A limited liability company may be a good fit for the business you are trying to form. If you are worried about your future financials being affected by problems with the new business, an LLC would protect you from being held personally responsible for future debts of the business. Therefore, an LLC or Corporation can best protect your personal assets. Also, if you develop significant personal debt outside of your business, your business will not be held responsible for the debt.
Advantages of an LLC
There are many differences between limited liability companies and corporations that make one more beneficial than the other in certain situations. Typically an LLC is more effective for small businesses because it is simple and does not have the formalities of a Corporation. LLCs have other advantages as well, such as:
- lower renewal fees in some cases;
- fewer requirements and formalities;
- easy tax policies; and
- more protection for business assets from personal debt (charging order vs. levying shares).
Limited liability companies first became widely available in the U.S. in the early 1990s. The German version (GmbH, or Gesellschaft mit beschränkter Haftung) has been in existence since the late 1800s. The LLC is a hybrid form of business entity that can protect the owners effectively in the case of legal action. Like a corporation the LLC structure removes the members and managers from liability, and, like a partnership, it provides certain tax benefits. It is considered a “pass-through” arrangement because the individuals are taxed rather than the company (unless the company elects to be taxed as a corporation.). An LLC is easier to set up than a corporation and LLCs are subject to relatively few procedural requirements relating to the governance of the business entity.
Articles of Organization
The articles of organization are created for a limited liability company or corporation by the owner and filed with the state in order to form a business. The business does not legally exist until the articles are filed.
Member Control Agreement
A member control agreement is similar to the bylaws of a corporation, except for a limited liability company. The agreement can pertain to the declaration and payment of distributions, sharing of profits and losses, and many other aspects of the company.
A series LLC is a limited liability company that allows there to be multiple levels of interest in a company. This idea began in Delaware but has since spread to other states. Minnesota’s Revised Uniform Limited Liability Company Act does not allow for series LLCs.
In order to form an LLC an Articles of Organization must be filed along with a $135.00 fee. Subsequent amendments are $35.00, except for mergers, which are $60.00. The LLC is not formed until the Minnesota Secretary of State reviews and approves the articles of organization.
An LLC is taxed as a sole proprietorship or general partnership depending on how many owners it has. Therefore, the taxes are done on the owner’s personal income tax returns. While many believe that since an LLC is treated as a sole proprietorship or general partnership for tax purposes that they are do not have limited liability, this is not true and the way in which a business files taxes has no effect on its liability.