In recent years physical archiving has been superseded by electronic document management systems (EDMS).  As digitisation becomes more pervasive document controllers will need to decide what to do with the information stored in their physical document archives.

These physical archives aren’t always a high priority for most office managers, so, putting off the decision to digitize is understandable. Even so, most office managers agree that physical archiving is not an ideal way for storing historical documents and whilst the  decision can be delayed for now, they know that ultimately they must choose to  either  destroy or digitize their physical archives.

If destroying the information is not a suitable course of action digitising the archive is the only way forward. The argument for digitising a physical archive is  strong. As you’d expect scanning your archive will give you all the benefits provided by your EDMS and as such the business case is similar to that of installing an EDMS in the first place. We’ve gone through some basic reasons why document controllers and office managers digitize their physical document archives  :

Reason 1 : Reducing Storage Costs
Perth office space is at an all-time premium and thanks to the one in a hundred year mining boom it doesn’t look like it will change any time soon. Costs associated with filing cabinets include the floor space they occupy, the cabinet itself plus the paper within it. Reducing the number of filing cabinets in your office reclaims thousands of dollars of poorly utilised office space. Whilst offsite storage can reduce the cost, especially for those in the CBD it introduces its own unique problems and ongoing charges.

Reason 2 : Reducing Retrieval Costs
A large part of the cost of your archive is the time it takes to retrieve documents from it. Finding documents can be difficult in large, disorganized archives and chew up a lot of labour time. Even the best organised physical archive will soak up hours of your employee’s time and retrieval times and costs can grow considerably when documents are stored offsite. Compared to the time taken to search through an EDMS the long term cost of storage and retrieval of electronic documents is considerably lower.

Reason 3 : Meeting Statutory Requirements
Depending on your industry you may have a legal requirement to retain certain documents. Government instrumentalities have a more pressing need to retain documents for longer periods of time. The period can be as long as 20 years once a document becomes inactive. Scanning your archive allows simple access to the documents without having to worry about the safety of the document for 20 years or more.

Reason 4 : Surviving a Disaster
Physical archives are susceptible to fire & water damage. Scanning your archive allows you to create multiple redundancies for these documents in separate locations across the business. In the event of a disaster, business interruption is reduced to the absolute minimum.

Reason 5 : Maintaining Archive Integrity
Physical archives deteriorate over time. What’s worse is the use of the archive also can interfere with its integrity, files can go missing and papers can be returned to the archive in the wrong spot. Digitising the archive halts the process of document ageing and misfiling, preserving the integrity of the database.

Reason 6 : Future proofing
Your organization never knows what’s going to happen in the future. Legal challenges may require evidence of original documentation. Even worse critical design flaws in the future may require referencing original plans. As some buildings are designed to last 100 years, it’s unlikely your predecessor will be  able to  find those blueprints from 2002 in 2102 unless they’re in a safe place.

Single-Member LLC Default Tax Rules

A single-member LLC (only one owner) is treated by default as a disregarded entity by the IRS. There is no llc tax return to file because the IRS does not consider your Limited Liability Company to be a separate entity. Instead, the income and deductions of the LLC flow through or pass through to the single member. The one owner then claims the income and deductions on his Schedule C, Profit or Loss From a Sole Proprietorship, and pays the llc taxes.

In this way, single member llc taxation is the same as sole proprietorship taxation if the owner keeps the default rules.

Multiple-Member LLC Default Tax Rules

Limited liability companies with multiple members are treated by the IRS as partnerships. Like in a single-member LLC, the profits and deductions from a multiple-member LLC flow through or pass through to the owners to be claimed on their own personal income tax returns. Unlike a single-member llc, limited liability companies with multiple owners must file an informational tax return with the IRS. No money is due with the informational LLC tax return.

Form 1065 is for partnership tax returns, but it is also the appropriate llc tax form for default multi-member LLCs. Each member must also receive Form K-1, which is sent along with the individual member’s personal income tax return.

Electing Different LLC Taxes

LLC taxation gets a bit trickier when you deal with possible elections. The good news is that if you wish to keep the default llc tax rules, you do not have to do anything; your LLC is automatically a disregarded entity and you automatically pay taxes in line with one of the llc tax laws above.

You may, however, elect to be taxed as a corporation. This decision does not affect the operation of your LLC, your limited liability, your state requirements, or anything else; it only affects how the IRS taxes your llc.

