How To Start an LLC
The abbreviation “LLC” represents “Limited Liability Company,” a business enterprise that can be established in the United States. An LLC gives founders several advantages over other legal structures (e.g., S corporations, limited partnerships, and sole proprietorships), making this business entity type a preferred option for many starting small business owners. Some special protections LLCs offer owners include asset protection, liability shielding from business debts and lawsuits, and taxation options.
Information on how to start a an LLC through each of the 50 states and Washington DC can be found here:
To form an LLC, a business owner typically needs to go through these six steps:
- Step 1: Name the LLC
- Step 2: Choose an LLC Registered Agent
- Step 3: Satisfy LLC Filing Requirements
- LLC Articles of Organization
- LLC Operating Agreement
- LLC Statement of Information
- Step 4: Register the LLC
- Step 5: Obtain an Employer Identification Number (EIN)
- Step 6: Pay State and Local Taxes
State laws regulate the formation of LLCs in the United States. Federal laws and municipal ordinances do not affect the organization of LLCs. As a result, the rules governing LLC creation are peculiar to the state in which a company wishes to operate. However, LLCs are typically organized by a Secretary of State (SOS) or other designated corporation division within a state. This office keeps records on all LLCs in its jurisdiction.
To put the popularity of LLCs in the United States into context, limited liability companies made up the majority (70.6%) of all U.S. partnerships in 2020, according to the Statistics of Income (SOI) Bulletin published by the Internal Revenue Service (IRS) in Fall 2022. The total partnership count at the time was 4,280,690. In other words, over three million LLCs were federally taxed as partnerships in the United States, not including those taxed as corporations or disregarded entities.
What Is an LLC?
An LLC is a legal structure entrepreneurs can select when setting up a business in the United States. This entity type fuses corporation and partnership business characteristics to present owners (known as members) with various benefits. However, an LLC is neither a corporation nor a partnership. Instead, it is regarded as an unincorporated association with more flexibility than traditional business entity types.
Step 1: LLC Name Search
To create an LLC in the United States, a business owner must meet the naming requirements of their formation state and ensure that their LLC name is legal. Typically, the business’s name may include the following phrases or letters (referred to as business entity identifiers or entity indicators):
- Limited Liability Company or its abbreviations “L.L.C,” “LLC,” “Limited Company,” “LC,” or “L.C.”
- Words like “Limited” and “Company” can be abbreviated as “Ltd.” and “Co.” For example, “Ltd. Liability Co.” or “Limited Liability Co.”
Certain LLCs, like professional and low-profit LLCs (L3C), may also need specific indicators. Professional limited liability companies may need to include the word “Professional” plus one of the LLC standard identifiers or the abbreviation “PLC” or “PLLC.” In contrast, low-profit limited liability companies may need to include the abbreviation “L3C.”
These business identifiers make it clear to others what a company is—an LLC, not a corporation or another business entity. Businesses that fail to include these indicators will have their registration rejected by the Secretary of State or the designated corporations office. Thus, verifying naming restrictions with this office before filing for an LLC is crucial. (Note: The acceptable LLC indicators vary by state.)
Ensuring an LLC name is legal also means checking that the name is not too similar or the same as other existing LLC names. The name must be unique and distinguishable from others.
To ascertain that a business name is available, an individual can search for an LLC name in their state. There are a few ways to go about an LLC name search. The most popular method is to access the corporate database provided by the state’s business regulatory office. For example, people wanting to form an LLC in Ohio can use the Ohio Secretary of State’s Business Search Tool. In contrast, prospective business owners in Alabama can use the state’s SOS Business Entity Search Tool. These databases do not search registered LLC names nationwide, only in a specific state.
Another method for checking the availability of an LLC name is to ask for an attorney’s help. One may also mail or hand-deliver a letter to a business corporations office for assistance, but a search fee may apply. Upon discovering a business name is available, one can register it immediately with their state’s business corporations office. However, if the individual or entity needs more time to register their LLC, they can reserve the name.
