LLC stands for Limited Liability Company and is a hybrid business entity that possesses characteristics of both a corporation and a sole proprietorship (or partnership depending on the number of owners). The biggest similarity to a corporation an LLC shares is part of its namesake, Limited Liability. This means that if the company is sued, the plaintiffs are suing the company and not the individual owners or investors. This also means that members of an LLC are not personally liable for debt of the company other than the value of their investment.
However an LLC also has a primary characteristic it shares with a partnership rather than a corporation: the availability of pass-through income taxation. Which in simple terms means that revenue “flows” through the business to the investors or owners, and depending on local tax regulations, this structure can possibly avoid dividend tax and double taxation.
It is important that with any business decision all owners research their state specific regulations and laws to ensure the best course of action is being taken. A lawyer can help with this as well.
To start an LLC you need a few things before you can begin your business:
- A name.
- You must file articles of organization. ($100 filing fee online in Virginia)
- Appoint a registered agent.
- Prepare an official operating agreement.
- Comply with varying tax and regulatory requirements.
- Pay annual registration fees.
Some of these steps are fairly simple, like creating a name for your business. However there is a lot of paperwork and a lot of potential for pitfalls later if some of the above processes aren’t perfectly executed. When starting an LLC it is always a good idea to enlist professional legal help to ensure that all the necessary documents are assembled and that you abide by any state specific regulations as well as understand the new classification for your business in the eyes of the court and government.
The Decker Law Firm can provide legal advice for your business in any matter, including forming an LLC. If you are interested in enlisting our services please call 757.622.3317 today.