Every businessman has a lot of problems when he started his own business. The structure of the business company is one of the main problems. Every structure of the business company has some advantages. Off course the main point for the decision of the structure is the business legislation.
For example, a Limited Liability Company is very popular in America.
There is an opinion that forming the LLS is too costly or requires time- consuming, but benefits of the company outweigh any perceived disadvantages. These benefits are unavailable to sole proprietorships and general partnerships.
The Limited Liability Company is not the partnership or the corporation. It is the structure that may be called the combination of several features of partnership and corporation. Owners of such company called members. One of distinctive features is that the number of members of the LLC is unlimited. Members can be individuals, companies, corporations or LLC s.
Because of features of corporations, the LLC legally exists as the company, which is separated from its owners. It means that owners do not carry the personal responsibility for liabilities and debts of the LCC, unless they have signed a personal guarantee. So, as the LCC basically has no ownership restrictions, it allows for pass- through taxation.
All business losses, profits, and expenses of the credibility with potential customers, employees, vendors and partners flow to the individual members and then paid at the individual level. It helps to avoid the double taxation of paying corporate tax and individual tax.
The LCC has much flexibility in the question of distribution of profits. When in the common partnership we have, for example, the split is 60-40, Limited Liability Companies may select in many forms of distribution of profits. The written consent of members must be obtained prior to increasing ownership in the company.
Members of the LLC have also big potentialities in structuring the management of the company. Typically, LLCs are free to establish any organizational structure agreed upon by the owners.
The functioning of the LLC does not require corporate minutes or resolutions and also does not require much annual paperwork, or have much formalities as standard corporation or the corporation that has elected a special tax status with the Internal Revenue Service .
That is why many business owners choose the LLC for establishing credibility of the new business with potential customers, employees, vendors and partners.
But there are potential disadvantages of Limited Liability Companies.
A few types of businesses generally cannot be LLCs, such as banks and insurance companies.
Formation of an LLC is more expensive than for a sole proprietorship or general partnership both because articles of organization must be filed with the state and the applicable state filing fees paid.
There also some complexities. There are cases when the LLC may federally be classified as a sole-proprietorship, partnership, or corporation for tax purposes.
The LLC is dissolved when a member dies or undergoes bankruptcy, so it is hard to transfer the Ownership in the LLC.
Because the LLC is a newer type of business structure, there is not as much case law and legal precedent as there is for corporations.
And in the end, business owners who planed to take their company public or issuing employee shares in the future may be best served by choosing a corporate business structure.
The forming of the LLC is as simple as a sole-proprietorship; however, the process is much less than a corporation. There are two main actions:
The first is composing articles of organization with the Secretary of State and payment of the required fees. Everyone can do that by himself or articles may be prepared by the lawyer.
The second is that it is advisable to draft an operating agreement. The operating agreement can help define the company profit sharing, ownership, responsibilities, and ownership changes.
Of course it is imperative to keep the LLC compliant and in good standing with the state in which it is formed. Sometimes new business owners are unaware of the important obligations that must be upheld after they have formed their businesses. After the initial step of formation the LLC face ongoing compliance requirements. Small business owners often neglect them, and pay for their mistakes later. For example the company can lose its LLC status and of course lose the limited liability protection it affords the owners. As a result, the LLC owners’ personal assets are no longer protected in the event of a lawsuit. In case of such a situation, the company then needs to be reinstated.
We can group compliance requirements into categories: internal and external.
Internal requirements are actions taken by the shareholders, directors and managers of the LLC. These actions must be documented and those documents kept with the company records. So, it is recommended to adopt and maintain an updated operating agreement, issue membership shares, record any subsequent interest transfers, and to hold annual meetings of the members or managers.
External requirements imposed by the state in which the LLCs are formed. There are filing annual reports with and paying annual fees to the state in a timely fashion. Annual statements allow states to keep updated information on LLCs formed or qualified there. Because certain information included in the articles of organization does not require an amendment to update, such as the names and addresses of the directors of a corporation or the members or managers of the LLC, the states rely on updated information in the annual statement. An annual statement helps the states to keep the information on the LLC regularly updated and to decide whether the LLC deserves the status or not.
The biggest part of states requires annual statement, but some of them have a biennial statement. When LLCs return the statements, the state requires fees to be paid in either case. Each state differs on the amount to be paid and it ranges from $10 to $300. It also depends on the type of business. Some states also have a franchise tax, which is essentially a fee paid to the state for the mere privilege of operating as the LLC formed or qualified in that state. The states employ different formulas for calculating the franchise tax. The revenue generated by the LLC usually decides the fees. It also depends on the number of legal shares and value the business to the market.
The due dates for annual statements and franchise taxes vary by state. Some states connect these due dates to the anniversary of the LLC’s formation or qualification. Other states set a particular due date. The owners therefore need to know the dates set for payment of these fees, taxes and statements.
Failure to meet such requirements can never leave the company in good standing with the state. On outstanding fees or franchise tax, the state may impose a penalty. It is also may lead to administrative dissolution by the state when the state administratively dissolves the LLC of all benefits.