Small businesses often choose to form an LLC to protect themselves from liability

Small businesses often choose to form an LLC to protect themselves from liability

There are several benefits to being a limited liability company (LLC), including limited liability protection and pass-through taxation. As with corporations, LLCs are legal entities that exist independently of their owners. As a result, business debts and liabilities can never be held against the owners personally. Pass-through taxation is available for LLCs because their income is not taxed at the entity level; however, a tax return must be filed by the LLC if it has more than one owner.

A member’s income or loss is passed along to the owner on this return. Each member’s income or loss must be reported on their tax returns and paid as appropriate. It is possible to form an LLC in any state – even if the LLC does not do any business there – but most LLC owners prefer to form an LLC in the state where their business will be – in many cases, that is their home state.

liability protection

Among the reasons for this is that the LLC must register as a foreign LLC to do business in the state where it is doing business if it is formed in a state where it does not do business—Delaware is the normal state for such LLCs. This can increase the formation and administrative costs. To form an LLC, you must choose a name that is not already registered as a domestic or qualified LLC or other business entity on the records of the Secretary of State.

If you operate as a sole proprietor, you may want to use your DBA or trade name as the legal name of your LLC. Whether your desired LLC name is registered as your DBA or not, you should conduct an LLC name search on the website of your formation state to ensure it’s available. It’s a very good idea to reserve the name if you want to wait to file your LLC formation document.

Many states allow you to do this for a small fee and a short time. An LLC’s state of formation or qualification must have a registered agent when forming or registering the LLC for transacting business in that state. In most cases, new business owners have yet to learn what a registered agent does or do not know its purpose.

Often called an agent for service of process, a registered agent receives important legal notices and tax documents for LLCs. The Secretary of State mails important legal documents, notices, and communications, and the Department of Taxation mails tax documents.