Limited Liability Company Frequently Asked Questions

A limited liability company is a business structure that millions of businesses use. In this article, we will answer 8 limited liability company frequently asked questions.

1. What is an LLC?

A limited liability company, or LLC is a popular type of business structure. It creates an entity that is separate from its member(s). If you use it properly it will prevent you from being personally liable for the debts and obligations of the business.

2. Are There Tax Benefits?

LLCs offer pass-through taxation. They avoid the double taxation that corporations are subject to. With an LLC the profits and losses flow through to the returns of the members. They pay tax on their personal return.

3. How Much Does It Cost to Form an LLC?

Typically, the state you are creating the LLC in will require filing fees. In Arizona, this fee ranges from $35-$200, depending on how quickly you want them to process your paperwork. There will also be a fee to have someone prepare the documents for you. Wealth Guardian Legal Documents charges $349 to prepare the Articles of Organization, EIN, and file the appropriate documents with the Arizona Corporation Commission.

4. What Documents Are Involved in the Creation?

First, are the Articles of Organization. This document sets up the basic structure of the LLC. This would include the name, purpose, members. This document must be filed with the state. Second, there is an operating agreement. The members create this document to outline the financial, capital contributions, management, voting, and rights and responsibilities of the members. Lastly, is the SS4. This is the IRS form to file for an Employer Identification Number. This number is basically the Social Security Number for your LLC.

5. What Should I Consider When Coming Up with a Name?

There are some considerations you need to keep in mind while coming up with a name for your LLC. First, the name needs to end with “LLC” or “Limited Liability Company”. Second, it must be a unique name. This means it cannot be used by another LLC in your state. Third, it cannot contain the words corporation, incorporated, inc. or corp. This is so the LLC is not confused with a corporation. Lastly, you will want to make sure the name has a corresponding domain available.

6. How Are LLCs Owned and Managed?

The owners of a limited liability company are known as members. Being a member entitles you to a percentage of an LLC’s profits and losses. Members may run the day-to-day operations of the business, or they may appoint a manager to handle this business.

7. What Does an Operating Agreement Contain?

An operating agreement outlines the members’ financials, management, and other rights and responsibilities. This means you will set forth the amount of capital contributions made by members. You need to put into writing how profits and losses will be split as well as voting rights. There needs to also be considerations for procedures regarding meetings and dissolution.

8. Are There Any Disadvantages in Using an LLC?

There are a few downsides you may want to consider before setting up an LLC. First, you may have to pay self-employment taxes on your profits. Second, profits may show on your tax return even if you, as a member, did not receive cash distributions. Lastly, venture capitalists and professional investors prefer to invest in corporations over LLCs.

Setting Up an LLC

A limited liability company can be a great financial and tax planning tool. Meet with a qualified legal document preparer who can help you set one up.

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