What is an LLC

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What is an LLC?

Summary: LLC stands for Limited Liability Company. An LLC is a legal entity that is separate and distinct from its owners. An LLC protects personal assets (home, car, bank account) in the event of a lawsuit. LLCs are most commonly used for operating businesses (you can have multiple businesses in one LLC) or for investing in real estate (when to form an LLC for real estate).

An LLC is a Limited Liability Company. It is a legal entity (business structure) that is created by state law.

An LLC can be used to run a business, or it can be used to hold assets (such as real estate, vehicles, boats, or aircraft).

LLC Owners Are Called “Members”

The owners of an LLC are called “members”.

An LLC can be owned by one person (called a Single-Member LLC).

Or an LLC can be owned by two or more people (called a Multi-Member LLC).

The LLC is created by filing LLC Formation Documents with your State and paying the filing fee.

Why Form an LLC?

The #1 reason to form an LLC is for personal asset protection.

By forming an LLC you create a “protective wall” between your business and your personal assets.

Your personal assets include everything that you own: your home, cars, trucks, bank accounts, investment properties, boats, jewelry, etc.

Need help with your LLC? Have a professional LLC service file for you:
Northwest ($39 + state fee) or LegalZoom ($149 + state fee)

An Attack on Your Assets

If your LLC is sued, creditors can only attack the assets of your LLC to settle those business debts and liabilities.

Your personal assets are safe and secure.

They are not considered a part of the business.

Again, without forming an LLC, your personal assets are at risk if your business is sued.

Speaking the LLC Language

There are two common mistakes people make when talking about LLCs.

“I want to form a Limited Liability Corporation.”

You cannot form a Limited Liability Corporation. There is no such thing. An LLC is a Limited Liability Company.

Or “I’m going to LLC myself.”

Again, this is incorrect. You cannot do that. You can’t “LLC yourself”.

But, you can form an LLC for your business. An LLC is “separate and apart” from you. It is not you.

You form the LLC. Then you own and manage that LLC.

It’s important that you understand the difference in these terms so you don’t sound like an idiot and can speak intelligently about your business.

LLC vs Corporations – The Basics

A lot of people ask us if they should form an LLC or form a Corporation?

Let’s discuss the major differences.

LLCs don’t have to elect a board of directors; Corporations do.

LLCs don’t need to hold board meetings; Corporations do.

LLCs don’t have to keep records of all their meetings; Corporations do.

LLCs are not subject to double taxation; Corporations are.

LLCs can distribute profits however they want; Corporations can’t.

In short, LLCs are the most popular and the most flexible business structure for business owners, entrepreneurs and real estate investors.

LLCs are Inexpensive to Setup

You’ll pay a one-time filing fee to form your LLC.

The setup fee is inexpensive compared to forming other types of business entities (like a Corporation).

Losing your personal assets is much more expensive than setting up your LLC.

And even if your state has higher filing fees, they are well worth the assurance of knowing your assets are fully protected.

LLCs Are Low Maintenance

Once your LLC is setup, there are only a couple requirements to keeping it active.

The first requirement is sending your LLC Annual Report to the state.

(Note: Not all states require Annual Reports.)

And the second requirement is to file your state and local taxes.

Other than that, the only additional “work” you’d need to do is file a simple form if you change your address.

LLCs are easy to maintain.

How to Form an LLC

1. Pick a name for your LLC.

2. Prepare your Articles of Organization, Certificate of Organization, or Certificate of Formation. File by mail or file online with the Secretary of State and pay the state filing fee.

3. Wait a few business days for your LLC to be approved.

That’s how to form an LLC. Yes, there are few more steps, like Operating Agreement, Federal Tax ID Number (EIN), and Annual Report, but these are the basic steps to getting your LLC started.

If you’re ready to get started, select the state where you are forming an LLC:

Matt Horwitz
Founder & Educator, LLC University®
Forming an LLC shouldn't be so complicated. Our step-by-step guide will make the process a breeze – and no complex legal jargon! LLC University® teaches people how to form an LLC for free in all 50 states. We hope you find our free guides and resources helpful in your business journey.
Disclaimer: Nothing on this page shall be interpreted as legal or tax advice. Rules and regulations vary by location. They also change over time and are specific to your situation. Furthermore, this comment section is provided so people can share their thoughts and experience. Please consult a licensed professional if you have legal or tax questions.

12 Comments

  1. Dr Leeways March 21, 2018

    Hi Matt,

    My family has just formed an LLC for some vacation property we own. We did it through an expensive lawyer. I found your website very helpful in understanding a lot more about LLCs, and not running up $50 bills with every question to the lawyer. Thank you!

    I was wondering if you could answer a question about home insurance. Right now the cabin (on a remote island with no street address) is insured by my father and his wife. The cost is $600/yr. Our neighbors with similar property and an LLC as well lost their insurance when their insurance company closed. They had a heck of a time finding someone to insure them at all as there is no street address, just parcel numbers. Their yearly rate went to $5000.00! So my question is, can I leave the cabin’s insurance in my dad’s name for now or does it HAVE to be switched to LLC? Would the company refuse to pay any claim as now the LLC owns the cabin? Would my father be personally libel if something happened to someone (tree falls on them in cabin and leg cut off, for example) as he is the insurance carrier?

    reply
    • Matt Horwitz March 27, 2018

      Hi Dr. Leeways, I’m glad you’re received a lot of value from our website :) One thing to note is that you said “my family has just formed an LLC for some vacation property we own”. ‘Just forming’ an LLC for real estate that is already owned likely means that the person that holds title to the property is not the LLC (it’s you and/or your family members). So if you want the property to be owned by the LLC, you’ll need to transfer title to the LLC. A local real estate attorney and/or title company will be able to assist. Also, check out when to form an LLC for real estate. Also, the fact that there’s not a physical street address shouldn’t matter much as the deed likely includes a survey which paints out in detail the property’s location and size. Also, I would assume companies that insure properties in that area are familiar with the way things work in remote locations. So while I can’t answer whether or not you should switch your cabin’s insurance, I hope the information I provided helps lead you to the correct path of action.

      reply
  2. DB April 16, 2018

    I live in CT but can I form LLC in Delaware? Is Delaware still the most favorite place to incorporate?

    reply
  3. Mr. mccree May 11, 2018

    Are there any small business classes from which i can start a small business like an llc

    reply
    • Matt Horwitz May 16, 2018

      Not that I’m aware of. However, if you go to our homepage and then select your state, we have LLC filing instructions. Hope that helps.

      reply
  4. Ata Ur Rahman Safi June 6, 2018

    Hello Matt,

    I have formed an LLC in California, I do have operating agreement, Article of Organization and IRS EIN, I didn’t run any news paper Ad. Do I need to run an ad? is it the requirement to complete registration or not?

    Thank you.

    reply
    • Matt Horwitz June 17, 2018

      Hi Ata, no, you don’t have to run newspaper ads for a California LLC. Hope that helps.

      reply
  5. Sabrina January 26, 2019

    I am starting a Wholesaling business in New York. Is it prudent (cost effective and privacy enhancing) to create a Holding company in Wyoming that is the parent company or owner of a NY LLC? And, can they be created at the same time, or do I have to create the NY LLC first?

    reply
    • Matt Horwitz February 6, 2019

      Hey Sabrina, you can certainly form a Wyoming LLC that owns your New York LLC. If you went that route, you’d form the Wyoming LLC first. Hope that helps.

      reply

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