What is an LLC?
LLC stands for “Limited Liability Company” and is one of the many kinds of businesses that you can create in the USA. In fact, it is the most common kind that many entrepreneurs tend to open. An LLC offers a lot of distinct advantages to a business owner, which includes easier administration, tax advantages, and liability protection. In addition to this, it also offers easier administration as compared to some of the other types of entities.
An LLC is a business entity that can be created by one or more people. As soon as an LLC is created, it effectively becomes a separate company that you can use to run every aspect of your business. LLCs are very easy to set up and have the lowest costs for administration.
Is an LLC best for my business?
Yes, with the way the economy is going and how the business world moves, the best choice for a startup is an LLC. One of the main advantages of an LLC is flexibility, which means that it can be operated in many different ways. Basically, it can operate as a corporation where there is a board of officers and managers or it can also function as a sole proprietorship with one individual appointed as a manager. It can also be a general partnership with all members designated as “managers.”
There is also flexibility in the tax preparation. This means that the LLC can be taxed as an S-corporation or a C-corporation, based on its choice. Regardless of how they choose to be taxed, they usually benefit from the pass-through treatment with the LLC. The profits of the LLC flows directly through the entity to the individual members, which means that the members can write off certain company losses and avoid the double taxation that the corporation suffers from.
Can an LLC have only one member?
Yes, an LLC can have only one member. There was a time when almost every state required the LLCs to have two or more members. But this has changed. The IRS regulations were revised and now permit single-member LLCs. This means that if you want to be the sole member of the LLC, you can easily do it. Every state in the US allows the formation of the single-member limited liability company or LLC.
But you need to understand that this choice might not give you the same benefits as a multi-member LLC. You will come across the following issues:
- Liability concerns: Two basic liability protections are offered by the LLC. The members are not personally liable for the company’s debts, so their personal assets cannot be used to satisfy the business’ debts. And this structure prevents a member’s personal creditors from going after the company’s assets due to the charging order mechanism. Both these protections are less robust for a single-member LLC.
- Piercing the corporate veil: This happens when the court decides that a business owner is no more insulated from the liability of the business debts. This normally happens when the person and business assets are not kept separately. It also happens when the owner’s individual culpability for the debts is in question. Normally, the court is likely to disregard an LLC as a separate entity when it has a single member.
- Charging Orders: A charging order permits the business owner’s personal creditors to use the business and its assets to satisfy the owner’s personal debts. For a multi-member LLC, only the indebted member’s shares are used while the others are protected. For single-member LLCs, it happens just like that for the multi-member LLC but since only one member is there, the company can be at risk.
- Tax Considerations: The IRS treats a single-member LLC as a “disregarded entity” for tax purposes unless the company elects otherwise. The IRS acts as though there is no LLC where the profits and losses pass through and is reported by the owner on their personal income tax. There is a way for the company to be considered as an LLC by the IRS – this is done by filing the Entity Classification Election form (Form 8832) with the IRS. This will allow them to pay tax on their income, but the owner would also have to pay tax for the profits he/she gets on their personal income causing double taxation.
So, if you want to do business by yourself, an LLC is a great choice but it is not recommended. It is better if you have other members as well to avail all the benefits that the LLC has to offer.
What are the steps to starting an LLC?
Starting an LLC is very easy. Here are the steps to it:
- Choose an LLC name – Ensure that the name is not used by any other company. Also, the name has to end with the LLC designator such as “Limited Liability Company” or “Limited Company,” or an abbreviation of one of these phrases (“LLC,” “L.L.C.,” or “Ltd. Liability Co.”).
- File the articles or organization – IncParadise can help you with this and you just need to share your details such as the address, name, and the member’s details. Contact us to know more.
- Assign a Registered Agent – For you to get your company incorporated as an LLC, you will need a registered agent who is not someone from your company. IncParadise offers this service and is happy to act as your registered agent for any state in the USA.
- Create an LLC operating agreement – This would hold the rules of ownership and operation of the business.
- Obtain licenses & permits – You will also need to get any additional local, state and national license based on your business location and the type of business you are running.
- Retain your limited liability – Open a bank account to keep your business expenses different from the personal ones and retain your limited liability like this. Find out more on how to retain your LLC status here.
Can a foreigner be part of an LLC?
Yes, a US LLC can be owned entirely by foreign persons as there are no citizenship or residence requirements for ownership of an LLC. But you need to keep in mind that you will need a state street address for the state to forward the official legal and tax correspondence along with the registered agent address. Along with this, there are other requirements including that the owner needs to have a US taxpayer Identification Number (ITIN), especially if the company will be making money from offering services in the USA.
In fact, a foreigner can only open a company once they have their Taxpayer Identification Number. The process to get a TIN is not a complex one but it can be lengthy. Once the application is submitted, it can take up to 18 weeks for your ITIN to be assigned.