Advice on Setting Up an LLC
A limited liability company, often referred to simply as an LLC, is a business structure that provides owners with a limited personal liability for the debts and actions associated with their entity. They also provide management flexibility and the benefit of pass-through taxation, making them a popular method of forming a business, according to the internal revenue service. Created at the state level, limited liability companies are most often formed for small to medium-sized businesses.
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Tax Benefits
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At the state level, owners of a limited liability company, which are also known as members, report their share of profits or losses in the company on their individual state tax returns. They are not required to pay taxes on the company itself, thereby avoiding the double taxation issues that business owners with a general corporation face.
Limited liability company owners can have the IRS tax the entity as a C corporation or an S corporation to pay federal taxes. An S corporation also allows the business to avoid paying corporate taxes by passing through the taxation to the individual owners. C corporations pay taxes at the corporate level and could be taxed again if corporate income is distributed to business owners as dividends.
Small businesses often file their federal taxes through an S corporation because of the tax advantage.
Choosing Where to Register
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Limited liability companies are created at the state level. Although they don't necessarily have to, many business owners choose to register their limited liability company in the state where they do the majority of their business, according to LLC.com.
Registering in their home state helps them avoid the expense of additional registrations to conduct business in other states, known as foreign qualifications. It also helps them avoid paying franchise taxes and other government fees in more than one state.
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Nevada and Delaware
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Some business owners choose to register in Delaware or Nevada instead of the state where they conduct most of their business.
Delaware is sometimes chosen because it does not impose a business income tax unless you transact business in the state; it does not have residency or citizenship requirements for forming a limited liability company; franchise taxes are charged at one low, flat rate to all limited liability companies; there is no sales tax on goods and services in the state; and minimal reporting and disclosure are required.
In Nevada, there is no personal or corporate income tax; there are no residency or citizenship requirements for forming a limited liability company; and there are minimal reporting and disclosure requirements.
Restrictions
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Regulations for limited liability companies differ from state to state, but there are a few industries in general that cannot take that business structure. Those include banks, insurance companies and nonprofit organizations.
Additionally, limited liability companies typically have a limited life span and may have to list a dissolution date in the articles of organization,
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References
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