Limited Liability Company (Business)

How to form an LLC:

- Choose a Business Name. It must not include words restricted by your state (such as "bank" and "insurance"). - File the Articles of Organization. - Create an Operating Agreement. - Obtain Licenses and Permits. - Hire Employees. If you are hiring employees, ensure you follow federal and state regulations for employers. - Announce Your Business. Some states, including Arizona and New York, require the extra step of publishing a statement in your local newspaper about your LLC formation.

Positive Attributes:

- Limited Liability. Members are protected from personal liability for business decisions or actions made by the LLC. This means that if the LLC incurs debt or is sued, members' personal assets are usually exempt. - Less Record Keeping. Operational ease is one of its greatest advantages. There is less registration paperwork and smaller start-up costs. - Sharing of Profits. There are fewer profit sharing restrictions, as members distribute profits as they see fit. Members might contribute different proportions of capital and sweat equity.

Negative Attributes:

- Limited Life. When a member leaves, the business is dissolved and the members must fulfill all remaining legal and business obligations to close the business. The remaining members start a new LLC or part ways. However, you can include provisions in your operating agreement to prolong the life of the LLC if a member decides to leave the business. - Self-Employment Taxes. LLC members are considered self-employed and must pay taxes toward Medicare and Social Security. The entire net income of the LLC is subject to this tax.

Limited Liability Company Taxes

- The federal government does not recognize an LLC as a separate tax entity, so the business itself is not taxed. Instead, all federal income taxes are passed on to the LLC's members and are paid through their personal income tax. - all LLCs must file a tax return as a corporation, partnership, or sole proprietorship. Certain LLCs are automatically classified and taxed as a corporation by federal law. - LLCs that are not automatically classified as a corporation can choose their business entity classification. To select a classification, an LLC must file Form 8832. - You should file the following tax forms depending on your classification: • Single Member LLC. File Form 1040 and Schedule C like a sole proprietor. • Partners in an LLC. File Form 1065 as a traditional partnership. • LLC filing as a Corporation. File Form 1120, the corporation income tax return.

Limited Liability Company

type of business enterprise that protects members against losing all of their personal wealth; members are taxed as if they were in a partnership.