Use IRS Form 8832 to make your initial election or to change your LLC tax status later. The rules for election are the same for single-member LLCs and limited liability companies with more than one member. The only difference is that single-member LLCs choose to be taxed as a sole-proprietorship or corporation, while multi-member LLCs choose to be taxed as a partnership or corporation.

Complicating matters a bit is the fact that there are actually two types of corporate taxation: Subchapter S and Subchapter C. Those corporations that elect the tax rules under Subchapter S are referred to as S-Corporations, while those that elect under Subchapter C are C-Corporations. The tax law varies slightly between the two, and how those rules affect LLCs will be discussed below.

Effect of LLC Tax Election

Since your LLC tax status only has an effect on how much you must pay in llc taxes, business owners tend to want the status that saves them the most money. This is one of the biggest llc tax advantages; you get to choose whatever structure most benefits you. Figuring out which one to take, though, can be confusing and you should hire a competent tax attorney or CPA if you need assistance.

Here are some general guidelines:

• Single Member LLC (Disregarded Entity) – A single-member llc (one owner) must pay self-employment tax. In addition to claiming all profits and losses on Schedule C, you must also calculate self-employment tax due on Schedule SE.
• Multi Member LLC (Partnership) – A multi-member llc (more than one owner) also pays self-employment taxes. The limited liability company itself files an informational llc tax return (Form 1065) and issues a K-1 to each member. Then, the llc taxes are paid by each member according to his share of the profits and losses. Like in a single-member LLC, each member files a Schedule C and calculates self-employment tax on Schedule SE.
• LLC Treated as an S-Corporation – Profit disbursements to members in S-Corp LLCs must be reported on IRS tax return Form 1120S. Your Limited Liability Company will also owe payroll tax for wages paid to employees, including employees who are members. However, the S-Corp LLC tax advantages are that it pays neither self-employment tax (like single-member disregarded entities or multi-member partnership LLCs) nor corporate income tax (like C-Corp LLCs).
• LLC Treated as a C-Corporation – Corporate income tax is due with Form 1120 if you elect to have your limited liability company taxed as a C-Corp. Additionally, any profits paid to owners/members in the form of dividends (unearned income) are subject to dividend tax. C-Corp LLCs also owe payroll tax for wages, but the owners do not have to pay self-employment tax.

Which LLC tax election you make is a personal choice that should be discussed with all members and a licensed tax attorney or CPA. What selection offers the most llc tax advantages now might not be as advantageous later as your business grows. Similarly, what may be appropriate for a large limited liability company might not be right for you if you plan to keep your LLC small. Llc taxes can be complicated, and you should understand your obligations fully before you file your first llc tax return.

LLP vs. LLC

Both the Limited Liability Partnership and Limited Liability Company require filing an Articles of Organization with the appropriate state agency — typically the Secretary of State or a subsidiary. States that offer both entities will use different forms for LLPs and LLCs, but the information required is similar. The business name of the LLP or LLC, its business activities, and your contact information are all required. Beyond that, states vary. You will typically not need to fill out more than one or two pages on a standard form to create a limited liability partnership or limited liability company.

LLP vs. LLC: Legal Protections

Both the LLP and LLC offer limited liability protections, meaning that the owners of the companies (called “members” in LLCs or “partners” in LLPs) will typically not be held personally liable for the debts of the business. This extends not just to loans, but also liability for lawsuits such as personal injuries or breaches of contract.

Some states require that one partner of the LLP not limit his or her personal liability, meaning one person will be responsible for the debts of the business. If this is the law of your state and you do not wish to expose one of the partners to liability, an LLC may be a better choice for your business. If you’re not sure where your state stands on this law, contact your Secretary of State.

LLP Tax Benefits vs. LLC Tax Benefits

The tax benefits of an LLP and LLC vary, but they tend to be similar to each other in states that offer both. Unlike so-called corporate double taxation in which corporations must pay taxes once on their profits and then the owners must pay taxes again on any distributions, both LLPs and LLCs pay taxes only once. This is because both are pass-through tax entities; while the owners — partners or members — will pay income tax on their personal earnings from the company, the LLP or LLC itself will not.

