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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.**
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.
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: