Limited liability companies offer several benefits for owners of small businesses. In addition to being easy to form, LLCs do not require much paperwork in your initial filing. A key feature of LLCs is limited liability; the owners (called “members”) will not — in most cases — be personally responsible for the debts of the business. This means your personal assets are protected when your LLC owes money.
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.
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A key benefit of limited liability companies is that the owners (or “members”) receive limited liability; that is, they can usually not be held personally liable for the debts of the LLC. In addition, if the LLC is sued, the owners’ personal assets are not subject to collection.
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.
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Small LLC owners sometimes believe they must register their business name separately from registering their LLC. This assumption is a carryover from sole proprietorships, for which a “Doing Business As” or DBA name is necessary before you may begin operating your business using a moniker other than your real name.
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.
After discussing the best states to form an LLC last week, I started to get a lot of questions asking about Delaware LLCs. Specially, people wanted to know if there were significant differences between Delaware LLCs and corporations and which was right for their business.
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.
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You can form an LLC yourself even if you have no formal legal or business training. A limited liability company is the easiest type of business entity to create and requires only five steps:
- Choose a business name that complies with state law
- File your Articles of Organization and pay the applicable filing fee
- Draft an operating agreement
- Publish notice of your intent to form a limited liability company
- Gather any required licenses or permits needed by your business area
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