When starting a business, one of the first decisions you need to make is what type of company structure to use. There are several different types of company structures to choose from, but one of the most popular is the LLC. LLCs have several benefits that make them appealing to business owners. In this article, we will discuss six important things you should know about LLC ownership structure.
1. LLCs offer limited liability protection to their owners
This means that the owners of an LLC are not personally liable for the debts and liabilities of the LLC. This is a major benefit of using an LLC as your business structure because it can protect your personal assets from being seized if your business is sued or incurs debt.
If you are the sole owner of an LLC, you will be classified as a single-member LLC. Single-member LLCs offer the same limited liability protection as multi-member LLCs.
To form an LLC, you will need to file Articles of Organization with your state’s Secretary of State office. You will also need to create an Operating Agreement, which outlines the ownership and operating rules of your LLC.
2. LLCs can be taxed as either pass-through entities or C-Corporations
Pass-through taxation is the most common way for LLCs to be taxed. This means that the LLC itself is not taxed on its profits, but instead, the profits are “passed through” to the owners and reported on their personal tax returns.
The default tax classification for LLCs with more than one owner is a partnership. LLCs with only one owner can elect to be taxed as a sole proprietorship or as an S-Corporation.
C-Corporations are taxed separately from their owners. This means that the corporation itself pays taxes on its profits, and then the shareholders are taxed again on the dividends they receive. This is known as “double taxation.”
3. You need an LLC membership certificate
A membership certificate is a document that proves your ownership of an LLC. It is not required by all states, but it can be helpful to have one if you need to prove your ownership stake in the LLC to a bank or other business partner. Namely, when it comes to filling LLC membership certificate, it needs to show the name of the LLC and the date of formation. Other information includes the names and addresses of the members, the duration of the LLC (if it is not perpetual), a description of the business purpose of the LLC, and the signature of an authorized person.
If you do not have a membership certificate, you can usually get one from your LLC’s registered agent.
4. LLCs are easy to form and maintain
LLCs are relatively easy to form and maintain compared to other business structures. The paperwork required to form an LLC is typically minimal, and most states allow you to file your Articles of Organization online.
Once your LLC is formed, there are only a few annual requirements that you need to meet in order to maintain your LLC status. These requirements typically include filing an annual report and paying an annual fee. If you fail to meet these requirements, your LLC may be dissolved.
5. LLCs offer flexibility in management and ownership
The flexibility that comes with LLCs helps to set them apart from corporations. Unlike corporations, LLCs can be managed and owned by their members. A management team might be hired to run the day-to-day operations of an LLC. LLCs also have the choice of separating out different classes of membership, which may give some members more power than others.
Moreover, the ownership interests in an LLC can be easily transferred. This is unlike a corporation, where the transfer of shares is subject to more restrictions. So, if you want to sell your LLC, it can be done relatively easily.
6. LLCs are not subject to the same stringent rules and regulations as corporations
Since LLCs are not subject to the same rules and regulations as corporations, they have more freedom when it comes to how they operate. For example, there is no requirement that LLCs hold annual meetings or keep minutes of meetings.
Furthermore, LLCs do not need to have a board of directors, and there are no restrictions on who can be a member of an LLC. This makes LLCs much simpler to run than corporations.
Overall, the LLC ownership structure offers many benefits for business owners. If you’re thinking about starting a business, an LLC might be the right choice for you. Just be sure to consult with a qualified attorney or accountant to ensure that you are taking advantage of all the benefits that an LLC has to offer.
