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Who should form LLC;  where, what (corporation, llc) and how

What is a limited liability company? LLC compared to S Corporation
The organizational structure of a LLC Where to form your LLC.
The advantages of forming a LLC Naming your limited liability company.
The disadvantages of forming a LLC Number of people needed to form an LLC.
Paper work involved. Why do I need a resident agent?
Is an attorney necessary? Taxation of LLCs
Getting started setting up an LLC

What is a limited liability company?

A limited liability company, like a corporation, is a legal entity existing separately from its owners. A limited liability company is created when proper articles of organization (or the equivalent under the laws of a particular state) are filed with the proper state authority, and all fees are paid. State laws typically impose additional pre or post-creation requirements as well.

A limited liability company is not a partnership or a corporation, but it combines the corporate advantages of limited liability with (normally) the partnership advantage of pass-through taxation.

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The organizational structure of an LLC.

A limited liability company is owned by its members, who may (member-managed) directly manage the limited liability company, or who may (manager-managed) appoint managers to directly manage the limited liability company for them. 

The members may also apportion duties amongst themselves as they see fit, and may even appoint one of their members president, or vice president, or secretary, or treasurer, with the appointed member to have the duties normally associated with such title or titles. 

One of the virtues of a limited liability company is the ability (in most states) to structure the limited liability company however its members want it to be structured. 

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The advantages of forming a limited liability company.

The primary advantage of a limited liability company is limiting the liability of its members. Unless they personally guarantee them, the members are not liable for the debts and obligations of the limited liability company. In a partnership or sole proprietorship, creditors may seize personal assets of the participants to pay debts of the business. 

Additionally, (1) pass-through taxation is available, meaning that (generally speaking) the earnings of an LLC are not subject to double taxation, but are treated like the earnings from partnerships, sole proprietorships and S corporations and (2) the members have greater flexibility in structuring the limited liability company than is ordinarily the case with a corporation, including the ability to divide ownership and voting rights in unconventional ways while still enjoying the benefits of pass-through taxation. 

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The disadvantages of forming a limited liability company.

The primary disadvantages are (1) the work involved in, and the expense of, forming a limited liability company, and (2) after-formation record keeping requirements. 

While limited liability companies have not been in existence in this country for nearly so long as corporations, and there is thus less law interpreting the limited liability company statutes and the rights of limited liability company members, it is very likely that the development of the law will be similar to the law as it has developed over the years in the case of corporations. 

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Paper work involved.

First, articles of organization according to state law must be prepared and filed with the proper state authorities and filing fees, initial franchise taxes, and other initial fees must be paid. Second, if the limited liability company is to be structured properly, an Operating Agreement and organization minutes of the limited liability company must be prepared.

If you form your limited liability through us, you have two choices: (1) "bare-bones" formation (like most non-lawyer services) where we take care of the first item above and you deal with the second, or (2) complete service, where we take care of both the first and second items, do membership interest documents and investment letters, provide a Right Of First Refusal Agreement and provide you with tax information and check lists for immediate and future use. For the difference in price, see fees

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Is an attorney necessary?

No, but if you are going to pay as much for non-lawyer assistance, why not have the benefit of competent professional help? There is a reason all the big guys use lawyers. 

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LLC compared to S Corporation.

S corporations and limited liability companies both permit pass-through taxation, when properly structured and the proper tax forms are filed, but a limited liability company is more flexible in allocating income amongst the members: (1) a limited liability company may offer several classes of interest while an S corporation may only have one class of stock, and (2) the interest in a limited liability company may be owned by any number of individuals or entities whereas ownership interest in an S corporation is limited both in number and in the entities which may participate. 

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Where to form your limited liability company.

You should probably form your LLC in your home state, just as you should probably incorporate in your home state, for the same reasons we cite when advising that you should probably incorporate in your home state.

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Naming your limited liability company.

The name you select must not be the same as or deceptively similar to an existing limited liability company in your state. For example, if a limited liability company named Hyperlinks Limited Liability Company exists in your state, you very likely would not be allowed to name your business Hyperlinks LLC, and you probably couldn't call it Hyperlinx LLC either. Since it is possible that the name you select will not be distinguishable, we ask for a second choice on the LLC formation order form

Additionally, the name you choose must show your business has limited liability. Most states require that the limited liability company name be followed by Limited Liability Company or by the abbreviation LLC

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Number of people needed to form an LLC

The IRS does allow one member LLCs to qualify for pass-through tax treatment; however, taxation of one person LLCs at the state level may be different, and many states require that an LLC have at least two members.

In view of the recent change in IRS rules permitting one member LLCs, however, it is likely that more states will recognize them, and you should always check with us at the time of formation. 

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Taxation of limited liability companies.

You should consult with your tax preparer concerning taxation issues. Generally speaking, LLCs are permitted (under federal law) to elect whether to be taxed as corporations, or to have pass-through taxation. 

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Getting Started

After you have dealt with the questions above, articles of organization must be filed with the state government and initial fees must be paid. We'll take care of that for you, professionally and promptly. 

After your Articles are filed, your limited liability company should hold an organizational meeting and must have an Operating Agreement in order to complete the formation process. Membership interest documents should be distributed to the members and records kept of such distributions. 

Non-lawyer formation services typically sell you a book with a sample operating agreement, sample organization minutes and sample membership interest documents. With them, it's your job to do the actual Operating Agreement, the actual organizational minutes and the actual membership interest documents. Moreover, you are left on your own as to subsequent record keeping.

In most states, neither an expensive book nor a seal is required. For $185 instead of the $60-$100 you pay for these normally unnecessary items, we will do the actual Operating Agreement, do the actual organization minutes, do the actual membership interest documents, do a Right Of First Refusal Agreement, provide you with checklists to assist you in subsequent record keeping, and provide you with the forms and instructions you need to get your federal tax identification number.

Back to Limited Liability Company Order Form

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