What Is LLC in USA?: Everything You Need to Know

Entrepreneurs who want to set up a limited-liability company (LLC), in the United States need to ask "What is LLC?" An LLC is a entity that combines both the tax benefits of a partnership and the liability protection afforded by a corporation. It is a very popular business structure, but it might not be the best option for all businesses. Before you create an LLC, you should be aware of the pros and cons.

What is an LLC?

An LLC is a business structure that provides personal liability protection for a corporation while giving its owners flexibility in tax and organizational structures. It is often called a hybrid entity because it incorporates both the characteristics of a corporation as well as a partnership.

An LLC's owners are called members. Managers are the people who manage the operations. Managers are not required to be appointed by a Start an LLC in the US. A member of an LLC can serve as a manager in an LLC that has only one or two owners. If members are able to impose its obligations through their signatures, a larger LLC is at greater risk. It is a smart idea to designate managers who will be responsible for managing the LLC.

An LLC must have at least one member at all times. An member of an LLC may be any person, partnership or another LLC, corporation or trust. They do not need to be citizens or residents of the U.S.

The pros and cons of an LLC

Pros

• Pass-through taxation: An LLC does not have to pay taxes at a corporate level. The LLC's owners can report their income and losses on their personal tax returns. This means that they are not subject double taxation.

• Legal protection - An LLC provides protection for its owners against personal liability in relation to its financial obligations and debts.

• There is no residency requirement. A member of an LLC doesn't have to be a U.S. citizen, permanent resident or citizen.

• Greater credibility - Investors and lenders are more likely to view an LLC as a trustworthy entity.

Cons

• Limited growth potential - An LLC cannot issue shares to investors to attract them.

• Self-employment tax – The income of an LLC could be subject to self employment tax

• Tax on appreciated assets: If your business is converted from another legal structure to an LLC, you may have to pay taxes.

• There may be a lack of uniformity in the rules and regulations that LLCs are subject to.

How to Create an LLC in America

Name Your Company

First, you must choose a company name to form an LLC. Most states require that your business name end with the "Limited Liability Company," or another variation. Every state has its own list of prohibited words LLC names such as "insurance," bank, or trust.

You can't also use the same name as another state-based business. Many states have a business search directory on their websites. It is also forbidden to use names that have been trademarked by someone else. You can search the trademark database at the U.S. Trademark Office to see if the name you are interested in is listed.

Elect a Registered Agent

To receive legal documents for your LLC's benefit, you will need a registered agents. A registered agent may be the founder of your LLC, or a company.

Download the Articles of Organization

The Articles of Organization can be called the "Certificate of Organization", or the "Certificate of Formation" depending on where you live. The Articles Of Organization template should be available online from your Secretary of State. The Articles of Organization may be filed online in some states.

A filing fee must be paid when you form an LLC. Although the fee is different from one state to the next, it is typically less than a few hundred dollars.