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How do I set up a limited liability company?

The selection of a business form when starting a business is important. There are a number of different business forms to select from. While you may be aware of how important business formation is, you may also have questions about which form is best for your business and how to go about setting up your business once you decide which business form is best for you. For example, you may wonder how to set up a limited liability company. A limited liability company is a common business form that provides several benefits.

Essentially, a LLC is a business legal structure that provides the limited liability of corporations with the tax benefits and operational flexibility of partnership business structures. Unlike corporations, for instance, LLCs are not taxed as a separate legal entity. Instead, profits and losses are passed through the business to members of the LLC on their personal tax returns which is how partnerships are also taxed.

There are several general steps to be aware of when forming an LLC. Requirements for forming a LLC can vary by state, however, so it is important to be aware of the laws in your state. To set up an LLC you must first choose a business name and it cannot be a name in use by another company in the state, it must contain LLC in the name and cannot include any words prohibited by the state. Secondly, articles of organization need to be filed which includes the business name, business address and the names of the members of the LLC. The members of a LLC can vary in composition so it is also useful to be familiar with the ways an LLC can be set up.

Though it is not commonly required by the state, it is a good idea to develop an operating agreement which lays out concerns the members may have including the percentage of interest the members have in the business, the allocation of profits and losses and the rights and responsibilities of members, as well as other provisions. Following registration of the business, it is also important to obtain necessary permits and licenses. There are many considerations when setting up an LLC so it is advisable to be familiar with the process and any additional important state requirements in your state to help you along the path from formation of your business to the success of your business.

Source: U.S. Small Business Administration, "Limited Liability Company," Accessed May 1, 2016

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