Everything You Need to Know About LLCs
Welcome to your ultimate guide to forming an LLC, tailored specifically for aspiring startup founders. If you’re feeling overwhelmed by the intricacies of business structures, you’re not alone. Let’s demystify the process and help you understand why an LLC might be the perfect choice for your startup.
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Key Questions and Answers
A Comprehensive Guide for Startups
What is LLC
An LLC, or Limited Liability Company, is a formal business entity that provides a smart, flexible shield for your business. Its primary benefit is providing personal asset protection for its owners, called “members.”
Limited Liability Protection: Like a corporation, an LLC establishes a legal separation between the business and its owners. This means your personal assets—such as your home, car, and personal savings—are generally shielded from business debts, creditors, and lawsuits. This robust liability protection is a crucial reason why many small business owners and entrepreneurs choose this structure.
Pass-Through Taxation (Tax Flexibility): Like a sole proprietorship or partnership, an LLC avoids “double taxation.” By default, your business’s profits and losses “pass through” directly to your personal income to be reported on your individual tax return. This simplifies tax filing compared to a traditional corporation. You also have the flexibility to elect to be taxed as an S-Corporation or C-Corporation if it benefits your business.
Why an LLC Might Be Right for Your Business?
The Limited Liability Company is the most popular business entity for many small business owners and startups due to its unique combination of protection and simplicity.
| Benefit | Explanation |
| Personal Asset Protection | This is the primary advantage. An LLC creates a legal separation between the business and its owners (members).This means your personal assets (home, savings, car) are generally shielded from business debts, lawsuits, or bankruptcy. This liability shield offers peace of mind for an entrepreneur. |
Tax Flexibility (Pass-Through Taxation) |
By default, LLCs avoid double taxation (where the business is taxed, and then the owners are taxed again on dividends). The profits and losses are passed directly to the owners’ personal income tax returns. You can also elect to be taxed as an S-Corp or C-Corp, offering flexible tax options. |
Simplicity and Ease of Use |
Compared to a Corporation, an LLC is easier to set up and maintain. There are fewer administrative formalities, such as required annual meetings, detailed minutes, or a board of directors. |
| Flexibility in Ownership | An LLC can have one owner (Single-Member LLC) or multiple owners, including individuals, corporations, or other LLCs. There is generally no limit on the number of LLC members. |
Form Your LLC in 6 Steps
Name Your LLC
Your business name is the first impression you make. It’s essential to pick a name that stands out and accurately represents your brand. In addition to selecting a unique name, you’ll need to include a designator like “LLC” or “Limited Company” to indicate your business structure.
Provide an Address
Your business name is the first impression you make. It’s essential to pick a name that stands out and accurately represents your brand. In addition to selecting a unique name, you’ll need to include a designator like “LLC” or “Limited Company” to indicate your business structure.
Assign a Registered Agent
A Registered Agent receives official state correspondence on behalf of the company and must be physically available during business hours. While you can act as your own registered agent, we recommend using a professional service to avoid the hassle and maintain privacy.
Provide Name and Addresses of Other Members/Managers
Unless you’re a single-member LLC managing their own company, you’ll need to provide the name and addresses of other members or managers. Some states allow the members to remain anonymous, but at the very least, be prepared to provide the name and addresses for each individual or organization managing the LLC.
State the Purpose of Your LLC
When filing your LLC, you must state the purpose of your business. This can be a specific description or a broad statement like “any lawful purpose.” If you’re still refining your business idea, a general statement will suffice and gives you the flexibility to expand later.
File the Articles of Organization
The final step is to file your Articles of Organization with the state and pay the associated fees. This document officially creates your LLC. Filing can be done online or by mail, depending on your state.
Types of LLCs
Understanding the different types of LLCs can help you choose the right one for your startup.
Single Member LLC
Perfect for solo entrepreneurs. This type of LLC has only one owner, or member, but provides the same benefits of liability protection and pass-through taxation as a multi-member LLC. Single-member LLCs who elect to be taxed as sole proprietors are also known as disregarded entities
Multi-Member LLC
Ideal for startups with multiple founders. This structure allows for shared ownership, with profits and losses divided among members. It offers even stronger liability protection than limited partnerships while maintaining operational flexibility.
