Most people have heard of a sole proprietorship or a corporation, and in general, their business structures are relatively simple to comprehend. On the other hand, very little is known about the exact structure and nature of a limited liability company (LLC). Is an LLC similar to other business structures? How are LLCs formed and managed? Continue reading to learn the answer these questions and the LLC formation process.
What is an LLC?
From a legal perspective, the owners of an LLC, often referred to as members, are not personally liable for any debt accrued by the company. This does not mean they will not be held responsible for any business debt they accrue, but in the event of a lawsuit, members will not have to use their personal funds or assets to pay settlement costs. Also, if the LLC files bankruptcy, the court will not be able to go after the personal funds and assets of the members.
When the time to file taxes arrives, the LLC itself will not file income taxes. However, each member will use any business profits and losses they accrued to file their own personal taxes. Before a company can list itself as an LLC, it must file state documents, pay any applicable filing fees, and in some states, pay an additional franchise tax.
Organizations Prohibited From Forming LLCs
Starting an LLC is a good idea if you want to protect your personal funds and assets from lawsuits or debt collectors. However, for legal purposes, the following types of businesses and organizations are often prohibited from forming LLCs:
- Medical facilities
- Accounting firms
- Banking and insurance companies
- Architecture firms
Due to the nature of their services, the types of organizations listed above must have some sort of liability.
When completing a tax ID form, organizations will need to indicate their legal structure. This will allow them to file taxes and open a business account without a problem, even if they choose to operate as an LLC. Contact Gov Doc Filing today to learn more about LLCs and their tax requirements.