Forming an LLC is a simple process that allows you to set up your business with limited liability protection. It can also save you money on taxes because your profits go directly to the owners without first being taxed at the federal level.
Once your LLC is formed, you’ll need to file its articles of organization and draft an operating agreement. The filing can be done online or by mail.
Articles of organization
Articles of organization are a document that states the basic information about your limited liability company. They’re filed with the appropriate state office and provide the foundation for your LLC.
Most states offer a form that can be filled out and filed by an individual or by a business lawyer. However, it’s always a good idea to hire a business lawyer that understands your goals and has experience filing articles of organization.
An Articles of Organization will include your LLC name, its purpose, and any additional details that are required by your state. It should also contain the name of your registered agent and the physical address of your LLC.
Most states require that at least one organizer sign and date the Articles of Organization. This person may be an owner of the LLC or a member of the company.
Operating Agreement
An LLC operating agreement is an essential document that defines members’ rights and responsibilities. It also allows the business to have a legal framework for events like buyouts.
It can also be a useful document for resolving any disputes among business partners. This is because an operating agreement ensures that all parties know their roles and responsibilities, how much of the company they own, and what to do in certain situations.
The most important part of an operating agreement is that it lays out how the company will be run. This includes who will manage the business, how decisions are made, and what role each member will play in the business.
This part of the operating agreement should also address what happens to a member’s interest upon death, incapacitation, or resignation. It could include a provision that gives remaining members the right to purchase the deceased member’s interests, a provision that gives an heir a right of first refusal before a sale is completed, or a provision that enables members to transfer their interest to other individuals (like a spouse or child). These are just a few examples of the significant points covered in this section of an operating agreement.
Shareholders
The shareholders of an LLC (also called members) own shares in the company, just like a corporation’s owners do. However, the structure of an LLC differs from that of a corporation.
Unlike corporations, an LLC can issue shares to new investors without having to form an IPO. It does, however, need to provide a list of the shareholders in its Articles of Organization.
This can be a big advantage for small businesses, as it allows them to raise capital without being burdened by investors and regulations that may come with an IPO.
Another advantage of an LLC is its flexibility in how it is governed. State statutes typically provide default rules for LLCs unless the operating agreement provides that they can be governed differently.
An LLC can choose to be taxed as a sole proprietor, partnership, S corporation or C corporation. This provides them with a great deal of flexibility in deciding how to allocate profits, losses and other tax items between the members.
Taxes
A small business owner must pay a wide variety of taxes to the government. These include federal, state, and local income taxes.
As a business owner, you may also need to file sales tax for your product or service in certain states. This can be a complicated process, so it is best to consult with a registered agent or business advisor to learn more about the rules for your state.
When an LLC is formed, the owners must choose a tax status for the company. It can be a sole proprietorship (one owner), partnership, or corporation.
When an LLC elects to be taxed as a corporation, it must file Form 8832 with the IRS and then use Form 1120 to report profits and expenses. It can also allocate profits to its owners/members as dividends, but members must pay taxes on their shares at a qualifying dividend rate.
