August 28, 2007
Form an LLC: Facts you Should Know About
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Before enjoying the benefits and advantages of having a limited liability company, you need to form one within your state or to any other state you wish your business will operate. In forming LLC, there... |
Before enjoying the benefits and advantages of having a limited liability company, you need to form one within your state or to any other state you wish your business will operate. In forming LLC, there are considerations you need to keep in mind. First, you will form an LLC to protect both your personal and corporate assets as well as the income of your company against financial predators. Second, you want to effectively serve your client’s interest by decentralizing the management of the company and distribute responsibilities and obligations among your co-owners, including yourself.
Maybe you are wondering why you must form an LLC instead of the traditional sole-proprietorship, partnership, or corporation, aside from the considerations mentioned earlier. Take the following instances and see the reasons behind.
* Suppose you want to purchase an apartment or lot that will be leased for tenants. Of course you are aware of the risk you can incur if it has now tenants. So, you will be forming an LLC and the LLC itself will buy the property. In other words, you will not be personally responsible in case the LLC were ever sued by its tenants. This feature is also known as personal limited liability.
* For instance, you and your friends and close acquaintances decided to start a small engineering consultation firm. Of course, all of you do not want to be personally held liable in case your firm will be sued, so you will consider forming an LLC instead of the traditional partnership. In addition, the distribution of LLC’s shares and profits will depend on the investment and performance of its individual owners. It is contrast in the corporation shares that the profits must be equally distributed among shareholders.
* Let us say you already established your own corporation yet you want to personally purchase some property which you thought might be useful for your company in the future. So, you will form an LLC and have it purchase the said property. After a while, you decided to expand the property, so the corporation will lease the property from the LLC. In other words, it permits you to sell properties in the future without paying additional taxes that result from selling a property in the corporation.
Forming a new LLC or even to convert an existing business into an LLC does not require you a complex process. You just need to file and accomplish your LLC’s articles of organization which discloses basic information about your LLC such as its name, its owners, and others. There are states who allow filing of such articles both personally or through the Internet. These are filed with the state’s secretary office.
You can also opt to file a written operating agreement which will cover the responsibilities and rights of the LLC owners. Even though most states do not require an operating agreement, it is still advisable that you draft one for your LLC in order to clarify the roles of its owners in terms of management and financial aspects of the company.
As a conclusion, forming an LLC gives you the necessary protection against lawsuits and claims and to your corporate assets as well. Although it does not provide the same edge as a C-corporation, it is an ideal structure for a small company looking for some asset protection.
Recommended Reading
- How to Form an LLC: 3 Basic Steps
- Create an LLC Operating Agreement: Facts you Need to Know
- Before and After LLC Formation: Your Do-It-Yourself Guide
- Explanation of LLC as a Business Structure
- What you Should Know in Forming a Nevada LLC
