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Why Do I Need an LLC? Everything You Need to Know

While forming a business, one common question may come to mind: Do I need an LLC? If you want a member-friendly business structure, an LLC can be a good choice!

An LLC is a legal entity with a formal business structure. It provides benefits and security to its members like no other business. 

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It’s not mandatory to form an LLC to start a business. But obviously, you will miss the LLC benefits.

No liability protection exists in a sole proprietorship or a partnership business. However, an LLC provides limited liability and represents your business as a legal entity. 

So, if you get an LLC to start a business, it will give you more advantages than a regular business.

Why Create an LLC?

Discover the importance of creating an LLC through these key points.

Protects your Assets

You can quickly start various companies under the LLC category. For example, tech startups, retail stores, consulting firms, restaurants, etc.

Taxed Once

LLC offers a pass-through taxation facility. It transfers profits or losses directly to the member’s account. So, each member pays an annual tax. There’s no extra cost of taxation for LLCs.

Regular Paycheck

An LLC provides the opportunity to receive regular paychecks. A paycheck is an amount deducted from the business tax. It will help reduce your employment tax amount.

Can I Have an LLC Without a Business License?

No! First, you form an LLC business and then apply for a license. An LLC can be established without a license at the moment. 

Once the state officials verify your LLC details, they will approve your LLC license. Without a license, you cannot operate your LLC in the selected state. 

In fact, you may face legal action and penalties for not having a business license.

How Do I Form an LLC?

You can form an LLC by yourself or hire a registered agent. Let’s look at the process below:

Choose A State

There are many states. The rules and regulations vary by state. So, select your preferred state first. Get in touch with state officials for a better understanding of the rules.

Name Selection

LLCs must have a unique name. You cannot choose a random name that gets matched with other business names. 

It’s essential for your branding, too. So, hold a meeting and ask the member for name approval.

Submit Articles of Organisation

It includes the basic documents to show member and business details. It is also called the certificate of the organization. 

Once the state officials approve your articles of organization, you can then start your business.

Operating Agreement

It’s an essential document to describe the LLC’s internal details. It will help to run an LLC and avoid future clashes among members.

Apply for an EIN (Employee Identification Number)

EIN is an identification number to use for taxes, opening a business account, and hiring employees. You can apply for an EIN and it’s free to apply!

What will an LLC Do for Me?

LLCs provide more support for running a business than other types. Let’s look at the list below.

Separating Business

LLC is a legal entity. It can fight cases against third parties. Also, a third party can file a case against the LLC. So, there’s nothing personal about the member at all. It keeps the member safe and fights its case with its own identity, like a person.

Liability Limitation

In case your LLC goes bankrupt or gains debts, you don’t need to pay personally. The LLC will pay all the debts. No member will be liable at all.

Protecting Asset

An LLC uses only its assets for business purposes and pays third parties. It will not use your personal property.

Pass-through Facility

LLC passes its profit or loss to its members. As a result, there is no direct federal taxation of LLCs. But the member will pay annual taxes. So there is no extra tax.

Credibility

A business needs credibility and professionalism. LLCs give a formal structure to the business and help earn credibility.

Flexibility

You can enjoy the flexibility of managing a business and transferring ownership. You can manage the business yourself or hire a manager.

Security

Unlike corporations, LLCs provide security and do not disclose member names and details.

Advantages of an LLC

Whenever you think about the question, do I need an LLC? Remember the key benefits shown below. 

Liability Reduction

In an LLC, members’ liabilities are limited. The LLC remains a legal entity and does not use members’ assets to pay any debt.

Independence

Sole ownership of an LLC is possible. If you add members, you can also operate an LLC independently. Plus, there’s scope for adding responsibility for each member in the operating agreement.

Taxation Easiness

LLC offers a pass-through technique for simple taxation. It works like a sole proprietorship to handle the profit or loss of its owner. 

Company owners pay taxes twice: as employees and as business owners. So, an LLC gives you lower tax benefits.

Less Paperwork

Even in some states, an operating agreement is not needed to form an LLC. Compared with other businesses, the paperwork for LLCs is minimal.

Profit Distribution

You can decide what can be profit-sharing distribution. If you are the only member, then it’s 100% yours. 

If you have members, then hold a meeting to decide the profit distribution ratio. You can also mention the profit distribution ratio in the operating agreement.

Owner Flexibility

You can add members to an LLC. Their liabilities will be limited. Even members can leave the business if they wish.

Management Flexibility

Members like you can manage the business. But you can also hire a manager. It will be called a manager-managed business then.

Gain Trust

Customers gain confidence and love your business when they finally see the LLC name. It shows your business as a professional, structural, and believable company. It will help to enhance credibility.

Inexpensive Form

Pay the filing fees and agent fees. The filing fee may vary by state. However, forming an LLC is less costly than other business types.

Conclusion

Hopefully, the above discussions will help you find out the answer to your question: Do I need an LLC? Whether you are buying, restructuring, or forming a business, you can form an LLC.

You can also avoid an LLC and form your own business. But who wants to lose the wonderful advantages of an LLC?

Forming an LLC will take your business to the next level, so take the step now!

Frequently Asked Questions

Do I require a distinct LLC for every business to run?

No! You can also use a DBA instead of creating different LLCs for your different businesses. But if you want to avoid tax complications, you can actually create an LLC for each business. Take advice from your lawyer or registered agent for a better decision.

Does an LLC save me from liability?

Yes! LLCs limit your liability and protect your assets. It creates your business as a separate legal entity and uses only business funds to pay business debts.

Is there a need for an LLC if I'm self-employed?

No! It’s not mandatory to form an LLC. But it’s recommended to form an LLC over a sole proprietorship to enjoy LLC benefits.

Can I open a business without filing an LLC?

Yes! You can run a business without an LLC. If you have lower risks and a limited customer base, you can start a sole proprietorship. But you can also form an LLC whenever you want.

Is forming an LLC compulsory?

No! An LLC provides wonderful benefits and security, which are absent in a regular business formation. So, it’s not compulsory, but recommended forming an LLC.

Max Smith - LLC Formation

He is a seasoned entrepreneur and legal expert at LLC Formation Hub. With a stellar track record in both business and law, Max simplifies the complexities of LLCs. His practical insights, featured on LLC Formation Hub, empower entrepreneurs across the USA. Max merges business finesse with legal acuity to guide businesses toward success.


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