Guidelines and Tips to Form a LLC

As a small business owner you will want to form a legal entity structure to obtain limited liability protection. A popular way to obtain limited liability protection is to form a LLC to protect your personal assets from creditors, debtors, and legal claims. One of the foremost reasons for you to form an LLC is the benefit of having limited liability protection. Limited liability protection is afforded to all members of an LLC. An LLC should be operated with a complete separation of personal and business assets. One advantage of forming an LLC is that of pass-through taxation status, or income flowing through the entity to the members or owners. In order to maintain the privilege of limited liability protection, the company must adhere to all local, federal, and state laws. The company must also do everything that is required to maintain a good corporate status, pay all required taxes, and file all necessary paperwork.

Before you decide if filing an LLC is right for your specific situation, you will need to learn about some of the advantages, risks, and requirements that will affect you and your business. Here are some of the advantages of forming an LLC.

Advantages of Forming an LLC

Only 1 member of a business is required to form LLC
LLC can be taxed similar to sole-proprietorship, partnership, or corporation 
LLC can have more than 75 members
Nonresidents of US can be members of LLC
Pass through taxation for LLC similar to sole-proprietorship or partnership
A Corporation can be the owner of an LLC
Should you Form an LLC to write off business expenses?
When deciding to form a LLC you will need to look at all of the options that are available to you. First is the understanding that all businesses, whether they are corporations, LLCs, sole-proprietorships, or partnerships can deduct their business expenses. You do not need to form an entity to have the benefit of deducting your expenses. Having the status of LLC or Corporation may limit your exposure to audit, but it does not provide more tax deductions compared to a sole proprietorship. 

Operating Agreement for LLC

You should view your operating agreement as a roadmap for your LLC and a guide to handle the tough questions. The purpose of having a well-detailed operating agreement is to define how the members and more importantly the business should react to specific situations. An operating agreement is required for all LLCs regardless of state. An operating agreement adds less value for a 1 member LLC because there is no likelihood of disagreement between the members. However, if you have 50 members in an LLC, it will be very important to clearly detail an operating agreement. A well written operating agreement will serve as a guideline for resolving many difficult situations. If your operating agreement doesn't specify what to do in a particular situation you may want to call a special meeting of the members to amend the operating agreement.

Is Forming an LLC right for you?

Forming an LLC in CT is easy and while you can do it yourself, you may be better off seeking professional assistance when setting up your business. In some situations you will need the assistance of an attorney, accountant or both. Hopefully after reading this you have a better idea about the requirements and some of the potential pitfalls of setting up and running your own LLC. While this article is not meant to have all of the answers, it will hopefully give you a good basis for moving forward with the formation of your new LLC.