Mistakes Made When Forming a Limited Liability Company

A Limited Liability Company (LLC) is an extremely popular business structure currently available to most small business owners. There are many reasons for the increasing popularity of the LLC model. One reason is the advantages that an LLC holds over other business models. An LLC is very easy to set up. Here are several additional advantages, an LLC has over other business structures:

Limited Liability. An LLC is a business structure where only two people are involved in business. The owners of the LLC are called members or owners. Some types of corporations normally cannot be LLCs, like real estate brokers and contractors. An LLC is usually limited to a single owner or owners.

Creating an LLC involves filing a form with the state government. After filing the form with the state, any qualifying individuals can request to have their LLC forms filed as well. The process of incorporating an LLC involves submitting articles of organization to the state in which the LLC will be registered. After the articles of organization are submitted to the state, a qualified attorney must then file the Articles of Organization with the Secretary of State.

Filing Articles of Organization does not guarantee that the LLC has been created. If the Articles of Organization do not contain specific clauses about how the LLC will operate, it will be difficult for the LLC to comply with its obligations under the law. An inexperienced small business owner will have difficulty completing the steps necessary to ensure that his LLC becomes legally valid in multiple states. This results in his LLC becoming registered in one state, but not in others, or having its members scattered across the country.

There are some advantages and benefits associated with an LLC. One advantage is the ability to avoid double taxation. LLCs are not required to pay the corporate tax on its income. An LLC filing may also delay the payment of state income taxes. However, many states limit the total amount of deductions and exemptions an individual can claim, and an LLC filing may result in double taxation for its members.

Despite the potential advantages and benefits of forming an LLC, an inexperienced person may not be able to complete the steps needed to make an LLC legally valid. There are several common mistakes that new LLC owners make when incorporating. These mistakes lead to their LLC being denied registration with the state, have their names registered in error or may cause their businesses to be barred from some types of licenses. An inexperienced individual may also not fully understand all of the paperwork requirements that must be completed before their LLC can open. Some of these mistakes can result in their LLC being shut down.

One mistake that many new LLCs make is not ensuring that a qualified registered agent is present and on hand to sign for any documents or transfers of ownership. A qualified registered agent is responsible for receiving all of the LLC’s business papers, such as the Articles of Organization and the Operating Agreement, and for making sure that all of the LLC’s paperwork is correct. This is the first step in the process of registering a business, and if the documents are not received and signed properly then the LLC will not be recognized as having been duly established. For these reasons, it is extremely important that a qualified registered agent be present when an LLC is formed.

Another common mistake that LLC owners make is thinking that they need to choose between a business and an LLC. In reality, they need both. In order to operate a business efficiently, it is necessary to be able to protect one’s personal assets as well as one’s business assets from other people. For example, in a multi-member LLC there are usually more than one business assets owned by one person. A member-managed LLC permits members of the LLC to retain their individual personal assets while concurrently protecting those assets of the LLC through the LLC’s manager-manager.