Frequently Asked Questions About LLCs
How does an LLC protect my property and my bank account?
A limited liability company can protect your personal assets from creditors and from personal liability in a lawsuit involving your business.
It is important to remember that there are certain formalities must be followed in order to ensure you are provided with this protection. You will lose your limited liability protection if you are running your business too much like a general partnership.
What is the difference between an LLC and a Corporation?
First it is important to understand that Corporations have been in existence far longer than LLCs. Since LLCs are a rather new business vehicle, the State’s do not necessarily agree or have made uniform decisions on how they will be treated. Since Corporations have a large volume of case law, most State’s agree on their treatment and how disputes will be resolved.
Aside from their history, the main differences between a LLC and a Corporation are tax treatment, structure and record keeping.
Tax Treatment
There are many considerations when you begin to discuss the tax treatment of a LLC or Corporation. A LLC is taxed the same as a partnership and is known as a pass-through entity, meaning the profits and losses are passed along to the person who owns the business. However, if it is more advantageous for your LLC to be taxed at the corporate rate, you can make that election with the IRS. A Corporations tax treatment is dependent upon many factors including how many shareholders you have and the type and amount of stock you wish to issue. If you are a C-corp, you will pay the corporate tax rate and any distributions made to shareholders will be taxed to the individual, effectively giving the C-corp a double layer of tax. If you qualify and make the election with the IRS to be taxed as a S-corp you will receive the same pass-through tax treatment as a LLC, although there are some more complicated differences such as employment tax and the treatment of capital gains. It can be difficult to amend your tax election, so it is important to consult with a professional familiar with the recent tax laws prior to setting up your business.
Structure
In general, the majority of people are familiar with the structure and terms used with a Corporation. Corporations are owned by shareholders, overseen by a Board of Directors and the day-to-day operations run by officers and employees. They issue stock to represent the ownership structure.
Since the LLC is a relatively new type of entity the terms are not as widely understood. The LLC is governed by what is called the LLC Agreement or Operating Agreement. The owners are called Members and may have elected a Manager to run the day-to-day business. It will issue membership interests also known as units to represent the ownership structure of the business.
Record Keeping
Corporations have formalities that need to be followed including detailed record keeping of decisions made, annual meetings and stock registers. In contrast, the LLC does not have any requirement to keep records of decisions or hold annual meetings.
The LLC is taxed as what is known as a pass-through entity, which means the taxes are reported on the individual members return rather than the business filing itself. While the LLC is a reporting tax entity, it does not in itself pay taxes. The individual owners report any capital gains or losses by the business for the fiscal year.
However, if it is more advantageous for your LLC to be taxed at the corporate rate, you can make that election with the IRS.
A registered agent is a person or business designed by you to serve as the legal address of your business. This agent will accept the service of any lawsuit against your business and receive notice important state filings and tax information. Your business is required to maintain a registered agent who is available during normal business hours and a legal resident of the State. Failure to maintain a registered agent will result in the State revoking your registration and possible penalties.
There are many advantages of having Beresford Booth serve as your registered agent. The service of a lawsuit at your place of business can cause undue stress among your employees or send the wrong message to customers. We also ensure you receive timely notice of any lawsuit and avoid any potential for a default judgment against your business. We will also ensure you have met all of the fling and reporting requirements and keep you up to date on any changes that may occur to these respective requirements.