For many people, owning a small business is a dream come true. If you are one of those people, and you have made the decisions to make that dream come true, you have a number of important decisions ahead of you. One of the most important of those decisions is what legal structure to choose for your business. The type of legal entity you choose for your business will have a direct impact on things such as your personal liability, the management structure of the business, taxes, and investment opportunities. One popular choice for a small business is a Limited Liability Company, or LLC. How do you know if an LLC is right for your new venture?
The Basic Three Business Structures
Traditionally, a business had three business structures from which to choose – a sole proprietorship, partnership, or corporation. A sole proprietorship is the default structure when a single individual is operating a business and has done nothing to form any other type of entity. A partnership exists when two or more people operate a business and share in the profits of that business. You are not required to execute any legal documents to form a partnership; however, many partnership do operate under a Partnership Agreement. Finally, a corporation requires the owners to file Articles of Incorporation and a number of other legal documents. A corporation is actually run by a Board of Directors and the “owners” are the shareholders. From these basic three structure, a number of sub-categories and hybrids have evolved. One of those is the LLC.
An LLC is a type of hybrid business entity that combines the pass-through taxations of a sole proprietorship or partnership with the protection from liability offered by a corporation. Although an LLC is not a corporation, is does require the completion of legal documents to form. Because the laws that govern LLCs are state-specific, the requirements for formation of an LLC may differ slightly from one state to the next. The same is true for the laws that govern LLCs – they can differ by state. While an LLC shares the protection from liability with corporations, an LLC is much less formal. Whereas a corporation has very specific requirements with regard to what documents must be prepared and filed each year in order to keep the corporation going, an LLC does not. The flexibility of an LLC makes it very popular with single owner businesses or with partnerships that do not have any immediate plans to expand.
How Do I Form an LLC?
Forming an LLC is easier then forming a corporation but more difficult than forming a sole proprietorship. The first thing you will need to do is to choose a name for your business. You will need to heck with the Missouri Secretary of State to make sure your chosen name is not already in use. The name must also be filed with the Secretary of State as a “fictitious name” and you must reserve the use of the name. Your entity name must contain the words Limited Liability Company or the abbreviation L.L.C. or LLC. Next, you must create and file “Articles of Organization” with the Missouri Secretary of State. Before doing that, however, you need to decide who will be the Registered Agent for your business. The Registered Agent is the individual who will receive all legal correspondence and service for your business. It should, therefore, be an owner or the company’s attorney. You may also wish to consider creating an Operating Agreement for your LLC. Although an Operating Agreement is not legally required, it can be of great help in the management of your business.
Deciding whether an LLC is right for your business is a decision you should only make after consulting with an experienced Missouri business attorney and considering all of the advantages and disadvantages of choosing an LLC.
If you have additional questions or concerns about forming an LLC for your new business, contact the experienced Missouri business attorneys at Amen, Gantner & Capriano, Your Estate Matters, LLC by calling (314) 966-8077 to schedule an appointment.
Latest posts by Paul Gantner (see all)
- Law in the U.S. can be Participatory - December 18, 2017
- Basics of Estate Planning: Estate Planning for Major Life Events - December 16, 2017
- Basics of Estate Planning: Advising Clients on Selecting Fiduciaries - December 15, 2017