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What you need to know about limited liability companies

On Behalf of | Jan 25, 2021 | Small Business Law |

If you were to ask most individuals looking to set up a business what type of structure or formation they were thinking about, they’d likely tell you a limited liability company (LLC). There are many reasons for selecting this type of corporate structure for a business.

What are the positives associated with limited liability companies?

One of the main aspects of LLCs that entrepreneurs appreciate most is that this structure allows them to continue operating as a small business while also providing them with many liability protections that larger corporations enjoy. More specifically, business owners can shield personal assets from potential lawsuits or creditors, thereby only allowing potential creditors to come after what the business owns. One of the only exceptions to this rule is if the owner is engaged in illicit activity or negligence.

Many prospective business owners also elect to incorporate as an LLC because of the tax benefits associated with doing so. Anyone who owns a company like this enjoys pass-through tax filing status or an ability to include their profits and losses on their personal income taxes, just like anyone owning a partnership or sole proprietorship would.

How to set up a limited liability company

One of the first steps you must take to set up an LLC is to come up with a name for your operation that no one else is currently using. You may need to add “LLC” to the end of it.

You’ll then need to sit down to draft your Articles of Organization and LLC Operating Agreement, as well as identify someone to serve as your registered agent. You’ll need to pay any required fees, and depending on the jurisdiction, publish a notice of intent notifying others of your LLC’s incorporation.

There’s not a one-size-fits-all approach when it comes to selecting an incorporation structure for your business concept. There are pros and cons associated with each option. An attorney experienced in small business law will likely want to know more about the company you’re looking to run before advising you of the structure that may be ideal for you.