Name reservation usually means filing a form with a business corporations office and paying the associated filing fee. The application form is available on this office’s website. States allow only a fixed number of days for name reservations. Once this time elapses, the business name becomes available to others, except the applicant reapplies. For example, LLC names are reserved only for 30 days in Georgia. However, California and Missouri reserve LLC names for 60 days, and Arizona and Colorado reserve for 120 days. The cost for a name reservation is often under $60, but it may be higher (e.g., a name reservation in Delaware is $75). Note that some states limit how often a person may reapply for a business name reservation, and some do not permit renewals at all.
Besides performing an LLC name search at the state level, it is vital for prospective business owners to check if an available name has been trademarked. While one may register an LLC name in the U.S, the business name may already be trademarked by another company, making it impossible to use the name to market or sell a product or service—as it would be a trademark violation. Individuals can verify registered trademarks with the United States Patent and Trademark Office (USPTO) to avoid potential lawsuits. One can also contract a law firm or attorney that offers trademark services to verify if an unregistered or common law trademark is in use.
Step 2: Choosing an LLC Registered Agent
An LLC registered agent is a common legal requirement for limited liability companies that want to operate in the United States. A registered agent, sometimes called an “agent for service of process,” is responsible for receiving legal documents and official papers on behalf of the LLC. Almost all states require LLCs to have a registered agent and provide the agent’s name and address on their formation documents.
State laws vary on who can act as a registered agent for an LLC. However, these are often general requirements:
- A registered agent may be an individual or business entity (a domestic/foreign corporation or LLC) authorized to transact in the formation state. For example, a law firm or service company.
- A registered agent, if an individual, must be a state resident and over 18 years old.
- A registered agent, if a business, must have a physical street address in the formation state, otherwise known as the agent’s “registered office.” P.O. boxes or mailboxes are not generally allowed. However, some states may allow a P.O. box address in addition to a physical street address.
- A registered agent must be reachable during regular business hours to receive official correspondence and notices.
- An LLC cannot act as its own registered agent, but the registered agent may be a member, manager, or employee of the LLC. However, some states (like Colorado and Delaware) allow an entity to serve as its registered agent, provided the entity meets certain conditions.
- An LLC may only have one registered agent.
- A registered agent must consent to serve an LLC’s registered agent.
How Do I Change The Registered Agent for My LLC?
The procedure to change an LLC registered agent varies from state to state. However, an LLC that wants to change its registered agent must inform its establishment state.
Notification involves applying online on the regulatory office’s business registration online portal. (Some agencies accept mail requests.) The application form may be called a Statement of Information or a Statement of Change of Registered Agent. LLCs can also change their registered agents when filing their periodic reports.
As a way to verify one’s registered agent has been changed, the business corporation’s office will typically issue an acknowledgment letter or receipt to the applicant.
Step 3: LLC Filing Requirements
Another legal requirement that businesses hoping to be established as limited liability companies in the United States must satisfy is to register the LLC with an appropriate government body. Because LLCs are creations of state statutes, filing requirements differ among U.S. states. However, here are some common filing requirements LLCs share:
LLC Articles of Organization
This is an official document that legally creates an LLC under state statutes. An LLC’s organizer(s) files this document with the Secretary of State’s office. (An organizer may be a natural person of legal age or a company but must not be the LLC’s member). Articles of Organization contain basic information like:
- An LLC’s name or name reservation number
- Business purpose
- Management structure (whether the LLC will be member- or manager-managed)
- The registered agent’s name and address
- The address of the LLC’s principal place of business
- The names and business addresses of all managers or members
- The duration of the LLC’s existence (if required by state law)
Note: Certain states require LLCs to file a Certificate of Formation or Certificate of Organization, not Articles of Organization. The Certificate of Formation or Organization has the same purpose as the Articles of Organization: it certifies that a business has satisfied a state’s business filing requirements and can operate therein. The document’s title is the only difference.
Additionally, some U.S. jurisdictions do not have a Secretary of State’s office; filing takes place with the regional corporations division that handles business registration instead. For example, the Division of Corporations in Delaware, the Bureau of Corporations and Charitable Organizations in Pennsylvania, and the Department of Licensing and Consumer Protection in DC.
LLC Operating Agreement
An LLC operating agreement outlines the rules, regulations, and provisions for an LLC’s operation and continuity. This includes:
- The LLC’s business purpose
- Ownership percentage of members
- Member voting rights
- Managerial duties
- Profit and loss distribution
- The means and conditions for modifying the operating agreement
- Buy-sell provisions (what happens if a member dies, wants to sell an interest, becomes disabled, or wants to withdraw)
- The procedure for holding meetings
Several states outline the scope, effect, and limitations of LLC operating agreements in their business laws. However, these agreements are not filed with a state’s business corporations office. An LLC’s operating agreement is a confidential internal document, and not all states require LLCs to draft a written operating agreement. Still, having a well-rounded operating agreement clarifies member roles and responsibilities, limits future conflicts, and allows LLC members to remain on the same page.
LLC Statement of Information
A Statement of Information is a legal document a U.S. state uses to maintain up-to-date information about businesses in its jurisdiction. In many states, LLCs must file a Statement of Information periodically (usually annually or biennially) with their state’s business regulatory agency. The document informs the state of important changes to the company, including changes to an LLC’s management structure, mailing address, registered agent details, business activities, and so on. Filing a Statement of Information also allows the state to review a firm’s compliance with regulatory and legal requirements.
While all states mandate this periodic business filing, not all of them require the filing of a “Statement of Information.” This document may be called other names, like an Annual Report/Statement, Biennial Report/Statement, or Periodic Report.
Note that other documents like a Doing Business As (if the LLC is using another business name) and additional forms may be required.
Do You Need an Address for LLC?
Yes, but it does not have to be the LLC’s physical location. LLCs in the United States must typically meet two address requirements to be set up:
- The organizer(s) of the LLC must file a principal office address (or principal place of business) with their state’s business registration office.
- In almost all states, the organizer(s) must also provide a registered agent’s address—unless selecting a commercial registered agent whose verified address is already on file at the business registration office.
The principal office address is the primary place where a business’s records are stored. Typically, this address must be a physical address (an actual, legal street address), but it does not have to be situated in the formation state. Thus, LLC members can use their home addresses, attorney’s offices, and friends’ house addresses.
Business owners who do not want to list private addresses—as these become public upon filing—can use virtual addresses or private mailboxes (PMBs) for their limited liability companies. Certain states forbid PMBs, however. P.O. boxes generally cannot be used as principal places of business.
Notably, some states with business-friendly laws (for example, Delaware) do not need LLCs to provide a principal office address on formation paperwork, as an LLC registered agent’s physical street address will suffice.
How To Get a Virtual Address for LLC
A virtual address for LLC is an actual street address that an LLC can use as an office location or a place to receive mail correspondence and packages.
There are several virtual address providers online that a business owner can choose from. However, each provider has different plans and pricing. Some offer mail handling services, like mail scanning, forwarding, and shredding. Some have international shipping and mail consolidation plans. Others provide additional features like conference room leasing, cloud storage, local phone numbers for business calls, and check depositing into customer bank accounts. Business owners can research and compare these providers to determine the perfect fit for their business needs.
Step 4: How To File for an LLC
Filing for an LLC means registering the company with a state’s business corporations department. The person who files an LLC is termed an “organizer.” The organizer of an LLC may be one or more individuals or business entities who may or may not be members or managers of the LLC.
Although the LLC filing process varies by state, organizers must execute the following actions:
- File formation paperwork with the state corporations agency
Formation paperwork is typically downloadable from the state’s business corporations agency’s website. As discussed earlier, this regional agency is typically the Secretary of State’s office unless the state has another name for it.
The formation paperwork to register a domestic LLC is different from that required to register a foreign LLC (a business already established in another state or country). Usually, domestic LLCs must file Articles of Organization (also titled a Certificate of Organization or Certificate of Formation in certain states). However, foreign LLCs file another kind of document called an Application to Register, Application for Certificate of Authority, or Application for Admission to Transact Business, depending on the U.S. state. The document informs the state of a foreign business’s presence and grants the company the legal authority to transact business there.
An LLC’s formation paperwork must be completed and signed by its organizer(s). Filing can occur by mail, in person, online, via email, or by fax, depending on the state.
- Pay the filing fee
The cost of filing an LLC with a Secretary of State or other designated office is different in every U.S. state. It may also differ based on an organizer’s filing method (online, in-person, mail, etc.) and the type of LLC entity (foreign, domestic, series, professional) one wants to file.
