A previous post discussed the pros and cons of sole proprietorship in business. However, it may be the right fit for your business to form a Limited Liability Company – or LLC – which is a legal form of a company that provides protection and limited liability to its owners. As such, the owners are not personally liable for the company’s debts or liabilities.

LLCs are in fact, the easiest and most flexible business entities to create, and although the requirements for LLCs may vary by state (always consult a professional such as Dunham Tax Professionals to make sure you understand your state’s requirements), there are generally some commonalities across the board. The very first thing owners or members must do is to choose a name.

Once that’s done, the articles of organization must be documented and filed with the state. These articles establish the rights, powers, duties, liabilities, and other obligations of each member of the LLC. Other information included on the documents includes the name and addresses of the LLC’s members, the name of the LLC’s registered agent – owner/filer – and the business’ statement of purpose.

The articles of organization must be accompanied by a fee paid directly to the state. Paperwork and additional fees must also be submitted at the federal level to obtain an employer identification number – or EIN.

From a tax standpoint, LLCs are generally flow-through – which means that profits and losses fall to each member of the company and are reported on individual returns. The LLC as an entity does not pay taxes – which, however, may also prove to be a real disadvantage, though, depending on your perspective or circumstance.

Other disadvantages to the LLC may include: as a member of an LLC, you cannot pay yourself a wage or salary; high renewal fees or publication requirements can be pricey, depending on your state; and investors may be more likely to put their money into a corporation, making it harder to raise financial capital.

It’s always best to consult a professional to help you through difficult or confusing financial matters. Schedule an appointment with Dunham Tax Professionals today. We can help you through every step of the way.

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