Unlike a corporation, an LLC's revenue passes through the business onto individual members who then pay personal income taxes and self-employment tax.
One thing to keep in mind: many states require annual taxes and reporting fees for LLCs. After completing these basic steps, it's time to analyze the issue of raising capital from investors. Most business owners turn to family members, venture capital firms, angel investors , or their own savings to come up with the money needed to start their businesses, but there are a few things to keep in mind:.
When attracting investors , it's essential to spell out their rights to profits, tax benefits, voting, distributions, and other factors. This number is required if you hire employees for your LLC, but it also serves as a federal tax identification number, which you can use in place of your personal Social Security number. Effective Date of Election An LLC that does not want to accept its default federal tax classification, or that wishes to change its classification, uses Form , Entity Classification Election PDF , to elect how it will be classified for federal tax purposes.
Limited Liability Company - Possible Repercussions. Powers of Attorney for LLCs. Business Structures. The only LLCs that may require licenses are professional limited liability companies PLLCs , but these state licenses are for individual members to practice a certain profession, such as law or architecture—not a license to start the company itself.
In most cases, it makes sense to form the new LLC in the same state where its main office is currently located or planned to be located.
Choosing a state where the company has its most important physical presence can reduce the number of required state and local tax filings and may avoid the need to register the LLC in multiple states. But you might consider forming in a different state in certain situations, including:.
You must choose a name for the new LLC and confirm that it's available in the state of formation. Most states have an online entity name database that makes this process relatively easy, but it's a good idea to create a list of three to five possible names just in case some are already in use. The purpose of a registered agent is to give the state government including its tax authorities and private citizens and companies a permanent, reliable location to send mail and legal documents to an LLC that operates in a state.
If your LLC will immediately have a physical business location in the formation state with employees working there, the new entity can act as its own registered agent. Most LLCs, however, use the services of reputable, third-party companies that specialize in serving as a registered agent. An LLC is formed by filing articles of organization and any other required initial documents with the state agency that regulates businesses—usually the Secretary of State.
The complexity of these documents depends on your particular situation. Formation satisfies the legal registration requirements while licenses may be needed for the LLC to start doing business. The exact type of licenses your LLC needs depends on its line of business and location. A hotel would likely need a permit from the health department. Many businesses are required to have a tax registration certificate.
Other types of licenses include zoning permits, professional licenses, home occupation permits, and general business operation licenses. The permits and licenses also vary from state to state. Some permits are issued by the county government while others are obtained from the city or state.
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