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Creating a personal business is an endeavor that can cause stress and sometimes lead to personal liabilities. Eliminating the worry of personal liabilities can differentiate between a success and failure, depending on the size of the company. A business whose members cannot be held personally responsible for business liabilities including debts, unless they have personally assured payment, is known as a limited liability company.
Becoming a limited liability company, or LLC, is a simple way to ensure the security of a business and its members. LLC businesses also do not have the stress of keeping specific records of meetings, and may opt to distribute their funds differently than traditional partnerships. While traditional partnerships split incomes in a half-and-half manner, limited liability companies may choose for a more appropriate division of funds. There are a few things to be cautious of when choosing to form a limited liability company. The first precaution to take is making sure that registration within a certain area is appropriate. If you register your business for limited liability in another state, you will probably have to pay taxes for your business in both locations, which can cause unnecessary taxation. Registering a business within a state other than where it is primarily located is an option mainly for larger companies, due to the fact that taxes in two or more areas for smaller companies would usually be higher than the profit they generate. Another option that should be carefully considered is which type of corporation, S or C, a business should be treated as. It is important to discuss these alternatives with qualified tax professionals to determine which choice best suits the company. Unlike corporations, when a member of a LLC passes away, the business disbands. A LLC may also be ended if a member declares bankruptcy. This creates a somewhat unstable environment for the business, as no one can predict a member’s demise. It is always essential to know business partners; however, it is even more so when choosing to co-create a limited liability company to protect the assets of its’ founding members. Creating a limited liability company is much easier than forming a corporation, but still takes commitment of every party involved. The two main processes of turning a business into a LLC are finding a suitable name that is not already in use and preparing articles of organization. Drafting an operating agreement is not required in every state, but will prove beneficial to those companies willing to do so. Different states have various laws regulating the formation of businesses, such as which types of businesses may become limited liability companies and the steps required to start the LLC. The Uniform Limited Liability Company Act was created to ensure that business owners follow the guidelines in creating a LLC. Section 105 of this Act provides that “The name of a limited liability company must contain ‘limited liability company’ or ‘limited company’ or the abbreviation ‘L.L.C.’, ‘LLC’, ‘L.C.’, or ‘LC’. ‘Limited’ may be abbreviated as ‘Ltd.’, and ‘company’ may be abbreviated as ‘Co.’” This simply means that any company who is protected by limited liability must include a limited liability reference in their name. Also, when choosing a name, it is necessary to determine that they name is not already being used by another business. Someone wishing to start a limited liability company can call the secretary of state’s office or filter through its’ online databases to see if the name they wish to use is available. Even if a member does not particularly want to start processing the paperwork necessary to form a business at once, they may contact the secretary of state’s office where they intend to do business and reserve the name they wish to use. Articles of Organization are documents containing information for a business that legally makes them a limited liability company. These documents must be filed with the secretary of state’s office where the business is registered. While Articles of Organization are different in every state, the basic required fields include the name and address of the LLC and the main purpose of the business, which is typically general so as not to restrict the business’ activities. Other information required includes the names of members of the LLC and the name and address of the registered agent allowed to personally accept delivery of legal documents for the business. The registered agent may be a trustworthy individual, or a specific office; however it is important to know that the registered agent is responsible enough to care for vital documents. It is necessary that all addresses listed, such as the business address and that of the registered agent, are within the state where the Articles of Organization are being filed. When the Articles of Organization are complete, a representative of the business must sign. This representative, or LLC organizer, can be anyone permitted to represent the LLC members, and simply must sign the documents stating that all of the information is correct. There are no other duties of the LLC organizer after the Articles of Organization are filed. Drafting an operating agreement ensures that all actions taken between managers and members of a LLC are correct and eliminates any disagreements of how certain situations should be handled. Managers of a LLC may make important decisions for the company; however, if no managers are selected, the members must collectively make all decisions regarding the operational activities of the LLC. In every state, the formation of a LLC must be completed precisely to regulations, making it important to know beforehand the steps that must be taken in order to successfully achieve this status. Many sites on the Internet offer standard forms necessary in creating a LLC. These sites offer forms for different states, and give advice on correctly filing the documents within the state selected. Choosing to form a limited liability company is something that many business owners are now realizing as the best option to ensure the success of their business, while comforting them in the fact that those who created the company will still operate it.
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