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LLC FAQ
What is a Limited Liability
Company (LLC)?
A limited liability company is
a type of business entity that is independent of its owner. It can consist of
one or more members which may be individuals, partnerships, limited
partnerships, trusts, estates, associations, corporations, other limited
liability companies or other business entities. The members of a limited
liability company are afforded limited liability similar to shareholders of a
corporation and are allowed pass-through taxation that is comparable to a
partnership.
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What are the advantages of
forming an LLC?
A Limited Liability Company
combines the advantages of a corporation and a partnership. The members of the
LLC are allowed limited liability protection of a corporation with the
pass-through taxation of a partnership. All personal assets of the members are
protected from creditors for debt and from judgments against the LLC. Provided a
member did not use their personal assets to secure loans or personally guarantee
the debt. Unlike a Sub-Chapter S Corporation whose shareholders are limited to
75, there is no limit to how many members an LLC can have. For the flexibility
and taxation benefits, LLC’s have become very desirable to business owners.
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Are there any disadvantages?
There is generally more
paperwork and filing requirements to create an LLC than a general partnership.
In many states, general partnerships do not have to be filed with the state
filing agency. More often, general partnership documents are filed at the
Recorder’s Office in the County of residence or place of business.
Unlike a corporation whose
existence is perpetual, many states require an LLC to designate a dissolution
date in the formation document.
In some states, when a member
dies, resigns, is expelled or files for bankruptcy, the LLC is dissolved or less
otherwise stated in their Articles of Organization or Operating agreement. It is
often possible for the majority of members to have a vote to continue the LLC as
long as the vote takes place within a short time frame; generally 90 days. Most
often, the state agency will allow you to amend the dissolution date at a future
time if you are so inclined.
Although LLC’s are a fast
growing business entity, there is still a lack of wide spread acceptance of an
LLC.
Depending upon the state, there
can be restrictions on rendering professional services. In California, an LLC is
forbidden to provide any service that requires a professional state license.
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How do I
decide if I should form an LLC or S corporation?
Most business owners that
decide to form a limited liability company do so because of its flexibility in
taxation. An S corporation eliminates double taxation but it lacks the
flexibility of an LLC in distribution of income to the owners.
A limited liability company can
have several classes of membership interests and can consist of one or more
members (in most states) which may be individuals, partnerships, limited
partnerships, trusts, estates, associations, corporations, foreign nationals,
other limited liability companies or other business entities.
An S corporation can only be
owned my individuals, issue only one type of stock, and is limited to no more
then 75 shareholders.
In California, professional
LLC’s are not allowed. By forming an S corporation, you can offer services that
require a state license with the benefits of pass-through taxation.
In most states, the filing fees
are less to form an LLC than an S corporation. For more information, view our
Entity Comparison Table. The Entity
Comparison Table will show the advantages and disadvantage of different types of
business entities.
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Where should I form my LLC?
It often makes the most
financial sense to organize your LLC in the state you are doing business in.
Some states offer lower formation fees or have flexible laws that are favorable
to business like Delaware. Keep in mind that if you form an LLC in a state other
than the one you are doing business in, you will be required to qualify to do
business in your home state. In a nut shell, this means that you will have to
pay two initial filing fees, pay two Registered Agent fees, file two annual
reports, and in some states; pay two state tax fees.
There are some instances when
it may be beneficial to form an LLC in another state instead of in your home
state. If the LLC is going to be a holding company for investments, it may make
sense to form in Nevada because it does not have a state income tax.
If you have decided to conduct
business in more than one state, you will be required to qualify “register” to
do business in each state. Sun Document Filings can assist you by forming your
LLC in the state of your choice and then qualify your LLC to do business in your
home state. Please contact us for further information and pricing.
Where can I view
state rules for a Delaware LLC? -
LLC Regulations included
Where can I view
state rules for a Nevada LLC? -
LLC Regulations included
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Who controls or manages an LLC?
An LLC is owned and organized
by its members. Members to an LLC are the equivalent as partners are to a
partnership or shareholders in a corporation. Members have the option of
managing the LLC themselves or if they prefer, they can choose to elect managers
to operate the LLC. Managers are agents of the company and have the authority to
bind the company to third parties. The flexibility in management is one of the
reasons LLC’s are so appealing.
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How many
entities or people are required to form an LLC?
In most states, only one entity
or one person is required to form an LLC. In terms of taxation, the IRS does
recognize single member LLC’s and allows pass-through taxation. Although the
Internal Revenue Service allows one member LLC’s with pass-through taxation,
some states may not afford equal treatment to single member LLC’s. To avoid any
surprises, we recommend that you speak with your accountant or tax preparer to
find out how the tax laws in your state would affect your single member LLC
prior to organization.
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What titles are allowed in an LLC?
In some States, officers of an
LLC are limited to members, managers, and Chief Executive Officers (in
California). Other States allow offices such as President, Vice-President, and
other titles that are generally afforded to corporations.
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Are there any
restrictions on how I name my LLC?
Yes there is. Most states
require that the LLC contain the words limited liability company or limited
company or end with the abbreviation LLC, L.L.C., L.C. OR LC.
