LLC is a term most of us have seen or heard numerous times in our lives – in newspapers, on product labels, in courtroom hearings. What it stands for (Limited Liability Company) is familiar to a smaller subset of people, and can generate all kinds of first impressions. Some hear it and imagine a company that gets away with everything, while others just picture a chilled and flexible sort of business.
The truth is that being an LLC does not really say much about the qualities of a company, but more about how it is organized. This blog will dig deep into the topic and give you all the info you need on this type of business model.
What is a limited liability company?
It’s essentially a business structure chosen for a company that entails great freedom in how the company is run, organized, and taxed. LLCs exist in many countries, each with their peculiarities – and these unique requirements can exist even on a state level (e.g. LLC publishing in New York and Arizona). For brevity and clearness, let’s take a general look at the system on a U.S. federal level…
The leadership of LLCs is traditionally divided into managers and members, with managers being those heading up operations and members being owners. It is not uncommon for some persons to be both, or for there to be just one person fulfilling these roles. What is definite is that there must be at least one member in an LLC.
Is it worth forming an LLC?
LLCs are a highly popular choice in the market, with millions operating today – but that doesn’t mean it’s the best choice for every business. For example, LLCs are typically exempt from double taxation, but the owners pay an income tax that can sometimes exceed even the corporate tax rate.
Another benefit is legal protection – members carry no personal liability for debt and other financial difficulties that the company runs into. On the other side, setting up an LLC in several states can be a huge burden, with requirements, timeframes, and costs varying broadly from one state to another.
What do you need to set up an LLC?
One of the most common questions that come up in this regard is whether U.S. citizenship is needed to set up this structure. The answer is simple: any foreign national can set it up as freely as an American. As for the procedure itself, people mostly begin with choosing a company name and a registered agent. Many states require that the name be unique, while the registered agent is just any adult person who will be responsible for receiving and addressing legal documents sent to the company.
Most of the work in setting up an LLC goes into submitting an Article of Organization and an Operating Agreement. An Article of Organization (called differently in some states) includes the names and contact details of the company and its members (+ registered agent) – as well as a description of what the company will be doing. The Operating Agreement generally outlines the rights and obligations of its members (financial, legal, and managerial).