How To Start An LLC – Understanding The Basics

When you’re asking how to start an LLC, you must consider the basic differences between partnerships and LLCs. Both entities are designed for one specific purpose – profit generation. But while an LLC is run at the discretion of its owners, a partnership is much more streamlined and regulated. While all businesses have these fundamental differences, there are a few key points of commonality as well. And through a series of articles, this article will teach you the key points of how to start an LLC and set up the necessary paperwork.

How To Start An LLC

How To Start An LLC – Understanding The Basics

As previously mentioned, there are some key similarities between how to start an LLC and how to start a corporation. Both require formal management and oversight by a board of directors – which will consist of two to five members depending on the nature of your business. There are certain similarities as well with how to start an LLC and how to set up a corporation, however. A “pass-through” taxation rate of about thirty percent is required on most state-specific taxes, including sales and use, property tax, personal income tax, and corporate tax. A small business entity is considered a pass-through entity because it only pays taxes on its profits.

A “sole proprietorship,” or “incorporated business” is another important distinction between an LLC and a corporation. Unlike a partnership, a sole proprietorship is owned solely by its officers (and usually its sole stockholder). Also unlike a corporation, there is no need to have a board of directors – only the owners are needed to sign operating agreements.

How To Start An LLC – Is It Same As Starting A Corporation?

A key takeaway from the discussion above is the difference between how to start an LLC and how to start a corporation. Both require formal management and oversight by a board of directors, but only an LLC has the stigma of being labeled a “pass-through” business. This is due to the lack of paperwork and tracking done by a corporation. However, many state laws (in particular, in Delaware) make LLCs completely self-sufficient when it comes to taxation. Aside from paying taxes on its profits, an LLC is not required to pay corporate taxes, inheritance taxes, or personal income taxes on its profits.

Both types of businesses have several similarities, such as the use of “sole proprietorship” or “incorporated business.” The biggest similarity, however, is the lack of legal terminology. Both must register for business licenses, submit annual reports to the state government on financial reports and quarterly or yearly general meetings. Most importantly, both must seek approval from the Secretary of State before doing business. One important note: most US states require a minimum number of registered LLCs to qualify for a single business loan.

The Difference Is Evident

As mentioned above, the way to start an LLC in another state differs slightly from an individual-owned business. There are still important differences to be aware of, including what type of reporting requirements must be met. Similar to individual-owned businesses, an LLC filing is required, and business owners are required to provide criminal and tax identification documents. An LLC filing is also required to change its address, change its name, change its tax identification number and pay the appropriate fees.

Unlike personal assets, which are often exempt from taxation by their existence, LLCs are liable for all the tax-related activities of their owners. Consequently, they must pay corporate taxes on their behalf. Another important difference between personal assets and LLCs is that one must pass through a separate account to gain any dividends and capital gains. For this reason, both pass-through entities and corporations are treated as pass-through entities for tax purposes, although not necessarily because of their present legal structure.

Conclusion

In short, an LLC filing is more complex than merely registering a sole proprietorship. It takes time, energy, and knowledge on the part of the people filing. That being said, however, anyone who wishes to learn how to start an LLC should check out the resources provided to them. It is also highly recommended to consult with an attorney who specializes in personal property law so that he or she can offer further guidance.

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