state's capital city (some big |
| business. | | | | states have branch offices). |
| Tax Benefits. Like sole proprietorships, partnerships, | | | | The LLC Articles of Organization is a relatively simple |
| and S corporations, the business profits and losses of | | | | form where you need to supply some basic details |
| an LLC are taxed at individuals' income tax rates. | | | | about your LLC: name, principal office address, agent |
| You will avoid a corporation's double taxation, where | | | | and office for receiving legal papers, and names of its |
| taxes are reported at a separate business level. | | | | initial members or the special management team. Upon |
| Owners of the LLC. While owners of corporations are | | | | submission, the name of your LLC will be checked for |
| called stockholders, LLC owners are referred to as | | | | possible duplication. Check with the LLC filing office if |
| members. A member, who invests in the LLC and | | | | the additional step of posting a notice of intention to |
| receive a percentage ownership interest in return, may | | | | form an LLC in a local newspaper prior to filing your |
| be an individual or a separate legal entity such as a | | | | Articles is required (some states require this, while |
| partnership or corporation. The percentage ownership | | | | many don't). |
| is used to divide up the assets of the LLC when it is | | | | LLC Operating Agreement. The operating agreement |
| sold or liquidated, to split up profits and losses of the | | | | defines the basic rights and responsibilities of LLC |
| LLC or to divide up its voting rights. While an LLC can | | | | members. As a matter of prudent business practice, |
| exist with one member, some states such as the | | | | this is a crucial documentation that serves as the |
| District of Columbia and Massachusetts require LLCs | | | | written guidance for the newly formed LLC. This |
| to have two or more members. | | | | document usually provides for the purpose of the LLC, |
| Flexible Management Structure. An LLC can be run | | | | its duration, transferability, and management structure. |
| either by its members or a management group elected | | | | This written agreement also contains provisions on |
| by the members. | | | | how a new member can be accepted, how an |
| While many small businesses are managed by their | | | | existing member can withdraw, the continuation of the |
| own members, an LLC can easily adopt a | | | | LLC should any member dies or retire, and buy-out |
| management-run structure in the following situations: | | | | rights of existing members. More importantly, the |
| the members decide to employ outside management | | | | operating agreement defines the percentage of |
| help; not all of the members want to run the LLC; or an | | | | membership interest, and the sharing of profits and |
| outside investor wants to be given a vote in | | | | losses among members. |
| management. | | | | Given the newness of the LLC business structure, a |
| Flexible Distribution of Profits and Losses. Similar to | | | | number of issues particularly in tax requirements are |
| partnerships, dividing up profits among the LLC | | | | still fuzzy. It is best to consult your accountant or tax |
| members is not restricted to the members' capital | | | | advisor in the preparation of tax documents for an |
| contributions. You may split up LLC profits and losses | | | | LLC. |
| any way you wish, as long as it is provided for in the | | | | |