How To Create an LLC Online
To create an LLC online, an organizer should access the Business Entity Portal available on their state business corporations agency’s website and follow the prompts to complete registration. In many cases, the applicant will need to acquire a username and password to access the portal. The online process for creating an LLC in the United States varies. Thus, it is recommended that business owners review their preferred state’s guidelines or obtain help from a legal professional.
Can You Have Multiple Businesses Under One LLC?
Yes. There are two ways to run multiple businesses under one LLC, but the first option is only available in some states and territories. An LLC with multiple businesses is referred to as a series LLC. The topmost LLC under which other smaller LLCs are formed is called the “parent” or “umbrella” LLC, and the lower-tiered units are called “series” or “cells.”
Each sub-LLC operates independently from the others and has its own name, bank account, records, assets, obligations, and liabilities. As such, if one sub-LLC falls into debt or fails to meet a business commitment, only that cell will likely be affected. In other words, a series LLC secures owners from personal liability if one business branch fails. Companies with multiple financial investments or branches often prefer Series LLCs. An example is a restaurant chain.
The first state to embrace the series LLC model was Delaware in 1996. Other states and territories currently providing this business option include Iowa, Illinois, Oklahoma, Nevada, Tennessee, Texas, Arkansas, North Dakota, Utah, Colorado, Ohio, Wyoming, and Puerto Rico.
Another way to form multiple businesses under one LLC is to register Doing Business As (DBAs), also called fictitious business names, to operate under different names.
How Long Does It Take To Set Up an LLC?
The timeframe to set up an LLC in the United States varies by region and the application method. Generally, online LLC applicants enjoy faster processing timelines. However, many states also allow organizers to expedite the standard processing time, which may be within a week or two. Expedited service may be offered on an hourly, same-day, or two- to three-day basis. The shorter this timeline, the more expensive it is for the organizer(s).
Step 5: How To Get an EIN for LLC
Business owners can get an EIN for LLC (a federal tax ID) from the IRS. The IRS provides the following methods of application:
- Online using the IRS EIN Assistant.
- Call (267) 941-1099 (only for international applicants). This number is not toll-free. See available hours.
- Fax submission of Form SS-4 to the numbers provided below.
- Mail submission of Form SS-4 to the addresses below:
Internal Revenue Service
Attn: EIN Operation
Cincinnati, OH 45999
Fax: (855) 641-6935
Applicants with no legal residence, principal office, or principal place of business in any U.S. state should use this address instead:
Internal Revenue Service
Attn: EIN International Operation
Cincinnati, OH 45999
Fax (within the U.S.): (855) 215-1627
Fax (outside the U.S.): (304) 707-9471
Step 6: Do LLCs Pay Taxes?
Yes. All LLCs in the United States are subject to taxation, such as income, employment, franchise, property, excise, and sales taxes. The specific taxes an LLC must pay is influenced by several factors, including the governing jurisdiction (federal, state, and city/county), the LLC’s classification, the company’s activities, and the number of members. Members should check with their regulatory tax bodies to determine the applicable taxes.
How Are LLCs Taxed?
Limited liability companies are generally taxed according to their default classification for federal income tax purposes—as “pass-through” entities. The designation “pass-through entity” means an LLC does not pay taxes on its earnings (business income) by default. Instead, an LLC’s profits or losses are “passed through” to the LLC members and reported on their personal tax returns. That is to say, the members pay taxes only on their dividends, and the LLC is not subject to taxation at the business level.
However, LLCs can choose to be treated as corporations by submitting Form 8832 to the IRS. An LLC that chooses taxation as a corporation must comply with the normal corporate tax rules. Corporate status (especially C corporation status) means that the company will be subject to taxes at the individual and corporate levels (known as double taxation).
In most states, an LLC cannot have a separate state election. Thus, LLCs usually pay state taxes according to their federal tax classification or election.
Note again that the tax requirements for LLCs in the United States vary. A tax due in one state may not be relevant in another. In the same way, an LLC may be required to pay certain taxes (e.g., excise taxes) because of the goods they sell or market. Overall, business owners should not overlook consulting a tax accountant or advisor to ensure strict compliance with the related federal, state, and local tax laws.
