Frequently-Asked Questions Before Starting an LLC

Protection for your personal assets? Protection of your company’s income against double taxation? Allocation of shares and profits according to the shareholder’s efficiency and performance? You can found all of these in the limited liability company, or most commonly known as LLC.

LLC owners have personal limited liability on the company’s debts and obligations. In other words, if you are an LLC owner, your company’s creditor can not go after your personal assets such as a piece of real property or a personal bank account as payment for the obligations of your company. You will only lose the money you have invested on the LLC. Nothing more than that.

Double taxation is not applicable to LLCs. It has the pass-through-entity feature where the income of the LLC itself is not taxable. Instead, its individual owners will be the one to pay taxes according to their shares of profit inside the company. It will generate savings since the tax supposedly for the whole income will be divided among its owners. In other words, law income tax will be paid by the LLC’s individual owners.

Unlike in a corporation, the shares and profits as well as the losses are divided among its owners according to their individual performances. Take for instance an LLC with two owners. Owner A and Owner B at the start of the business agreed to allocate 50-50 share of capital. In an LLC, if Owner A produced 70 percent of the profit, he will be allocated the 70 percent even if his capital shares in the company is the same with Owner B. It is in contrast in a traditional corporation where the profits are equally divided among its shareholders regardless of individual performances inside the company.

So you consider starting an LLC for your business. However, if you are a newcomer in this type of business framework, you will be having hard time starting it. This article will provide you some basic concepts about starting an LLC through these frequently-asked questions about the subject. Continue reading and learn the basics.

Is it needed that an LLC must have two owners?

Although most states require an LLC of at least two owners, there are also other states that allow single-owner LLC. However, take note that the U.S. Internal Revenue Service (IRS) may treat the single-owner LLC variedly than an LLC with more than one owner.

Are all the owners of an LLC being held responsible for all LLC debts and obligations?

As mentioned earlier, LLC owners have the personal limited liability on the company’s debt. Thus, the LLC itself will be responsible for the company’s debt and obligation. However, there are instances that an individual owner may be held liable such as he personally injured someone in conduct of the business, or he has personally guaranteed the repayment of any loan or mortgage.

Are LLC meetings a requirement?

Unlike a corporation where the failure of conducting shareholder or board of director’s meeting may be subjected to some penalties, LLC are not required to hold such meetings, especially if it is not stated in their articles of organization or operating agreement.

Who votes in an LLC?

The articles of organization or the operating agreement provides the terms and conditions on such voting interest of all the owners of an LLC. However, in most cases, all owners have the corresponding voting interest on some matters especially if it concerns the financial aspect of the business.

These are just some of the frequently-asked question before starting an LLC. Remember that LLC is not just an ordinary legal entity, as showed in the aforementioned discussions.

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