Frequently Asked Questions
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What is a Limited Liability Company?
A Limited Liability Company ("LLC") is a separate legal entity that offers an alternative to partnerships and corporations by combining the corporate advantages of limited liability with the partnership advantage of pass-through taxation.
What is the Structure of an LLC?
An LLC is owned by its members. The members of an LLC are like partners in a partnership or shareholders of a corporation. A member will more closely resemble a shareholder if the LLC utilizes a manager or managers, because under that situation the members will not participate in the management of the LLC. However, if the LLC does not utilize managers, then the members will more closely resemble partners because they will have decision making powers in the LLC.
The member’s ownership in the LLC is represented by their respective "membership interest", in the same manner as a partner has an "interest" in a partnership or a shareholder has stock in corporation.
What are the Advantages of an LLC?
Pass-Through Taxation: LLC’s allow for pass-through taxation, allowing earnings of an LLC to be taxed only once. The earnings from an LLC are treated in a similar manner as earnings from a partnership, sole proprietorship and most S corporation.Limited Liability: The member’s liability is generally limited to the amount of money which the member invested in the LLC. As a result, the members of an LLC receive the same limited liability protection as do shareholders of a corporation.Flexible Organizational Structure: LLC’s are generally free to establish any organizational structure agreed upon by its members. Thus, profit interests may be separated from voting interests.
How many people are needed to form an LLC?
According to the IRS, an LLC must have at least two members even though most states will allow a single person or a husband and wife (considered 1 member) to form an LLC.
How is an LLC Managed?
An LLC is managed by its members or by selected managers. If the LLC is managed by its members, it operates much like a partnership. Each member shares equally in the decision making process of the LLC.
Alternatively, the members may choose to appoint a manager or managers to act in a capacity similar to a corporation’s board of directors. The managers are in charge of the business affairs of the LLC. If managers are not designated in the articles of organization, the members will be deemed to direct the business affairs of the LLC.
What is a Registered Agent and is one needed?
In all states, an individual or service company must be responsible for receiving important legal and tax documents. This service is provided by an "agent" of the LLC who is "registered" with the state of incorporation. Thus, the term "Registered Agent." The registered agent must have a valid street address within the state of formation, and be available during normal business hours to receive documents.
Should I choose an LLC or an S Corporation?
The status of an S Corporation provides the elimination of double taxation. However, the S Corporation does not have the flexibility of an LLC in regard to the allocation of income to its members.
An LLC may have an unlimited number of members. However, ownership in an S Corporation is limited to no more than 35 shareholders. Further, an S Corporation cannot have shareholders who are C Corporations, other S Corporations, certain trusts, LLC’s, partnerships or nonresident aliens.
LLC’s are permitted to own subsidiaries without restriction, while S Corporations are not allowed to own 80% or more of another corporation’s shares.
What is a Federal Employer Identification Number?
Once the LLC has been formed and is ready to do business, it is the time to apply for a federal employer identification number (EIN). Generally, any LLC doing business within the U.S. is required to have an EIN. In fact, the EIN is necessary when filing tax returns and for establishing bank accounts.
A LLC can receive an EIN by completing and submitting IRS Form SS-4. However, you can have NWPG save you this tedious and time consuming paperwork by completing and submitting the necessary EIN form on your behalf.
How is an LLC taxed?
An LLC can be taxed for federal income tax purposes as a partnership. The state income tax treatment of LLC profits and losses may or may not mirror the IRS tax treatment depending on the state. For specific information on your state rules visit your state's web site. Please note that California LLCs are subject to an annual minimum franchise tax of $800 per year. The first payment must be made within 3 months of forming your LLC. The state of California does send a bill to help you to remember to make this payment. Nevada has NO state income tax on LLCs.
