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LLC FAQs
Questions
- What is an LLC?
- Would it be helpful to me to form an LLC?
- What do I need in order to form an LLC?
- How much does it cost to form an LLC?
What is an LLC?
An LLC is the newest and most customizable form of business organization. In many ways, LLCs are more sophisticated than traditional corporations because you can choose almost any structure for ownership or management of the business. The options for an LLC are so varied that it can be very helpful to have an attorney explain them. However, a common LLC organization for a small to medium business is a "member-managed" LLC with ownership shares.
Would it be helpful to me to form an LLC?
Many single-owner businesses can function as sole proprietorships. However, forming an LLC gives a business an identity separate from its owner for credit, banking, tax, and liability purposes. This means that a LLC can sue or be sued independent from its owner, and that when an LLC is sued, usually only its assets are at stake while its owner's assets are shielded. Additionally, an LLC can apply for credit and maintain bank accounts without impacting its owners' personal credit ratings. Finally, an LLC can be taxed as a C-corporation (paying separate corporate tax and paying dividends) or as an S-corporation (passing through income to its owners, who pay personal income tax on their profits).
What do I need in order to form an LLC?
An LLC needs articles of organization and an operating agreement. For a single-member LLC these can be simple and an attorney can prepare them easily. When an LLC will have multiple members, negotiating the operating agreement can take time, and it can help a lot to have an experienced attorney guide the negotiation so that all of the important issues are resolved.
An LLC must have its own Employer Identification Number from the IRS, its own bank account, and its own commercial liability insurance. If an LLC does not carry adequate insurance, a court may hold its owners liable for negligent acts by the LLC's employees.
How much does it cost to form an LLC?
Forming an LLC can take an attorney anywhere from an hour to a dozen hours, depending how complicated you want to make it and how many people will be involved in the ownership and/or management of the LLC. Although there are government fees to file the LLC paperwork, the main cost is for the time that you and the attorney will need to spend figuring out the details of how the LLC will operate and be funded. So the cost to form an LLC will depend on its complexity and on the billing rate and efficiency of the attorney whom you choose.