LLP vs. LLC: Professional Services

Some states do not permit some businesses — most notably those that perform professional services such as accounting or legal aid — to be formed as a limited liability company. Though some do, many professional service companies opt to form as a limited liability partnership. This is especially useful for firms who plan to operate in multiple states and do not want to deal with forming as a different business entity in different states.

Some states also offer the Professional Limited Liability Company or PLLC which is an option as well. But because the PLLC is not available in every state, multistate professional firms may still opt for the LLP.

Finally, a few states restrict limited liability partnerships to professional firms, making the decision of LLP vs. LLC much easier. Remember, though, that just because an entity is restricted to your particular practice does not mean that the LLP or LLC is preferable for that type of practice.

LLP vs. LLC: Final Points

While the ultimate LLP vs. LLC decision is up to you or your attorney, my personal preference would still be for the Limited Liability Company over the Limited Liability Partnership unless you have a specific reason to favor the LLP. In other words, if you’re having trouble deciding between the LLP and LLC, my default choice would be the LLC.

This is because the LLC is a bit more flexible, especially in terms of ownership restrictions. LLPs must have more than one partner and must operate like a partnership, while LLCs may have any number of members and may operate like sole proprietorships, partnerships, or S-Corps. Additionally, the LLP requirement of leaving one partner with unlimited liability sometimes defeats the main advantage of an LLP and LLC, and may cause discord among your partners.

Though if your state requires your type of business to form an LLP, or if one feature of an LLP is desirable for you, the limited liability partnership is still a great entity. As always, if you are having difficulty making the LLP vs. LLC decision, an experienced business lawyer can help.

An employee is legally defined as any individual hired for a wage, salary, fee or payment to perform work for an employer. Employees are distinct from independent contractors. This distinction is important when determining whether certain laws apply to the business — some laws only take effect when a company has more than a set number of employees — whether an individual is eligible for worker’s compensation, and whether the limited liability company will be liable for damages caused by the individual.

Your company’s limited liability protections will not be extended to any employees, but the LLC will still receive limited liability for damages an employee causes. This only means that the members will not be personally liable for an employee’s damages; the LLC itself will still be liable.

Requirements for an LLC to Have Employees

In order to hire employees, a limited liability company must have an Employer Identification Number or EIN. The process of applying for an EIN is straightforward, but you could hire an attorney or accountant for assistance if necessary.

Your state may also require you to register as an employer on top of the other registrations you filed for becoming an LLC. This is typically for taxation purposes, but may also extend to certain yearly filing requirements or statutory compliance reports. Consult your state’s income tax division or Secretary of State to find out if employer registration is necessary.

Although limited liability company members are considered self-employed for IRS purposes, LLC employees are not. Your must file returns and pay payroll tax just like any other type of business entity that hired employees.

How Much Does an LLC Cost?

LLC fees can be broken down into three main areas: state filing fees, additional state fees, and avoidable fees. Every state will have a filing fee that is typically between $100 and $250. Some states impose additional fees, such as annual registration dues, franchise taxes, business license costs, and publication fees. Finally, there are some additional costs that you can completely avoid, such as name reservation.

LLC State Filing Fees

LLC startup costs usually begin with the mandatory state filing fee. You can typically expect to spend a few hundred dollars on your state filing. This fee includes the processing of your Articles of Organization and registry of your business in the state’s company directory. The fee will also protect your business’s name from appropriation and use by another business in the state.

It is not necessary to submit a DBA for an LLC because your initial filing will automatically register your business name.

A low cost LLC registration will typically be around $75. California is one of the cheapest states for filing at only $70. Texas is one of the most expensive states, charging $300 to new LLCs formed in the state. Special types of LLCs, such as a series LLC or a professional LLC, can cost more — potentially up to $750.

Additional LLC Costs

A possible LLC cost includes payment to another agency within the state. Any fees in this area will be explicitly mentioned in the organization forms provided by the state. These additional costs make it necessary to look beyond just the LLC filing fee. For instance, though California only charges $70 to new LLCs, it also charges an $800 fee payable to the state Franchise Tax Board.

Similarly, Nevada and some other states require that new LLCs submit an initial list of members (owners) to the state. A filing fee of $125 must accompany this initial list. An LLC license or business license could also be required, costing around $200.