Member Managed LLC
The most common type of LLC, member-managed LLCs allow all owners to actively run the business. Decisions are made collectively, making this a popular choice for small businesses where owners are hands-on.
Manager Managed LLC
Suitable for businesses where some members prefer to remain passive. This type of LLC designates specific managers to handle the day-to-day operations, which can be a single person or a group, freeing other members from active management duties and self-employment taxes. Some states also allow the members to stay anonymous.
Series LLC
A Series LLC allows you to create multiple, separate entities (or series) under one umbrella company, each with its own assets, liabilities, and members. Ideal for businesses with diverse operations or investments. This type of LLC is available in Alabama, Arkansas, Delaware, Illinois, Indiana, Iowa, Kansas, Missouri, Montana, Nevada, North Dakota, Oklahoma, Tennessee, Texas, Utah, Virginia, Washington, and Wyoming.
Professional LLC
Professional Limited Liability Companies are reserved for owners who intend to offer services with professional licensing requirements. About half of U.S. states use PLLCs and the other half do not. In addition to professional licenses with their own governing bodies, the state’s licensing department can help you determine if you need a license and/or a PLLC business structure.
Family LLC
This is an informal label for LLCs formed to facilitate estate planning. Essentially, it uses the LLC business structure to minimize gift and inheritance taxes. Nevada is one example of a state that does offer a formal business structure–known as a Restricted LLC–that’s commonly used for estate planning.
Benefits of LLC
Every savvy entrepreneur knows that weighing the pros and cons is essential. Let’s dive into why an LLC could be your startup’s best friend.
Pros
- Limited Liability Protection
Even more than limited liability partnerships, LLCs offer some of the strongest available protections for your members’ personal assets.
- Pass-Through Taxation
Simplify taxes by merging your business income with your personal income.
- Flexible Management
Operate your business how you see fit, whether as a member-managed or manager-managed LLC.
- No Ownership Restrictions
Partner with anyone, including foreign nationals. Add as many members to the LLC as you need to make it reliable.
Cons
- Franchise Taxes
Some states impose income-based or flat-fee taxes on all businesses other than sole proprietors.
- Strict Record-Keeping
Maintaining clear separation between personal and business finances will increase your bookkeeping needs.
- Investor Restrictions
While LLCs allow for an unlimited number of members, there are some restrictions on the allowable types of investments.
- Lacks Partnership Structure
Some professionals like lawyers and accountants prefer the rigid, collaborative nature of limited partnerships.
Frequently Asked Questions
Do I need to form an LLC to start a business?
If you begin operating as a business by yourself or with someone else you will be considered a sole proprietor or a partnership unless you specifically file for an LLC. However this can leave your personal assets vulnerable and for that reason we recommend forming an LLC. Learn how to convert your sole proprietorship into an LLC.
What does it cost to own an LLC?
The only cost to form an LLC is the state filing fee, but there are often compliance costs to staying in good standing with your state. Unless serving as your own agent, you must maintain a Registered Agent Service for your LLC. This applies to newly formed LLCs too, but with Bizee, new LLCs get one free year of Registered Agent Service. Submitting an Annual Report is the other common cost of owning an LLC. Aside from a handful of states who do not require a filing fee, this may cost anywhere from $10-$500.
Some states have no income tax, but most have at least a personal income tax that applies to pass-through income. A few states also levy franchise taxes on LLCs regardless of whether the company generates income. All-in-all, the annual cost to own an LLC is usually at least $100 but rarely over $1,000 (not counting federal and state tax liabilities).
Is an LLC a corporation?
No, Limited Liability Companies have a distinct business structure and legal status from corporations on both the state and federal level. There are numerous practical differences, but the main statutory difference is that LLCs cannot sell company shares or stocks and are thus limited in how they raise investment capital. Notably, however, an LLC does have the same limited liability responsibilities as a corporation.
How do LLC taxes work?
LLCs can be taxed differently depending on whether they are single member or have multiple members, and whether or not you elect to be taxed as a corporation. You can speak with your accountant for more information. Learn more about LLC taxes and smart financial planning for your business.