Forming an LLC has Lots of Advantages
Forming an LLC or Limited Liability Company is a good choice for asset protection, tax advantages and easy management. Forming an LLC is quick and easy to do, but just a word of warning there are some formalities that must be attended to if the advantages of asset protection and tax benefits are to be enjoyed. If you want true asset protection, there are four main parts to forming an LLC.
Articles of Organization
First you fill out and file your Articles of Organization. The Articles of Organization are a two or three page document that provides your company information to the state. You can get this document for free on the state website where you are forming an LLC. LegaLees.com provides a link to each of these sites.
Some may wonder where is the best state to go to when forming an LLC. They may have heard that Nevada or Delaware are good places. While it is true that these states have good LLC laws, you should know that most states have gotten tired of having businesses formed out of state. Almost every state has passed laws to discourage foreign corporations. That means they have passed laws to hurt corporations or LLC that are formed in other states.
Generally it is best to form your company where it will be conducting business. Forming an LLC in the state where your business is based is often a less expensive course of action, because you can act as your own registered agent. You will not need to pay to have someone receive documents.
When filling out the Articles of Organization, it is important to remember that this is a public document. Do not give any more information than is required. Mainly you are just giving the state the information it needs to contact you and understand who is involved in your LLC.
Operating Agreement
Once you file the Articles of Organization, the second thing you need to do is make an Operating Agreement. When forming an LLC you should know that the Operating Agreement is the heart and soul of your LLC. It directs how the world will deal with your LLC. Yet often folks neglect to make this vital document.
A good operating agreement will be about 30 pages long. I am not trying to sound like your high school teacher, but it is important when forming an LLC that you include all of the provisions you need to take care of future problems. The length is just what is needed to cover the eventualities you will face once you have formed your LLC.
One of the best things about the operating agreement is that it can be structured to allow for what I call “double asset protection.” This means that not only can you have asset protection personally from company problems, but the company can get protection from your personal problems. This is a vital feature to take advantage of. After all, asset protection is a primary reason for forming an LLC.
Tax Election
The third thing you need in forming an LLC is to file for your tax election. You might not realize that the IRS lets you choose how you want to be taxed. You can be taxed as a sole proprietor, a Corporation or a partnership. The important thing is that you make the election within 90 days or you will default and be taxed the way the IRS chooses. Most people like to make their own election, once they understand the options.
Company Formalities
Fourth and finally, when forming an LLC you need to keep good company formalities in place. This is the time when you need to form good habits. For instance, you don’t comingle company money with personal money. You discipline yourself to keep good records by keeping your receipts and balancing the checking accounts. It is also important to have your company meetings and keep minutes.
Starting a new business and forming an LLC can be an empowering experience. It is important to remember to do it correctly. Don’t cut corners and miss out on the benefits that could be yours. LLC Wizard has a complete kit to let you take advantage of all the benefits.