Most states do not allow a
limited liability name to contain the words: bank, trust, trustee, incorporated,
inc., corporation, corp., insurer, insurance, or Olympic(s).
In addition to the ending, most
states will not allow you to register your LLC if the name is exact or "likely
to mislead the public or which is the same as, or resembles so closely as to
tend to deceive," the name of a domestic or foreign (out-of-state or country)
limited liability company. Sun Document Filings will check the name availability
with the State filing agency prior to submitting your documents.
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What is a Registered Agent or Agent for Service of Process and why is it
required?
A registered agent is
typically an individual, business entity, or in some states - a corporation that
has filed additional paperwork with the state filing agency so they can become a
registered agent. If your LLC is ever involved in a lawsuit, the plaintiff’s
attorney and or the court, will serve your LLC via a process server to inform
you of the suit. Even though an LLC is a separate entity, it can not answer the
door and physically accept the court document in its hand. Therefore, state
filing agencies require that an LLC designates a Registered Agent. The state
filing agency requires that the Registered Agent maintains a physical address
(no P.O. Boxes or PMB’s) in the state the company is doing business in. The
Registered Agent is also required to be available at the physical address Monday
through Friday during normal business hours to accept service of process. The
name and address of the Registered Agent will become public record that anybody
can access. Sun Document Filings can eliminate all of the above concerns. For a
small annual fee, Sun Document Filings will appoint a Registered Agent to act on
your company’s behalf. The Registered Agent will take on the responsibility of
being served and forward all service of process to your company immediately. We
can act as a California Registered Agent, Delaware Registered Agent, Nevada
Registered Agent, and as Registered agent for your company located in any of the
50 states and the District of Columbia. For more information, please
click here.
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Do I need an attorney to form my
LLC?
Legally it is not required. Sun
Document Filings can draft, sign as Organizer, and file your documents with the
State filing agency. We can also provide your LLC with Registered Agent
services, prepare a general operating agreement, and provide you with an LLC kit
to keep and maintain your records. We are able to provide all these services at
a fraction of the price an attorney would charge. In fact, many attorneys turn
to Sun Document Filings to provide them with filing services. We have been
trusted in the legal community for over five years to competently organize new
LLC’s on behalf of their clients.
However, if you have particular
questions about how the laws in your state will affect your LLC, we do recommend
that you speak to a competent attorney to answer your legal questions.
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What is a publication requirement and are there publication requirements for an
LLC?
Some states require that the
company publish information about their formation or qualification in a widely
circulated newspaper within the county of the State they are doing business in.
Currently, the only states that require limited liability companies to publish
are Arizona, Nebraska, and New York. Sun Document Filings can help your company
meet its filing requirements in Arizona and Nebraska for an additional service
fee. Unfortunately, due to regulations and high costs, Sun Document Filings does
not help with publication in New York. Please contact us if you are interested
in this service.
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Where can I view an
entity comparison table?
Where can I view a glossary
of corporate terms?
What about a corporation?
Where can I view FAQ's about a corporation?
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How is an LLC taxed?
At the federal level
An LLC may be classified for
Federal income tax purposes as a sole proprietorship (referred to as an entity
to be disregarded as separate from its owner), partnership or a corporation. If
the LLC has only one owner, it will automatically be considered to be a sole
proprietorship (referred to as an entity to be disregarded as separate from its
owner), unless an election is made to be treated as a corporation. If the LLC
has two or more owners, it will automatically be considered to be a partnership
unless an election is made to be treated as a corporation. If the LLC does not
elect its classification, a default classification of partnership (multi-member
LLC) or sole proprietorship (single member LLC) will apply.
At the state level - LLC
Tax
Your LLC may be treated
differently for tax purposes then at the federal level. Some states impose an
annual tax or attach an additional tax depending upon your LLC’s gross receipts.
In California, the Franchise Tax Board imposes an $800.00 minimum tax that is
due within 4 months after formation. In addition, the LLC will be required to
pay the minimum tax every year for the life of the LLC.
Since each state is different,
we recommend that you speak to your accountant or tax preparer for specific tax
questions.
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How do I start the LLC
formation process?
Please click on a link below for forms, fees, and further information.
Form a
California LLC - Form a California LLC fast
Form a Delaware LLC
Form a Nevada LLC
Form a California Corporation
- click here for more information
Sun Document Filings suggests that you seek the
advice of an attorney or accountant to answer any legal or tax questions you may
have.
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NOTE: We hope you find our LLC
FAQ's helpful. Nothing contained in our FAQ's should be construed as giving
legal or financial advice. Our intended audience is attorneys and accountants.
Therefore, if you are not an attorney or accountant, you should contact an
attorney or accountant for specific legal or tax questions regarding your LLC.
Please be aware that the Franchise Tax Board and Secretary of State are
government agencies and can change their fees/procedures/forms/turnaround times
without notification. Although we do our best to update our steps and stay
current, we shall not be held liable for any omissions or errors contained. We
do not profess to be giving legal or financial advice to the general public as
we are a typing and filing agency.
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