Tax Benefits of an LLC
Limited liability companies in the United States enjoy several tax benefits, including:
- Taxation flexibility: An LLC can be taxed by the IRS as a disregarded entity (if a single-member LLC), a partnership (if a multi-member LLC), or a corporation (if the LLC chooses). Each tax option offers an LLC certain tax exemptions and advantages. For example, LLCs taxed as S corporations do not pay federal corporate income taxes and can exempt some of their profits from self-employment taxes.
- Pass-through taxation: As discussed earlier, LLCs are “pass-through” entities by default. With this designation, LLC members only have to pay taxes on the LLC’s profits once and are released from paying corporate taxes. This allows them to avoid double taxation and build tax savings.
- Deductions of business expenses: LLC members can claim certain expenditures on their personal tax returns as deductible business expenses. This helps reduce an LLC’s taxable income and the owners’ tax liability. Business expenditures that can be written off include advertising, charitable donations, office supplies, travel expenses, and education.
Do You Have To Renew LLC Every Year?
Yes. LLC owners have to renew their limited liability companies each year. Once an LLC is established in a U.S. state, the business continues until its dissolution. However, LLCs must file an annual or biennial registration (an annual or biennial report) with their state’s business regulatory department. Failing to renew LLC registration can affect a firm’s good standing and active corporate status. It can also lead to fines and other administrative sanctions.
How Much Does It Cost To Start an LLC
The cost to start an LLC in the United States varies by state, with several factors affecting the final dollar amount. Besides the ordinary business start-up costs (for example, research, office supplies, utilities, and equipment expenses), LLC members must also contend with these costs upon creation:
- Filing Fees: The fee for filing organization documents with a state’s business corporations office ranges from $50 to $800. However, additional fees apply to expedite the processing time, reserve a business name, or submit other essential documents to the office.
- Legal and Professional Service Fees: The cost of hiring an attorney, tax accountant, or other professional service provider to help with business formation. For example, LLC members can employ a legal professional to draft an operating agreement (costs around $0 to $1,000) or crosscheck formation documents before filing.
- Registered Agent Fees: LLCs that opt to use a registered agent service or commercial registered agent will be liable for the related expenses, which cost between $100 and $300 annually.
- Business Permits and License Fees: LLCs will likely need to obtain licenses or permits from the federal, state, or local government. License costs vary by business type, location, and license type.
- Publication Costs: Some states, like New York and Nebraska, require LLCs to publish a copy of their Articles of Organization or a notice regarding their formation in a local newspaper. The publication fee varies based on the newspaper.
- Business Compliance Costs: This covers all costs required to maintain an LLC and keep it in good standing with the authorities, including federal/state taxes, yearly registered agent fees, and LLC annual reporting fees.
Given these varying cost implications, no two LLC entities will have the exact establishment costs. Still, the members may eventually spend hundreds or thousands of dollars to start the business.
Can You Form an LLC for Free?
No, an LLC cannot be formed for free. Like all other business enterprises, a business owner requires some capital to start a limited liability company. However, there are some ways to start an LLC at a minimal cost.
How to Start an LLC for Free/At Minimal Cost
LLC members can reduce their start-up costs by determining what parts of the formation process they can handle themselves or at a reduced cost. For example, rather than hiring a professional service to draft an operating agreement, a business owner can look up free online templates (some are available on government websites, like the Nevada SOS site) and create the agreement in-house. Further, an LLC may file in a state having low filing fees and tax implications. Filing in such a state may minimize the costs the LLC will pay for registration, as well as the costs to maintain the LLC in compliance with state statutes.
Another option to reduce the LLC formation costs is to file for the LLC without an attorney to save on legal fees. Parties can also file paperwork electronically rather than by mail or in person. Online filing is cheaper than paper filing in many states. Individuals can also query their state’s corporations division for fee waivers.
Companies filing without an attorney should note what legal requirements apply to their formation state and business type to avoid costly penalties. Many free business resources (including those from the Small Business Administration) are available to LLC members wanting to uncover regulatory and legal requirements.
What Businesses Should Consider Forming an LLC?