Potentially the most expensive additional LLC cost comes with the publication requirement. Some states mandate that new LLCs publish a notice in local newspapers to announce its formation. Depending on your area, this can cost as much as $1,000. Newspapers for large metropolitan areas tend to be more expensive, naturally. Not all states have this publication requirement.

Not all states have these additional fees and requirements, so be diligent when you search for the best state to form your LLC. Sometimes a higher initial LLC filing fee can be cheaper overall if the state does not charge any additional fees.

LLC Cost Avoidance

Some business owners will pay what is called a name reservation fee to hold their business name. This is always unnecessary. Your business name will be automatically registered when you file your Articles of Organization, so a separate registration fee is not needed. Though this service may be helpful if you want to hold a business name while you fill out your LLC paperwork, the simplicity of LLC registration means that it will only take you a few days or weeks to complete the process. It is unlikely that your chosen business name will be registered in the interim. You can save typically around $25 by simply omitting business name reservation.

Expedited filing will cost between $25 and $100 usually and is helpful if you need your LLC registered immediately. However, wait times for LLCs are typically not long, and your LLC will usually be completely registered within a week or so. Wait times may vary depending on your state and the time of year, however. Very rarely is expedited processing necessary, and you should fully evaluate your needs before deciding to pay extra for this service.

Fees from professionals such as lawyers and accountants are also avoidable. Though an accountant and a lawyer are helpful to make sure your LLC registration process goes smoothly, no state requires the aid of a professional in setting up your limited liability company.

The cost to set up an LLC does not have to be enormous if you are a small business owner without much capital. Research any LLC cost in your state and neighboring states — including all potential additional fees — before deciding which state is right for your LLC business.

LLCs exist in a unique nexus of sole proprietorships, partnerships, and corporations, and take the best advantages of each. The LLC entity is less formal and provides more flexibility than a corporation yet still provides the same liability protection. Additionally, LLCs gain the same tax simplicity afforded to sole proprietorships and partnerships yet have additional legitimacy as a result of being a registered business entity.

You may elect to have your LLC taxed as a sole proprietorship, partnership, or S-Corporation. This decision usually hinges on the number of members your LLC has. In all cases, LLCs receive the benefit of pass-through taxation. This avoids what is called corporate double taxation in which corporations must pay income tax on its profits and then pay additional taxes on its disbursements to owners. LLCs on the other hand only pay tax once: on the owners’ personal income tax returns.

There is no limit on the number of members you may have in your LLC and there is no limit on who may be a member. Your ownership interest in the LLC is generally freely transferrable — unless limited by the LLC’s operating agreement — and your LLC will exist in perpetuity so long as there is another person willing to take your spot.

Though the limited liability company is a newer type of business, it was created with the needs of small business owners in mind. A competent business attorney can evaluate your company and ensure that an LLC is right for you.

However, there are some instances when — as lawyers say — the veil of limited liability is pierced and the LLC members can be personally liable for the debts of the LLC.

Personally Guaranteeing a Business Loan

Some owners of new, small LLCs will be required by banks to personally guarantee a business loan. If a loan is personally guaranteed, the owner is liable for the debt if the LLC cannot pay it. Debts that are not personally guaranteed may be extinguished by the LLC’s bankruptcy, but if the owner co-signed for the loan, the owner is personally responsible.

Misuse of Funds or Commingling of Assets

If an LLC member misuses the LLC’s funds for inappropriate personal purposes, such as making a purchase or transferring money to a personal account, the LLC’s creditors may have the ability to collect debts directly from the member. Commingling of funds occurs when a member mixes money belonging to himself and money belonging to the LLC with insufficient records to determine which funds belong where.

An owner who intentionally transferred money out of the LLC to himself in an attempt to avoid a debt or a pending lawsuit against the LLC would also probably be held personally responsible.

LLC Member Fraud

If an owner or member commits fraud in the course of business, that member may be held personally liable. Incidents of fraud would include entering into debt with the intent never to pay back the loan or misleading anyone as to the financial state of the LLC. In some cases, operating an LLC that is underfunded or heading toward bankruptcy could be considered fraud.

Poor Maintenance of LLC Records

One of the duties of LLC members is to maintain adequate business records. Though LLC requirements are much more lax than corporation requirements, an LLC owner may be liable for what is called a “disregard of formalities” of proper records in line with state requirements are not kept. Ignoring the terms in the operating agreement, disregarding note-taking during member meetings, and failure to maintain financial records could all make an LLC owner personally liable.

