Should You Register Your Small Business as an LLC?
Starting a new business can be both exciting and a bit terrifying. You will have to devote a lot of time and attention to make sure you get off on the right course, and you cannot afford to make any mistakes.
To give your small enterprise the best chance of succeeding, you should consider the legal structure of your company. You may feel that operating as a sole proprietorship or general partnership is safe and easy, but while it may seem simpler in the beginning, over time you could be placing yourself and your family at risk.
Why Form an LLC?
LLC stands for Limited Liability Company. It is a fairly new business entity created with small businesses and startups in mind. When you structure your company as an LLC, you are granted some legal protections enjoyed by corporations that you would not have with a sole proprietorship or general partnership.
Some characteristics of LLCs include:
- Limited liability for owners: Perhaps the greatest advantage of forming an LLC, limited liability means the owners of the company are not held personally liable for debts, liens and lawsuits against the business. The owners’ personal assets are protected from creditors, and the company is liable for its own debts. However, the protection of an LLC does not extend to illegal acts or some instances of negligence on the part of the owners.
- Pass-through income taxes: For income tax purposes, an LLC is not considered a distinct entity. Business profits and losses are reported on the owners’ individual tax returns, so business taxes “pass through” to the owners., just as they would for a sole proprietorship or general partnership. However, owners may be subject to self-employment tax in some states.
- Less paperwork and fewer requirements than a corporation: If you choose to form a corporation instead of an LLC, you will be required to form a board of directors to manage the company, hold annual meetings and keep minutes, and file annual paperwork with the government. With an LLC, you have fewer restrictions, and are not required to hold meetings.
- Flexible management and operating options: Decisions about day-to-day operations and management are determined by the members of an LLC. Owners of an LLC have more autonomy in decision making than owners of a corporation, who are shareholders.
How to Form an LLC
Forming an LLC is simpler than you may think, although a bit more complicated than forming a sole proprietorship or partnership. However, the protections afforded by an LLC are worth the extra effort.
To form your LLC, follow these simple steps:
- Choose a name for your business: Select a unique name not already taken by an LLC in your state, and not too similar to that of another LLC. In most states, LLC or Limited Liability Company must appear in your business name.
- File Articles of Organization: This is the legal document that establishes your LLC in your state. It includes basic information, such as your LLC’s name, address, and the names of the company’s owners.
- Appoint a registered agent: A registered agent represents the LLC and is designated to receive legal documents regarding any lawsuits. Depending on your state requirements, a registered agent may be one of the owners of the LLC, or it may be an individual designated by the state.
- Pay registration fees: There are small filing fees to register your LLC which vary from state to state.
- Publish your notice of intent: In some states, including New York, you are required to publish a legal notice in local newspapers, announcing your intent to form an LLC. Specific guidelines can be obtained from your state’s Department of State.
- Develop an Operating Agreement: While you are not required to file this document with the state, you need an operating agreement to set forth owners’ rights and responsibilities, voting power, percentage of interest in the business, division of profits and losses, and ownership meeting schedules. The operating agreement might also detail each owner’s responsibilities for management and daily operations.
At Windsor, we take the guesswork out of forming an LLC, with easy packages and friendly advice to facilitate the process. We can even designate a registered agent. Do not take the risk of making costly filing errors. Contact Windsor today, and get fast and accurate assistance in forming your LLC.