The LLC business structure can serve most types of businesses, given that it provides operational flexibility to its members and is easier to set up and maintain than traditional business structures. Most especially, business owners with considerable personal assets and those who want to pay lower taxes than a corporation can consider forming an LLC.
Although anyone can form an LLC, it is still important for prospective members to review federal and state business regulations to determine if an LLC fits their business needs. For instance, the IRS notes that insurance companies and banks generally cannot be LLCs in the United States.
What Are the Benefits of An LLC
Some notable benefits of forming a limited liability company in the United States include:
- Simple formation: LLCs are easier to start, maintain, and operate than corporations. Limited liability companies often cost less to create.
- Liability protection: LLCs secure owners from being personally liable for lawsuits and business debts that may arise.
- Flexibility: An LLC offers both management and ownership flexibility. The company can have only one member or more. It can also be managed only by its members or managers (who may be members themselves or hired by the company).
An LLC also has some tax benefits, which are outlined above.
How Does an LLC Work
An LLC can comprise one or more members. The members may be natural persons, other LLCs, corporations, partnerships, trusts, associations, estates, or foreign entities. There is no limitation on the number of members in an LLC. When consisting of only one individual, a limited liability company is referred to as a “single-member LLC” or “SMLLC” and is considered a disregarded entity (essentially a sole proprietorship) for taxation purposes. A limited liability company with over one member is a “multi-member LLC” or “MMLLC.” For taxation, MMLLCs are treated either as partnerships or corporations.
At the same time, an LLC can be a foreign or domestic business entity. A domestic limited liability company operates in the same state where it was established. Meanwhile, a foreign limited liability company does business in a state or country different from its formation state.
Other common types of LLCs include series and professional. A series LLC consists of multiple sub-LLCs (called series) under one parent LLC. Meanwhile, a professional limited liability company (PLLC) comprises members who are licensed professionals, such as dentists, architects, surgeons, accountants, realtors, and attorneys at law.
LLCs can also be member-managed (the owners oversee the LLC’s day-to-day operations) or manager-managed (the owners appoint at least one manager to handle day-to-day operations).
While there are different LLC types (some not mentioned here), one type is not strictly independent from the other. An LLC can be multi-member, a foreign firm, and manager-managed simultaneously. However, the way an LLC is set up will affect several aspects of the business, including its operation, taxation, the extent of the owners’ legal liability, and the annual reporting requirements.
LLCs are regarded as creatures of state statute, as their formation occurs under state laws. U.S. state laws do not generally impose age or residency restrictions on potential LLC members. However, each LLC must organize according to the laws of the formation state.
LLC VS S Corp
Corporations in the United States are primarily divided into S corporations and C corporations. A corporation is considered a legal entity independent from its owners. As such, it can be taxed and sued separately from the owners (called “shareholders”) and enter contract agreements by itself.
The S corporation is a regular corporation that has been assigned an “S-corporation tax status.” This corporation type allows shareholders to avoid double taxation and pass profits (and some losses) through their personal tax returns. A shareholder or designee must file Articles of Incorporation with a Secretary of State’s office or the designated corporation’s division to establish an S corporation in the United States. The company must also file with the Internal Revenue Service to obtain S corporation status, provided the company meets the IRS filing qualifications.
In avoiding double taxation, limiting owners from personal liability, and offering some degree of management flexibility, an S corporation is similar to a limited liability company. However, unlike an LLC, an S corporation is more restrictive in several aspects.
For example, an S corporation cannot have more than 100 shareholders, hold more than one class of stock, or have certain types of shareholders (e.g., partnerships, non-resident alien shareholders, and other corporations). In contrast, an LLC does not cap the type or number of members (a term used to refer to the owners of an LLC) or assign ownership rights based on shares of stock. Furthermore, LLCs are not legally required to hold meetings and retain minutes of these meetings. However, a corporation’s board of directors must meet at least once annually.
Overall, members of an LLC have fewer formalities and regulations, but unlike an S corporation, an LLC may have a limited lifespan. State laws may require an LLC to dissolve and reform upon new membership, when a member dies, or when a member retires. Some states also set a fixed number of years for an LLC’s existence. However, an S corporation has a perpetual existence, regardless of shareholder changes, incapacity, or death.
