Explanation of LLC – What is an LLC, Why Create One, and How to Do Setup?

Explanation of LLC – What is an LLC, Why Create One, and How to Do Setup?
By Stephen Nelson

The limited liability company option still generates questions and confusion among business owners, entrepreneurs and investors, and that’s too bad. One can rather easily provide an explanation of the LLC by answering three questions: what is a limited liability company, why should one contemplate the LLC option, and how does someone setup an LLC or limited liability company:

What is an LLC?

An LLC is a legal fiction created when someone (perhaps you) files some paperwork with the appropriate state agency asking for permission to create a new limited liability company. If the state grants you permission-which it will if you do the paperwork right–you or you and your partners now own an entity that can do a bunch of stuff that, normally, only human beings can do.

This sounds confusing, but consider the fact that your dog can’t sign contracts. Nor can your dog own property. Nor can your dog earn income or borrow money.

In a similar fashion, a comfortable leather chair that sits in your living room also can’t do these sorts of things–sign contracts, own property, earn income, borrow money and so forth. Generally speaking, only people can do these types of things.

The LLC however is an exception to this general rule. An LLC, once it exists, can sign contracts. The LLC can own property. The LLC can also earn income and borrow money–and pretty much do all of the business-y things that a regular human being can do.

Why Setup an LLC?

People setup LLCs, or limited liability companies, for two reasons: liability protection and tax planning.

The liability protection angle is perhaps the easiest to understand: If you operate some business or hold some investment, you can be liable legally for bad things that happen in the business or in the investment by virtue of your ownership. If the business borrows money and then can’t repay the money, for example, you by simple virtue of your ownership may be forced to pay off the borrowed money.

If you own a business or investment through an LLC, however, you aren’t liable for the debts or obligations of the LLC merely because you’re an owner or co-owner. In other words–and this is the part of all this that’s fiction–state laws will say, “Oh, no, it’s not Joe that owes the money. It’s Joe’s LLC… “

Note: A corporation legally protects business owners and investors in the same manner that a limited liability company. The people who own the shares in the corporation are not simply by virtue of owning those shares legally obligated for the debts of the corporation. As with an LLC, the law considers the corporation to be legally separate person.

Limited liability companies also produce some unique tax planning benefits–specifically the ability to have an investment or business taxed in whatever saves the most tax. For example, an LLC can be disregarded as a separate taxpayer if that makes sense (which means its income and deductions get reported on its owner’s tax return). And an LLC can be treated as a regular corporation or as an S corporation for tax purposes.

How Does Someone Create an LLC?

Procedurally, you create an LLC by filing articles of organization, also sometimes know as articles of formation, with the secretary of state in the state where you’ll operate your LLC. For instance, to create an LLC in California, you file articles of organization with the California secretary of state.

The articles typically name the LLC, identify what the LLC will do, and name the registered agent (a real human being) whom the state can contact if it has questions.

Tip: Most though not all states’ secretary of state websites provide downloadable forms you can use to provide the articles of llc formation information.

In addition to the articles, people usually create an operating agreement. Akin to a partnership’s partners agreement or a corporation’s bylaws, the LLC operating agreement provides the rulebook for the limited liability company’s activities and specifies how the owners of the LLC operate the LLC.

Finally, in cases where the LLC will employ people or will have multiple owners, the LLC needs a taxpayer identification number from the Internal Revenue Service.

Experienced entrepreneurs and investors as well as small business people operating on a tight budget can often setup an LLC on their own. However, commonly business people and entrepreneurs also work with a paralegal service (if all they do is document preparation) or with a local attorney or accountant (if they need legal or tax advice).

Seattle CPA Steve Nelson occasionally teaches the LLC versus S corporation graduate tax class at Golden Gate University. He’s also the author of the LLCs Explained FAQ article, Explanation of an LLC and the FAQ article, LLC vs LLP.

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Easy SEO Tip- Fix Your Website Title

Here’s another marketing quickie to get you ranked higher in the search engines. What is your website’s title tag?

The title is that little blue bar at the top of the browser window. It also happens to be what the link says in the search engines when someone is looking for your website. It’s so easy to correct, but yet so many people miss it.

Here are some examples of bad title tags:

  • Untitled
  • About Us
  • Home
  • WordPress

Some good things to put in the title are:

  • Company name
  • Industry name
  • City and state name
  • Phone number

Don’t get too crazy with it though. You don’t want a title like “Dr Joe Smith, cosmtic dentist orthodintist in Dayton, Miamisburg, Springboro, Centerville”. That’s called keyword stuffing and it’s very bad. You want a title that is short, simple and to the point.

I hope this quick tip helps you make some good sales. If you decide to become an Easy Local SEO client, we can help you go over your title tags and make improvements if necessary.

Four Considerations For Hiring Your Personal Tax Accountant

The following article was contributed by our syndication partner.

Four Considerations For Hiring Your Personal Tax Accountant
By Todd Duan

Every year around tax season, millions of people across the globe begin worrying about their financial outlook. Is there anything they forgot about throughout the year that could negatively influence their tax situation? Will they be in danger of an audit? Were their business bottom lines successes or failures? How will they manage the upcoming year in lieu of the previous? With all of these questions, there are two ways you can go: 1) You can worry about handling them yourself, making mistakes, and causing a great deal more trouble for yourself down the road; or 2) You can turn it over to the hands of a personal tax accountant with the expertise designed to help you successfully navigate the beast known as tax season. If you prefer action two, here are four further considerations you must make before committing to a relationship:

What is your tax situation? Do you have complicated deductions, credits, and liabilities? Are there any tax shelters or investments with which you are involved? Do you own a business, or is it just you and your family that you need to worry about? Some matters are so simple that it really is advantageous to invest in software that can help you easily navigate less challenging situations. But if you have fears, doubts, and complications, you will probably still need the help of a professional. Evaluate your needs before forging ahead to the next question:

Will your costs be worth your returns? A personal tax accountant is invaluable, yes, but definitely not free. That’s not to say it’s his life goal to rip you off. Not at all! But if your tax situation is at or near break even, and it is easy to figure out for yourself, this should definitely be a consideration to hiring a professional.

What kind of reputation does your potential personal tax accountant have? Most of the time, a personal tax accountant is in business to help you make the most of your tax season. He wants to help you succeed, and doesn’t want you to stress out over the fallout. But you can never be too careful. That’s why it’s vital to seek the reputation of the potential personal tax accountant. Ask people you know to refer you. If you get a good word from someone you trust, you can take that to the bank.

Does your personal tax accountant help you understand the law? You’re an adult. It’s your responsibility to understand how your world works. But at the same time, you didn’t go to school for this. Make sure your personal tax accountant can adequately explain your situation to you, and help you understand the law.

A personal tax accountant isn’t free, but the advice and wisdom he offers is vital. Seek it out. Ask questions. And maybe future tax seasons won’t be such of a bother!

Want to know where you can find the best London accountants? If you have a need for your very own Personal tax accountant, visit our site and take hold of your financial future.

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