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Frequently Asked Questions About LLCs


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What exactly is LLC?

LLC stands for Limited Liability Company. As the name suggests, it is a business entity which offers limited liability protection to its owners. It is a relatively new type of business entity, design by the states to combine the limited liability protection offered by a corporation with the "pass-through" tax status, and the ease of operation offered by partnerships. For these reasons, LLCs are very popular with today's entrepreneurs.

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How is a LLC formed?

The LLC is formed by preparing and filing with the state's filing office the LLC Articles of Organization, which have to comply with the state's requirements. LegalArrow« can prepare and file your LLC's Articles of Organization, and obtain confirmation from your state's filing office. In addition, most experts would agree that, for the LLC formation to be complete, the LLC Operating Agreement should be drafted and signed, and an EIN (Employer Identification Number) should be obtained. LegalArrow« can assist you in these matters as well.

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Is a LLC better than a corporation to run my business?

For most small or medium size businesses, the answer is probably yes. LegalArrow« has prepared a comparison table, to help you choose between LLC and a corporation.

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Is one-person LLC allowed?

Yes, most states allow for one-person LLC.

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How are the owners of a LLC called?

The owners of an LLC are called members.

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How is a LLC taxed?

One time tax: the profits and losses of the LLC "pass-through," to the owners of the LLC (similar with a sole proprietorship or partnership).
IRS gives the option, to a multi-member LLC which so elects, to be taxed as a C - Corporation.

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How is a LLC managed? 

Most often than not, the LLC is managed by its members (owners); such LLC is called a member-managed LLC. The LLC can also be managed by appointed manager(s).  The managers can be members of the LLC or not. Appointing a manager can make sense when that manager has special skills, training, or experiences, which are necessary in order to properly run the LLC's business.

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Can I convert my current business into a LLC?

Yes, most states would allow the conversion of a previous business into a LLC.

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What is a 'professional' LLC?

If you are a professional (e.g., doctor, lawyer, accountant, architect, engineer), offering professional services, some states allow you to organize and operate your business as a LLC.  Those states typically require you to follow special rules applicable to professionals and professional LLCs.

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What is Registered Agent? Do I need one?

The registered agent  is a person (or an authorized corporation) the LLC appoints, and the law requires, to receive legal papers from the state or third parties on behalf of the LLC. The address of the registered agent must be a street address (not a PO box) in the state where the LLC is organized. Most people name a member or manager of the LLC as registered agent, and list the LLC's business address as the registered agent's address.

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What is 'LLC Operating Agreement'?

The LLC Operating Agreement prepared by LegalArrow« is an approximately 11 pages document containing important provisions regarding the operation of the LLC. The LLC Operating Agreement does not need to be filed with your state filing office, but is a document, which most experts would agree, is necessary to complete the formation of the LLC. Some states require the LLC to have a written Operating Agreement kept with the LLC's records. 

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What is 'EIN'?

EIN stands for employer identification number. It has several functions; one of them is to be your LLC's federal tax ID. After you'll receive your LLC's Articles of Organization approved by the state, applying for a federal tax ID (EIN) is one of the first things you generally have to do. Generally, you cannot even open a bank account on behalf of the LLC unless the LLC has obtained a federal tax ID (EIN) . This is also one of the formalities that may be required to "separate" the LLC from you, the owners (called members), in order to be afforded limited liability protection. LegalArrow« can prepare the required IRS application for you, file it with the IRS, and obtain your new LLC's EIN. 

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