LLC vs. Sole Proprietorship
A sole proprietorship is a business entity operated by one individual. The owner assumes responsibility for the income and losses of the business. Thus, the law regards the owner as the same as the business entity for taxation and liability purposes.
Like a limited liability company, a sole proprietorship has pass-through taxation—the business’s income (or loss) is reported on the owner’s personal tax return. Unlike an LLC, the owner of a sole proprietorship is not secured against personal liability. This means the owner is responsible for all business risks and debts. Further, whereas an unlimited number of persons can own an LLC, only one person can own a sole proprietorship.
In ease of formation, a sole proprietorship has the simplest formation requirements. Sole proprietorships are exempt from registering their businesses with a state corporations division—which LLCs must comply with—but they must register in their cities or counties of operation.
A sole proprietorship exists until its owner’s death or the sale of the business. On the other hand, LLCs may be dissolved after membership changes, changes in ownership percentages, or the failure of a member to meet their obligations.
LLC vs. Corporation
A C corporation, also called a C corp or a regular corporation, is a business entity formed by submitting Articles of Incorporation to a state’s corporations department (usually a Secretary of State’s office). Like an S corporation, a C corporation exists separately from its owners (“shareholders”). For the most part, S and C corporations have similar legal requirements.
Like an LLC, a C corporation offers liability protection to its owners. Also, both LLC and regular corporation structures do not limit the number of owners. However, corporations do not have pass-through taxation. Instead, a C corporation pays taxes on its income, and shareholders also pay taxes on their profits (also called double taxation).
The shares of stock represent the ownership of a corporation, but ownership in an LLC is determined by ownership percentages and units set out in an operating agreement or the company’s records. A corporation is run by a board of directors elected by shareholders, but an LLC is managed by its members or managers designated by the members.
Corporations have an independent life from their shareholders. As a result, these business entities have eternal existence and persist even when a shareholder dies or resigns. Corporations last as long as the shareholders decide. However, this is not the case with limited liability companies, which are affected by membership changes.
Business License vs. LLC
A business license is different from a limited liability company (LLC). A business license authorizes a company to transact within a particular jurisdiction. Federal, state, and local authorities can issue business licenses or permits, depending on the authority that regulates the specific business activity requiring licensing. For instance, a company selling alcohol and alcoholic beverages in any U.S. state requires a liquor license to operate and ensure compliance with relevant alcohol policies.
On the other hand, an LLC is a legal structure in the United States created by filing Articles of Organization, typically with a Secretary of State’s office. This structure serves as a method for owners to mitigate personal liability and protect personal assets. It must be established before an LLC can perform corporate activities (like apply for a business license or pay taxes) in any U.S. jurisdiction.
Do I Need a Business License if I Have an LLC?
Yes. Most limited liability companies in the United States require one or more business licenses to operate. The license(s) an LLC needs depends on factors such as the company’s location and activities. The requirements and fees for obtaining a business license vary by the issuing authority. Thus, LLC owners are advised to talk to an expert business advisor to determine license requirements. Some states also provide databases where business owners can search for and find the licenses and permits that may apply to their business operations.
How To Dissolve an LLC
LLCs are generally dissolved in the following manner:
- Voluntary dissolution by the members.
- Involuntary dissolution by the Secretary of State’s office or state corporations division. This type of dissolution may be triggered by an LLC’s failure to meet its obligations to the state.
- Judicial dissolution by court decree.
Dissolution here means the termination of an LLC’s legal existence.
Often, the conditions for an LLC’s dissolution are contained in the LLC operating agreement and can be reviewed by interested LLC members.
However, every state has specific conditions for the dissolution of LLCs outlined in their statutes, making the legal requirements for dissolution peculiar to each state. Generally, an LLC must file Articles of Dissolution (otherwise called a Certificate of Dissolution in some states) with the state’s business corporations agency. The LLC must also share residual assets, request tax clearance from the applicable tax agencies, settle outstanding debts (if any), revoke business licenses and permits, and settle all other business obligations. More information about the LLC dissolution process can typically be obtained from a Secretary of State’s office or a similarly designated business agency in the state. It may also be prudent to consult an attorney or tax accountant.