What is an LLC

What is an LLC?

**Short Answer: LLC stands for Limited Liability Company. An LLC is a legal entity that protects your personal assets if your business is sued.**


Video Transcript:

An LLC is a limited liability company, a legal entity, also a business structure that’s created by state law. An LLC can be used to run a business, or it can e used to hold assets such as real estate, vehicles, boats, or aircraft. 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 the filling LLC information documents with your state and paying the filing fee. Why would you form an LLC? The number one reason is for 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 et cetera. If your business is sued, creditors can only attack the assets of the LLC to settle those 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. Let’s talk about some language mistakes that people make regarding LLCs. There are two common mistakes that people make when talking about LLCs, first they say, 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. We also hear people say, 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. Remember, the LLC is separate and apart from you, it’s not you, you form the LLC then you own and manage that LLC. It’s important to understand the difference in these terms so that you don’t sound like an idiot, and you can speak intelligently about your business. Now, let’s discuss the basics of LLCs vs corporations. A lot of people ask us should they form an LLC or a corporation? Let’s discuss the major differences between the two. 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 a record of all of meetings, corporations do. LLCs aren’t subject to double taxation, and corporations are, and LLCs can distribute profits however they want, but corporations can’t. In short, LLCs are the most popular and most flexible business structure for business owners, entrepreneurs, and real estate investors. LLCs are inexpensively set up, they’ll pay a one-time filing fee to form your LLC, and the set up fee is inexpensive compared to forming other types of business entities like corporations. 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 that your personal assets are fully protected. LLCs are also low maintenance, once it’s set up there are only a couple of requirements to keeping it active. The first requirement is sending your annual report to the state, and note, not all states have annual report requirements. The second requirement is to file your stake in local taxes. Other than that the only additional work you need to do is file a simple form if your change your address. LLCs are quite easy to maintain. How do you form an LLC? You pick a name for your LLC, your prepare your LLC formation documents, you submit your documents to the state and pay the filing fee, and then you wait for approval. Yes, there are a few more steps but those are basics in getting your LLC started. We go into more details on all of these topics mentioned in the rest of the videos in our series.

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.

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:

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Matt Horwitz
Founder & Educator at 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! We teach people how to form an LLC for free in all 50 states. We hope you find our free guides and resources helpful in your entrepreneurial journey.
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