If you are looking to establish a business in the near future, you may consider setting up a limited liability company (LLC). An LLC is a simple business model that is mostly used by startups because it is inexpensive and quick to create. In the information below, we will answer the question, “What is an LLC?” and provide a basic overview of whether or not this structure will work out for you.
What Is An LLC?
An LLC, or limited liability company, is a “hybrid” business model that combines some features of a corporation with the taxation and operational structure of a partnership. The owner/owners of an LLC are referred to as “member,” and they may consist of individual people, corporations, or other LLCs.
How Are LLCs Established?
To establish an LLC, you will ned to choose a business name, file your articles of organization, create an operating agreement, and obtain licenses and permits specific to your industry. We will go over how to form an LLC in more detail in tomorrow’s discussion, but for now, know that the process is fairly easy when you have the right business attorney to work with. Many LLCs are set up for only a few hundred dollars, making this a great model for new businesses.
How Are LLCs Taxed?
Taxation for LLCs works differently than it does for corporations. The company is not taxed as a separate entity. Instead, the members report profits and losses on their personal tax returns, much like the owners of a partnership. LLCs must file taxes as a partnership, corporation, or sole proprietorship. The IRS automatically classifies some LLCs as corporations and taxes them accordingly. You can learn more about LLC tax classification on the IRS website.
Is The LLC Business Model Right For Me?
We will discuss the pros and cons of starting an LLC later this week, but for the most part, this is a good option for new businesses who want to get a tax ID and start ordering supplies and services for operation. It is inexpensive, fast, and still legally protective overall. If you are starting your own business, an LLC could be a great first step for you.
If you are buying a business, such an existing LLC, you may need to do some additional comparisons to determine if this is the right structure for you. Our business attorneys at Detroit Real Estate Law would be happy to assist you. Call us today at (313) 468-4932 for your free initial consultation.