Learn How to Set Up a LLC Online

For many small business owners, a Limited Liability Company (LLC) offers advantages over a “C” corporation (also known as a “general” corporation). The LLC combines the tax advantages of a sole proprietorship or partnership with the liability protection of a corporation.

Pass-Through Taxation
The profits of a C corporation are taxed first at corporate tax rates. Then, if the C corporation pays dividends to shareholders, those dividends are taxed a second time at the personal income tax rates of the shareholders. This “double taxation” is avoided by the pass-through nature of LLC taxation. The Internal Revenue Service (IRS) does not consider an LLC itself to be a taxable entity. Instead, the company’s earnings “pass through” to the owners, who report their share of profits or losses on their individual tax returns. Only one personal tax return for each member is required, and the company’s earnings are taxed only once.

Special Allocations
In a C corporation, dividends to shareholders must be distributed in proportion to the number of shares they own. This is true regardless of the amount of effort an owner put into the business. In contrast, LLC owners can split profits or losses in any way they choose. Therefore, an LLC owner who owns 50% of the company may actually receive more or less than a 50% share of the profits or losses. This scenario, called a “special allocation,” must be accomplished in accordance with IRS regulations. Small business owners should consult their accountant or tax advisor for specific guidance regarding special allocations.
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1. Choose a Entity Name and Check Availability
The first thing you need to do is choose a entity name. Truly, any name will suffice as long as it is not the same or deceptively similar to a name being used by another entity that is filed with the State Filing Office (i.e.: MacDonaldz) – Secretary of State’s Office.

2. File Articles of Organization with Secretary of State
The next step in establishiong your limited liability company is to file ‘Articles of Organization’ (aka: Certificate of Organization) with your applicable State Filing Office (Secretary of State) and pay the required filing fees.
*Almost everyone uses the form provided by their State Filing Office.

In most states anyone can file online, of course you can also mail the form to the Secretary of State together with the filing fee (or) deliver it in person to their office (snail mail).

3. Prepare – Sign Operating Agreement & Hold Organizational Meeting
After the Articles of Organization have been filed, organizers of the LLC will prepare and sign / adopt the ‘Operating Agreement’. This is not required by the state, but is one of the most important steps in maintaining your liability protection and preventing disagreements between the members.

The Operating Agreement is an essential document which sets forth the rights, duties and obligations of all the members of the LLC or Limited Liability Company. In addition it establishes whether the LLC will be managed by the members (owners) or by other individuals / entities.

It is essential to hold a organizational meeting soon after the initial Articles of Organization are filed with the Secretary of State. Typically Organizational Meeting Minutes would include such items as: Approval and ratification of the Articles of Organization and the Operating Agreement, Membership elections etc.
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There are many benefits to setting up a LLC – some of them include: Asset protection, Personal Privacy, Tax planning advantages, Easier Marketing abilities, financial banking flexibility, makes raising capital easier, fringe benefits, continuity, and many many more!

There are some fees applicable to registering a business as an LLC similar to registering a corporation. Another added benefit is that you don’t necessarily need a lawyer to register a business as an LLC and this is especially useful for small businesses where both time and cash is at a premium. You can choose to get advice from a lawyer or an accountant about the choice of registering a business as a limited liability company but it is not required by law.

As noted above some of the benefits of registering a business as an LLC include tax advantages and limited liability. In addition limited liability companies have much more flexibility when developing a management and ownership structure and the reporting requirements are far less under this form of business registration.

The tax benefits of an LLC business registration are mostly gained through what is called pass-through taxation. This means that the profits from the business are only taxed once and owners do not have to pay both corporate and personal income tax on any monies earned through the business.

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A limited liability company (abbreviated L.L.C. or LLC) in the law of the vast majority of United States jurisdictions is a legal form of business company that provides limited liability to its owners. Often incorrectly called a “limited liability corporation” (instead of company), it is a hybrid business entity having certain characteristics of both a corporation and a partnership.

The primary characteristic an LLC shares with a corporation is limited liability, and the primary characteristic it shares with a partnership is the availability of pass-through income taxation. It is often more flexible than a corporation and it is well-suited for companies with a single owner.