So you are thinking of becoming an LLC. When you are forming a business, there are a lot of structural choices. If you’re aiming for a larger setup, forming a corporation might be the right choice for future expansion. But for most small businesses, an LLC is the most straightforward way to protect your assets. With a boom in entrepreneurship in recent years, the limited liability company (LLC) has become the most popular legal structure for small businesses seeking personal liability protection and flexibility. The exact requirements vary slightly from state to state, but setting up an LLC is a fairly simple series of steps that can usually be done in one to four hours, depending on how complex your organizational structure is. Though some specificities can vary from state to state, the basics stay the same. An attorney can help you iron out any questions and guide you through the process of filing for an LLC, saving your a substantial amount of time and also ensuring that you get everything accomplished correctly. The law office of Frederic E. Waczewski, P.A. is a top business lawyer Orlando entrepreneurs can trust when starting their business.

 

What Is an LLC?

 

To put it straightforwardly- an LLC is the least complex company structure. Unlike an s corp or c corp, the structure of an LLC is flexible, giving you room to rearrange as you expand your business. Starting an LLC also has an added bonus of pass-through taxes, as well as limited liability (as noted in the name), and legal protection for your personal assets. Forming an LLC is the simplest way to protect your business if it is sued. LLCs can be owner by one or more people, who are the LLC “members.” An LLC with one owner is called a single-member LLC, and an LLC with more than one owner is known as a multi-member LLC. Forming your business as an LLC helps to protect against lawsuits towards your company, significantly reduces paperwork compared to other types of businesses, and also helps to legitimize your business.

 

Forming an LLC has many benefits. The most important of these benefits is limited personal liability, as is eponymous in the label. If your business is a sole proprietorship or partnership, you and your business are legally bound together. What debts your business incurs then becomes your personal ones. And if your business partner or employee runs into legal trouble, your personal assets are also put at risk. An LLC limits this personal liability, since an LLC is legally separate from its owners. An LLC is responsible for its own debts, and even though you can lose the money invested in the company, personal assets like your house, car, and bank account cannot be touched when collecting business debts. In the case that an employee, business partner, or the business itself is sued for something like negligence, your personal assets are protected.

 

There is also less paperwork. Corporations do offer limited liability, but they are restricted by certain requirements that are generally not a good fit for a small, informally run business. For example, corporations typically have rules like required annual shareholder meetings and making annual reports and paying annual fees to the state. They also tend to have substantial recordkeeping requirements. As an LLC, there are no requirements to hold annual meetings and generally don’t need to keep extensive records. In Florida, LLCs do need to file annual reports.

 

LLCs get the best of both worlds when it comes to taxes. There isn’t a federal tax classification for LLCs, but they can adopt the tax status of sole proprietorships, partnerships, S corporations, or C corporations. LLCs are automatically classified by the IRS as either partnerships or sole proprietorships, depending on whether they have one owner or more. This means that LLCs are able to take advantage of “pass-through” taxation, since there aren’t any LLC taxes and they don’t have to pay corporate taxes. Instead, LLCs pay taxes through the owners’ personal tax returns and the owners only need to pay personal income tax on the profits. Moreover, there are a lot less ownership restrictions than S corporations (which also enjoy pass-through taxation). LLCs provide pass-through taxation sans the restrictions on the number and type of owners they can have. This means that an LLC can have more than 100 shareholders, can include foreign shareholders, and can also have shareholders that are corporations.

 

This allows for an informal management structure, and LLCs have more options regarding the way they run the business and make decisions, as corporations have a fixed management structure. There are flexible profit distributions in the way they distribute profits to their owners, and they are not bound by requirements forcing them to distribute equally or according to ownership percentages. If two people have equal interests in an LLC, but there is a mutual agreement that one of them will receive a greater share of the profits because they contributed more money or labor when the business was starting up, they can do so.

 

How Can I Start an LLC?

