Form Your LLC Today.

Like a corporation, a limited liability company (or "LLC"), is a separate and distinct legal entity. This means that an LLC can have its own tax identification number and bank account. The primary advantage of an LLC is that its owners have "limited liability," meaning that, under most circumstances, the owners are not personally liable for the liabilities and debts of the LLC. For example, if an LLC is forced into bankruptcy, the owners will not be required to pay the LLC's debts with their own money. If the assets of the LLC are not enough to cover the debts and liabilities, the creditors generally cannot look to the owners, managers or officers for relief.

An LLC can be taxed either as a "pass-through" entity, like a sole proprietorship or partnership, or as a regular corporation. By default, an LLC is taxed as a pass-through entity, where the owners just pay taxes on the profits of the LLC at their individual tax rates. This is different from a regular C Corporation, which pays a corporate tax on its net income before distributing profits to the stockholders (the owners) as dividends. When the corporation distributes profits, the stockholders also must pay income tax on these dividends. Most LLC owners choose to have the profits pass-through so that taxes are only paid once on the profits.

Most small to medium-size businesses form their LLCs in the state where they are physically located or will transact business.

While states like Delaware and Nevada have gained a reputation as being favorable places to form LLCs for tax purposes, before choosing one of those states it is important to make sure those advantages will actually apply to your business. An LLC that is formed in one of these states must generally still register and obtain permission to transact business in the state where it is physically located or transacts business. This may mean dealing with the reporting requirements of two states without reaping any of the benefits.

If you choose to have TotalLegal file your LLC, you will receive a free Operating Agreement for your new business. An Operating Agreement is a document that outlines the rules for your LLC, as well as ownership percentages and duties. An operating agreement is a company document that is not filed with your State. It is a document signed by the owners of the LLC, and kept with the rest of the LLC's internal records.

An operating agreement is an invaluable tool for your LLC and it's owners. Initially, it can be used to help open a bank account for your new business. And in the event of a future misunderstanding between owners or if there are any ownership changes, the operating agreement defines how these issues are handled.