LLC Member Liability

A member may only be held liable if three things can be proved: (1) the plaintiff can prove that the LLC served the interests of the member rather than the member serving the interests of the LLC, (2) that a member breached a duty required by law, and (3) that the plaintiff suffered a financial loss as a result of the breach of duty.

If the plaintiff — who could also be a creditor holding one of the LLC’s loans — can prove these three elements, the individual member will be held personally liable. This does not mean that the member will face criminal charges; only that any excess debt that the LLC cannot afford will be attributed directly to the owner.

This is, however, not a requirement for LLCs in any state in the US. Though you may register your business name before you are prepared to submit your LLC paperwork in order to reserve it, this is never necessary. In fact, LLC filings are simple enough that taking time to reserve the business name will only delay your eventual filing.

Filing your completed LLC paperwork — including your Articles of Organization and any other related paperwork required by your state — is enough to register your business name automatically; there is no separate filing to submit. If your Articles of Organization have been accepted by the Secretary of State, your business name is already registered.

While looking for some additional information on the subject, I came across this video from IncNow.com that summarizes my thoughts perfectly. Rather than repeat the information, I’ll refer you to this video.

1. Choose a business name that complies with state law
2. File your Articles of Organization and pay the applicable filing fee
3. Draft an operating agreement
4. Publish notice of your intent to form a limited liability company
5. Gather any required licenses or permits needed by your business area

Choosing a Business Name

Though state rules vary regarding the specific rules your LLC’s name must adhere to, there is some consistency among the requirements. For instance, no state permits you to register a business name that is already in use by another LLC in that state whether that LLC was formed in the state or is merely registered as a foreign LLC. Additionally, your business name must contain one of the various suffixes required by state law, such as “Limited Liability Company,” “Limited Company,” “L.L.C.,” or “Ltd.” Finally, many state prohibit certain words from being used in the name of your business, most commonly “Insurance,” “Bank,” or any term that might be misleading about the nature of your business.

Your Secretary of State’s office can consult you on your proposed business name to let you know if it violates any rules. You may also rely on the office to run a check to make sure your name is still available. If you prefer, you may pay a fee to reserve the name, although it is generally easier to submit a final Articles of Organization instead.

Articles of Organization

This form may go by another name in your state, such as “Certificate of Formation,” but this section refers to whatever the required formation document is in your state.

The form itself is typically very simple and requires only a small amount of information, such as the LLC’s name and address, and the names and addresses of all of the LLC’s owners (called members). You must also supply the name of an individual or business that resides within the state to act as your LLC’s registered agent. This may or may not be one of your members. The individual is charged with receiving important communication from the state, such as service of process in the event your LLC is sued.

With your Articles of Organization, you must also submit a filing fee. This fee varies from state to state, but is typically around $100. California is a notable exception as it charges an $800 tax on top of the filing fee.

Operating Agreement

Not all states require an operating agreement, and of those that do, none require that the agreement be filed with the state. Regardless of your state’s laws, though, it is always a good idea to draft one, even if you do not plan to write it as you are forming the limited liability company. This agreement with cover how the members receive profit disbursements, what each member’s voting rights are, who will manage the LLC and how, what happens when a member wants to leave the LLC, and so on. For a more detailed list, read here for what to include in the LLC operating agreement.

Publication of Notice of Intent to Form

Not all states require that you make a public notice of your intent to form an LLC, and those that do each have slightly different rules. Essentially, you must make a notice in one or more local newspapers that appears for a period of time — typically around two weeks — informing the public about your intent to form an LLC. The newspaper will provide you with an affidavit of publication that you must submit to your Secretary of State’s office. Newspapers in states with this requirement deal with LLC publications regularly and should be able to guide you through the process.

Licenses or Permits

Some limited liability companies, especially professional LLCs, need certain licenses or permits before they may legally begin operating. Some commonly needed permits include a business license, a zoning permit, a federal EIN (Employer Identification Number), or a seller’s permit. Trade-specific licenses may be required in certain LLCs, such as accounting firms, legal firms, and other industries. These requirements are generally not specific to LLCs and apply to your chosen trade, so consult your professional ethical obligations or state laws.

As always, speak with an experienced business law attorney to ensure that you meet all of your state’s requirements before forming your limited liability company.