What is a Limited Liability Company?
A Limited Liability Company, also known as an LLC, is a legal business structure that protects your assets (home, car and personal bank accounts) in case your company is sued. An LLC is mostly used for operating a business (you can have multiple businesses in one LLC), but it can also be used to take title to assets. For instance, to own real estate, automobiles, boats and aircrafts, you can also create an LLC (when should I form an LLC for real estate?)
LLC owners are usually called “Members”
An LLC can be owned by one person (Single Member LLC). or two or more people (Multi Member LLC). It is created by this filing form (LLC Articles of Organization) with your state’s government agency along with paying a one-time filing fee. You can find out the cost to form an LLC in each state from here: LLC filings fees by state.
The reasons behind forming an LLC
The basic reason to form an LLC is for the protection of your personal assets. LLC creates a “protective wall” between your business and your personal assets. Personal assets mean everything you own: your home, bank accounts, properties, jewellery, vehicles etc.
Your personal assets cannot be attacked
Even if your LLC is sued, creditors can only attack your LLC assets for the settlement of those business debts and liabilities. Yet your personal assets are secure. They will not be considered a part of your business. But if you do not get your LLC created, your personal assets are at risk if your business is sued.
Correct LLC Language
A couple of common mistakes that people generally make when talking about LLC are:
“I want to form a Limited Liability Corporation.”
There is no such thing as a Limited Liability Corporation. An LLC is a Limited Liability Company.
“I’m going to LLC myself.”
This is also incorrect to say. You cannot “LLC yourself”. But you can form an LLC for the sake of your business. An LLC is separate from you. It is not you. You form the LLC to own and manage it. It is important to understand the difference between these terms so that you can speak smartly about your business.
Is an LLC better or a Corporation?
It is most often asked if people should form an LLC or form a Corporation.
The followings are the main differences between both:
LLCs do not have to elect a board of directors; Corporations do.
LLCs do not need to hold board meetings; Corporations do.
LLCs are not subject to double taxation; Corporations are.
LLCs can distribute profits however they want; Corporations can’t.
We can say that LLCs are the most acknowledged and the most versatile business structure for real estate investors, business owners and entrepreneurs.
LLCs are affordable
You only have to pay a one-time filing fee to form your LLC. The setup fee is affordable compared to forming a Corporation. Setting up an LLC is much cheaper than losing your personal assets. And even if your state has high filing fees, it is well worth the assurance that your assets are fully protected.
LLCs are low maintenance
After your LLC is set up, there are only a few requirements to keep it active. Firstly, you have to send your LLC Annual Report to your state (Not all states require Annual reports). Secondly, you have to file your state and local taxes. Other than this, you only need to file a simple form when you change your address.
LLC can be used to run multiple businesses
Either you can use one LLC for multiple businesses or you can create multiple LLCs. For further information, please click here: can you have two businesses under one LLC?