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What Is a Limited Liability Company (LLC)?

When starting a business, there are various business structures you can choose from. Common ones include sole proprietorship, partnership, limited liability company (LLC), corporation andcooperative. Learn why many business owners choose to form an LLC.

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What is a limited liability company?

A limited liability companyis a business structure that gives you extra legal protection. It combines the benefits of the corporation and partnership business structures in that your personal properties and assets are not at liability risk. These assets may include your house, vehicles and saving accounts.

Read more:How to Grow Your Business

Pros and cons of LLCs

Many businesses choose to register as an LLC for a variety of reasons. Learn the benefits and drawbacks to decide if an LLC is right for your business:


These are the benefits of forming an LLC:

  • Your personal assets are protected if the business experiences bankruptcy or lawsuits.
  • You can pass profits and losses through your personal income without having to pay corporate taxes.
  • An LLC is easy to register and maintain.
  • You can have one or more members.
  • Payment is unrestricted to an LLC’s members.


These are the drawbacks of forming an LLC:

  • You must payformation costs and annual fees.
  • You have more tax forms to fill out, such as K-1s for each member.
  • Your state may charge individual franchise or excise taxes.
  • It may be challenging to raise money from investorssince they are more likely to invest in C-Corps.

Tips on forming an LLC

Follow these tips when forming your LLC:

  • Choose a reliable registered agent.A registered agent is an individual or company that’s responsible for accepting legal papers on behalf of the LLC. They must have a physical street address that’s in the same state as the LLC. You may decide to be the registered agent of your LLC, especially if you’re the only member.
  • Pick management wisely.You can choose to either manage the LLC yourself or appoint one or more people to do so. Choose people who have good business insight and can help you makeimportant business decisions.
  • Create an operating agreement.Even if your state doesn’t require it, an operating agreement can help you stay more organized. It’s a document that states how you will run and manage your LLC.
  • Check your business name when converting a sole proprietorship to an LLC. Even if you’re already using the name as a sole proprietor, you may not be able to operate with that name if another LLC is using it.

Read more:10 Steps to Starting a Business

Additional information about LLCs

Get to know other important information about starting an LLC:

  • EIN:To have an LLC with more than one member, you must apply for an IRS Employer Identification Number (EIN) on the IRS website. The same is true if you haveemployees.
  • Taxes:Most LLCs must file self-employment taxes and a personal or corporate tax.
  • Ongoing costs:Annual expenses for an LLC may include LLC taxes, report fees, business renewal fees and registered agent fees.

Frequently asked questions about LLCs

These are some of the most commonly asked questions about LLCs:

How much does it cost for an LLC?

The cost of an LLC can vary by state, but it generally rangesbetween $50 and$520. Prior to filing, check the cost of forming an LLC in your state so you can budget accordingly.

Do I need a lawyer to start an LLC?

Since an LLC is a relatively simple business entity, it’s uncommon to hire a lawyer when starting one. If you find that your LLC is a bit more complicated and is high-risk for legal concerns, you may want to consider consulting with an attorney.

How do I create an LLC?

Registering your LLC is a relatively simple process since most states provide an online application form. The first step is to choose a name for your LLC. Make sure to follow your state’s rules in regard to a business name. It’s quite common to need an LLC designator at the end of your name.

Next, file articles of organization with your state. You can typically find this form on your Secretary of State’s website. Include your LLC name, the registered agent’s personal information andadditional information. Once complete, there’s a chance that you’ll need to pay a filing fee of around $100.

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