Each state has different requirements for this entity, however the basic overview is the same nationwide. LLC are not taxed as a separate business entity, instead all profits and losses are “passed through” to each member of the LLC. Members reports profits and losses on their personal tax red turns, like a partnership would.
How do i choose the business name?
- It must be different for any existing LLC name in your state.
- You must indicate it as a LLC.
- You cannot use words that are restricted by your state, such as: bank or insurance.
Is filing the Articles of Organization Difficult?
No they are not. All Articles of Organization are is a simple document that legitimizes your LLC and includes the information such as your business name, address, and the name of the members. Almost all states require you to file with your Secretary of State, however some states require you to file with a different office such as the State Corporation Commission, Department of Commerce Commerce, Consumer Affairs, Department of Consumer and Regulatory Affairs or the Division of Corporations & Commercial Code. Some states do require a filing fee.
So do I have to create an Operating Agreement?
Most states do not require an operating agreement. Even though they do not require them I would recommend using one for multi-member LLC. It helps to structure your LLC finances and organization and provides a set of rules and regulations to help operate a smooth organization. These agreements typically include percentage of interest, allocation of profits and losses, and each members rights and responsibilities.
How do I obtain Licenses and Permits?
Once you have a registered business you are required to obtain the necessary License and permits to operate your business. All industries have different regulations, however check with you local and federal agencies to verify such licenses and permits by following this link.
If you are hiring employees you really have to know what the federal and state regulations for employers are or consult with an attorney. Employees are an asset to your company because without them who would carry out the day to day operations and interact with your customers? Please read my article on Hiring your First Employees by clicking here.
Announcement of your new business
State such as Arizona and New York require you to announce your business by publishing a statement in your local newspaper about the formation of your new LLC. Check with you states filing office to determine if this is a requirement or not.
In regards to the Federal Government, they do not recognize your LLC as a business entity for tax purposes. In essence the Federal income taxes are passed through the LLC and onto the members personal income tax. The Federal government does not tax the LLC the income will be taxes on each members personal tax, however keep in mind that some states do charge taxes to the LLC. Check here to see if your state requires you to pay taxes on your LLC.
since the government does not recognize your LLC as a business entity for tax purposes, all LLC must file as a corporation, partnership or sole proprietorship on your tax return. For guidelines in regards to this visit the IRS website. Since LLC are not automatically classified you can choose which classification that would suite you and your business needs the best.
You should file the following forms depending on your particular classification.
- Single Member LLC Form 1040 Schedule C sole proprietors.
- Partners in an LLC Form 1065.
- Filing as a corporation Form 1120
The Benefits of an LLC
If you choose an S corp election for you LLC it is highly recommended to get advice from an attorney. Their are specific pros and cons that he or she can guide you through. This can be done with Form 2553. You must file prior to the first two months and fifteen days of the beginning of the tax year in which the election is to take effect. For more information visit the IRS website on S-Corps.