You finally have the idea. You know the one. It’s been there all along, but the pieces have come together and you’re now ready to lay a foundation before opening the doors for business. The question remains: how do I structure my company? Your structural options are numerous, including a sole proprietorship, a corporation, a trust, and a Limited Liability Company, among others. This article will take you through forming your own Limited Liability Company.
A Limited Liability Company (LLC) is structurally defined by being somewhere between a corporation and a partnership. It provides a safe means of separating your personhood from your company (a distinction not made by other structures, e.g. a sole proprietorship) without removing you so far as to lose ownership and control. This is a great benefit for the entrepreneur, especially if the business venture is a risky one. Under a LLC, the business owners are not liable for any debts that the business may take on. However, it is important to note that the creditor who provides you with funds for starting your LLC may hold you liable to any damage done to their assets.
For a quick example of why a LLC might be beneficial let’s imagine an entrepreneur named Adam who owns his own landscaping company. Currently, Adam owns his own truck, his own equipment, and operates in a neighborhood where he’s known and trusted for doing good work at affordable rates. One day, Adam’s lawnmower spits out a rock that strikes a passerby, causing severe brain trauma. The family is distraught and outraged, and they take Adam to court. Since Adam’s personhood is inseparable from his business, the family sues him for several hundred thousand dollars, which he of course does not have. As a result, he loses his home and falls into bankruptcy.
If Adam’s company were designed as a LLC, however, his personhood would have been separate from his landscaping company. All liabilities and possible damages remain with his company, and no matter what, his personal property is completely unattached. This distance between the person and the business makes a LLC highly desirable for the entrepreneur.
Because LLCs are allowed by state statute, variations are common from state to state. A few commonalities exist though: banks and insurance companies are never allowed to be formed as LLCs. Also, LLCs can exist for both profit and non-profit purposes. You should always check with your Secretary of State to be sure your LLC is in compliance with state laws. To find information regarding the laws in your state, click here (http://www.coordinatedlegal.com/SecretaryOfState.html).
In forming your LLC, you have several routes available to you, each with their own advantages and disadvantages. You can choose to take advantage of the services offered by online legal sites, do all of the work yourself, or go through an attorney.
LegalZoom.com and similar services like Incorporate.com are the most hassle-free options for entrepreneurs. These companies take your basic information (the company’s name, location, etc.), fill out the proper State forms, and then file your forms with the State. The process usually takes less than twenty minutes and the fees range from $99 to $399 depending on the package you choose, plus the cost of the state fee. Because the process of setting up a LLC is not nearly as complicated as writing a personal will or filing a complex tax return, many people who would not ordinarily use a service like LegalZoom are more inclined to use LegalZoom when setting up their LLCs. It’s important to remember that LegalZoom and similar sites do not provide legal advice to clients. Rather, they do the paper shuffling for customers. If you consider using this kind of service, it might be wise to have a consultation with a lawyer to make sure a LLC is the best structural option for your business.
That being said, depending on your budget, the amount of time you have, and your patience, you might want to consider forming your LLC on your own. With the proper knowledge of what forms and fees are required by your state, this is certainly the most cost-efficient route to take. The process is relatively simple from a technical standpoint. Most states only require the name of the company, the name of the members, contact information, and the filing fee. Again, this fee varies from state to state, but typically ranges between $25 and $200. (Keep in mind that an annual fee beyond the initial filing fee will also be required to maintain your LLC.)
The third option is to have an attorney file the necessary paperwork for your LLC. Attorneys rates can vary widely, however this is certainly the most expensive option. Expect to pay upwards of a thousand dollars to have an attorney help you through the process. Though the cost is greater, the benefits of working with a knowledgeable and experienced attorney could be worth it. Not only will an attorney help translate legalese and ensure that your documents are accurate, but an attorney will be able to help you take advantage of the perks of a LLC that are most beneficial to your company. An attorney also might help you determine how much formality you want to attach to your LLC. Member meetings, annual reports, a business plan, and documents outlining the LLCs bylaws might help establish the credibility of your LLC should you ever be taken to court for any reason.
Regardless of how you go about forming your LLC, the key to getting your business up and running as quickly as possible is accuracy in filing, be it through an online service, an attorney, or on your own. The more information you have about what your company does and how it does it, the easier it will be to move through the bureaucratic systems and get your business off to the right start!