 

The first step to starting an LLC is to obtain a copy of your state’s LLC Articles of Organization Form. You can get this form online from Florida’s Secretary of State website, or by calling the office. When you contact them, it is important to verify if the state in which you are setting up requires you to post a public notice in the newspaper announcing your LLC. Currently, only New york and Arizona requires this, so if you are not setting up there, it’s generally not necessary and there’s no point in wasting your money. In Florida, an LLC name must contain the words “Limited Company,” “Limited Liability Company,” or any of the abbreviations. The word “Limited” can be shortened to “Ltd.” and “Company may be abbreviated as well. The Florida Division of Corporations requires all claims to have a name recognizably different from the other business entities already on file with them, and name availability can be checked by searching the Department of State: Division of Corporations business name database. Names cannot be reserved before organizing your LLC.

 

Secondly, you must fill out the LLC Articles of Organization Form obtained from the office. This is usually relatively simple, but if you have any questions regarding the process and are looking up “Business Lawyer Orlando,” the Law Office of Frederic E. Waczewski offers experienced legal advice for startups. When starting an LLC, you need to notify the state about items such as names, its business purpose, principal office address, the registered agent for receiving any legal documents, and the names of the initial members. In this stage of LLC formation, you will not have to specify the ownership distribution or management structure, just the names of the LLC’s members. After filling out this document, you’ll send it to your Secretary of State along with the appropriate filing fee when setting up an LLC. The fee for filing for an LLC in Florida currently is $100, with an additional $25 registered agent fee, but in other states can go up to $900. Proceed with caution- some states may have a corporate tax that is not part of the filing fee but which must be paid at the time of filing. California, for example, has only a $70 filing fee, but taxes LLCs $800 annually.

 

When legal requirements are finished, there’s still a very important piece to complete- the LLC operating agreement. Though the operating agreement is not required by the state and can be created after the legal filings are done, it is essential to make a written agreement of the terms even if there’s just one other owner. If you are the only owner of the LLC, it isn’t necessary at this point in the process, although it can be helpful. When creating an operating agreement, it is crucial to make sure your operating agreement spells out the financial and management rights and responsibilities of the LLC members, such as: who contributes in terms of additional capital, when and how profits from the business will be distributed, under what conditions members can leave the LLC, etc. Sometimes family businesses or close friends will rely on verbal agreements and personal relationships, but even among family members and good friends leaving these important questions unanswered can complicate both the business as well as personal relationships down the road. At this stage in the LLC process, a business attorney can help you write out the LLC Operating Agreement and protect your business and personal relationships. The Law Office of Frederic E. Waczewski, P.A. is a business lawyer Orlando can trust to protect your assets and help you set up the best possible terms of your LLC.

 

Entrepreneurship is tough, and it is crucial to work out the kinks while establishing your business so bigger problems don’t snowball down the road. That is where a business lawyer can come in and help you get on the same page with your business partners, whether as a mediator or for guidance. The details of the operating agreement should be worked out well in advance of filing the LLC articles of organization. For example, one of your potential business partners may want to pull out once they realize the entirety of their commitment, or perhaps you need to bring in someone else. If you haven’t worked out terms in advance and already filed for the LLC with names on it, it’s very difficult to reverse this. You should work out the details of the operating agreement well before you file the LLC articles of organization, to prevent such conflicts occurring, and hiring a lawyer can help mediate the process and help you avoid straining relationships with other partners in the LLC.

 

Especially for small businesses, it’s generally best to set up in the state in which it will principally be doing business. This can make the process less complicated and help you hit the ground running faster as a small business owner with less assets coming in and out. However, there are some tax and organizational advantages to registering in certain states. For example, currently Delaware, Nevada, and Wyoming are very tax-friendly towards LLCs. But before making the decision to register out of state, it is important to consult with an attorney such as the Law Office of Frederic E. Waczewski, P.A. We can help you figure out whether filing out of state is the best option for you, where to file, and what tax breaks are available when doing so. Generally, it is more advantageous for a larger company with a significant amount of income generated to set up in one of these tax-friendly states. For smaller businesses they may not see as many significant advantages and just a lot more paperwork if filing for an LLC out of state. If you’re considering this move, make sure to talk to an attorney, and it’s also smart to set up your LLC where you reside today and then think about switching after you start bringing in more revenue.

 

Contact Us Today

 

Setting up an LLC is generally pretty straightforward, but an attorney can be very helpful in guiding the process. The Law Office of Frederic E. Waczewski, P.A. can help you negotiate the operating agreement amongst your partners and walk you through the advantages and disadvantages of filing your LLC out of state. Contact us today for a free consultation!

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