LLC or Inc? – LLC “How To” Starter Guide

WELCOME to the LLC HOW TO Guide. If you got to this page, you’re probably wondering “What is an LLC?” or whether an LLC is the right business structure choice for you.  A lot of people consider the LLC structure to fit somewhere between a Sole Proprietorship and an S-Corporation  or C-Corporation because it protects your from liability more than the Sole Proprietorship, but is not as complicated as a full-on corporation.

Registering an LLC For your company to become an LLC you need to file with your home state or a state that allows for non-resident registration, like Delaware. Many people prefer registering their LLC in Drlaware b/c  it is one of the most pro-business states in the union, which makes for quick processing of documents and other important LLC registration data.  Another perk is that DE has a  dedicated “Court of Chancery” which is reserved for businesses only (LLC or CORPS). When filing LLC outside of your home state, you muse have a Registered Agent in the state where you form your LLC. Registered Agents give the state a permanent contact to receive documents, and can be purchased for a pretty good/cheap price.

 LLC Liability

Dissimilar to Sole Proprietorships and Partnerships, Limited Liability Companies (LLC) provide your business with significant liability protection that your business can incur from debts and lawsuits. For example, if your company forms an LLC and becomes indebted to someone you’re doing business with or your company is on the receiving end of a lawsuit, only your company’s assets can be taken. Ususally the lawyers or debtee’s cannot come after your personal assets ornany income made outside of the LLC.  One of the downside to the LLC is that it is much more difficult toget bank loans, if needed, and it a bad business structure to have if you plan on going public down the road.  This is different than a C-Corp or S-Corp, for example, because instead of being owned by members (like an LLC), a Corporation is owned by Shareholders. This means that a Corporation could put a percentage of the company, or shares, as assets to get the loan, as well easily go public if they should wish to do so in the future.

LLC Taxes As far as LLC taxation, LLC’s taxes pass through to the individual member(s), similar to  Sole Proprietorships or Partnerships. Most people who create LLC’s do so to avoid the complicated nature of corporation taxes that come with c-corp’s and s-corp’s, so if you choose to form an LLC you should know that profits and losses pass through to you as the individual, like a Sole Proprietorship or Partnership.  Essentially, profits or losses will pass through to you , and are reported on your personal income tax return (For more information, see Sole Proprietorship – Taxes).

LLC – Bottom Line LLC’s require much less paperwork and upkeep, so to speak, than that of a corporation but limit your liability unlike that of the sole proprietorship or partnership structures. Additionally, LLC’s do not have shareholders, and instead have members who own a percentage of the company.  Some see this as a positive, and other a negative, depending on what you’re looking to get out of your business.  The positive is that there is no shareholder communication necessary (because there are no shareholders), but you can never go public or use shares as capital for a bank loan.  If you’re interested in protection from lawsuits and people you owe may money to, but do not plan on having your small business go public on the stock market in the future, an LLC is the best business structure for you.

For more information, click here to see the original LLC How To

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