What is an LLC? | How Does an LLC Work?
When you form a new small business, you first need to decide how you want to structure it. The structure of your new company is going to impact a few different things, such as how you pay taxes, how much legal protection you have, and how much work it takes to initially set up your company. One of the first things you’re going to need is your Federal Tax ID Number.
Steps to getting an LLC
- What is an LLC and how does it work?
- What are the benefits of having an LLC?
- Why should you form an LLC?
- What does an LLC protect you from?
- How do I form an LLC online?
- Do I need an EIN for an LLC?
1. What is an LLC and how does it work?
An LLC is a limited liability company. It is one of the simplest types of company to start. Many small businesses are established as LLCs. An LLC affords you some legal protections, but not as many as an S corporation or a C corporation. LLCs may not be as easy to expand as other, more structured types of companies, and LLCs are not always treated the same legally depending on which state someone lives in.
LLCs are flexible compared to other types of companies. Company owners are able to organize their LLC as a nonprofit if desired, as well as using the rules designed for corporate taxes if they choose. LLCs fall between partnerships and corporations, giving them the characteristics of both. After an LLC has been organized, it will operate under something known as an operating agreement. From then on, the LLC provides certain protections to the assets of the business owner.
Like an S Corporation or a C Corporation, individual business owners generally cannot be held responsible for the debts of their LLCs. However, if a business owner had commingled personal funds with business funds, or if the business owner was directly responsible for the LLC failing, it is possible that the company’s debts may be transferred to the business owner.
2. What are the benefits of having an LLC?
A limited liability company makes it easy to file your taxes, as you will report your income and expenses on a Schedule C that is sent with your personal tax return. Further, an LLC doesn’t require that you pay taxes twice. With an S corporation or a C corporation, taxes will often be paid on income that goes into the company as well as money paid to the owner by the company.
LLCs are one of the easiest types of company to structure, in general, as they require far less paperwork than other types of corporations and require less administrative time. LLCs can have as many owners as desired, and the owners of an LLC do not have to all be American citizens, although depending on the state, there may need to be more than one citizen involved.
LLCs are frequently used to protect assets such as real property. For real properties, an LLC can be formed for each individual piece of real estate, thereby making each real estate fall under its own protection. The parent company can be protected from liability in this way, as can other properties owned by the parent company.
3. Why should you form an LLC?
An LLC is the easiest form of company to set up and therefore is frequently used by small business owners or by those who are segregating a larger business into individual assets. LLCs are ideal for those who want to avoid double taxation and who want to be able to manage their businesses easily and with greater agility, because less paperwork has to be filed overall. Although LLCs may be fairly simple, an LLC still conveys most of the legal benefits and tax benefits of running a company. Although individuals are taxed on their individual tax returns, they are still able to take business-level tax breaks.
4. What does an LLC protect you from?
An LLC, like an S corporation or C corporation, shields you from personal liability regarding your company’s debts. If your company goes bankrupt or is found liable for damages to another entity, your company will be liable, but you will not be.
Although there are some instances of an individual being found liable for an LLC’s debt, this generally only happens if the individual business owner is directly responsible for that debt or has personally guaranteed that debt. Otherwise, an LLC creates a barrier between you and your company’s operations.
5. How do I form an LLC online?
Although forming an LLC is comparatively simple, it’s still a complicated process that involves developing operating agreements and submitting the right forms. If an LLC is not formed properly, it may not be able to provide the protections that are indicated above.
One of the easiest ways to form an LLC online is to hire a third-party service. A third-party service will take the information you offer about your business and submit it to the relevant parties, thereby ensuring that your LLC has been registered properly with the government.
When forming an LLC online, you will need information about the business owners, as well as the company’s name and general information about the type of business the company will do.
6. Do I need an EIN for an LLC?
An LLC, like any other business, needs an Employer Identification Number. An EIN is what allows an LLC to get bank accounts, acquire business loans and pay employees. EINs can be used for everything from purchasing items wholesale to submitting tax returns. Without an EIN, businesses cannot function. EINs are acquired for both federal tax purposes and state tax purposes.
Online services that are able to form an LLC online for you are also able to acquire an EIN for you. You can use the same easy, all-in-one service to get everything you need for your business in a single package.
An LLC is one of the easiest and most flexible forms of company for most business owners. A small business owner who wants to simplify tax reporting while still obtaining protection from liability can start an LLC today with the help of a third-party business-starting service.