Okay, so about a year ago I was building a social networking site with several friends.  Before accepting ad profits, we wanted to make sure that what we were making from it was legal.  To be safe, we wanted to register our organization as an LLC.  Long story short, we talked to a lawyer and got up to the last bit of paper work… then the whole thing fell apart (for unrelated reasons).  So until that point, I always wanted to know how to make an LLC.

Background information:

LLC = Limited Liability Company

LLC = a flexible way to run a small business

According to Wikipedia, here’s the advantages and disadvantages of registering an LLC:

Advantages

• No requirement of an annual general meeting for shareholders.
• No loss of power to a board of directors.
• Much less administrative paperwork and record keeping than a corporation.
• Pass-through taxation (i.e., no double taxation), unless the LLC elects to be taxed as a C corporation.
• Limited liability, meaning that the owners of the LLC, called “members,” are protected from some liability for acts and debts of the LLC, but are still responsible for any debts beyond the fiscal capacity of the entity.
• Using default tax classification, profits are taxed personally at the member level, not at the LLC level.
• Check-the-box taxation. An LLC can elect to be taxed as a sole proprietor, partnership, S corporation or C corporation, providing much flexibility.
• LLCs in some states can be set up with just one natural person involved.
• Membership interests of LLCs can be assigned, and the economic benefits of those interests can be separated and assigned, providing the assignee with the economic benefits of distributions of profits/losses (like a partnership), without transferring the title to the membership interest (see, for example, the Virginia and Delaware LLC Acts).
• LLCs in most states are treated as entities separate from their members, whereas in other jurisdictions case law has developed deciding LLCs are not considered to have separate juridical standing from their members (see recent D.C. decisions).
• Unless the LLC has chosen to be taxed as a corporation, income of the LLC generally retains its character, for instance as capital gains or as foreign sourced income, in the hands of the members.

Disadvantages

• Many states, including Alabama, California, Kentucky, New York, Pennsylvania, Tennessee, and Texas, levy a franchise tax or capital values tax on LLCs. (Beginning in 2007, Texas has replaced its franchise tax with a “margin tax”.) In essence, this franchise or business privilege tax is the “fee” the LLC pays the state for the benefit of limited liability. The franchise tax can be an amount based on revenue, an amount based on profits, or an amount based on the number of owners or the amount of capital employed in the state, or some combination of those factors, or simply a flat fee, as in Delaware. Effective in Texas for 2007 the franchise tax is replaced with the Texas Business Margin Tax. This is paid as: tax payable = revenues minus some expenses with an apportionment factor. In most states, however, the fee is nominal and only a handful charge a tax comparable to the tax imposed on corporations.
• It may be more difficult to raise financial capital for an LLC as investors may be more comfortable investing funds in the better-understood corporate form with a view toward an eventual IPO. One possible solution may be to form a new corporation and merge into it, dissolving the LLC and converting over to a corporation.
• The LLC form of organization is relatively new, and as such, some states do not fully treat LLCs in the same manner as corporations for liability purposes, instead treating them more as a disregarded entity, meaning an individual operating a business as an LLC may in such a case be treated as operating it as a sole proprietorship, or a group operating as an LLC may be treated as a general partnership, which defeats the purpose of establishing an LLC in the first place, to have limited liability (a sole proprietor has unlimited liability for the business; in the case of a partnership, the partners have joint and several liability, meaning any and all of the partners can be held liable for the business’ debts no matter how small their investment or percentage of ownership is).^{[citation needed]}
• Although there is no statutory requirement for an operating agreement in most states, members who operate without one may run into problems.
• Some people, such as new business people, may not be familiar with the governance of LLCs. Unlike corporations, they are not required to have a board of directors or officers.
• The principals of LLCs use many different titles — e.g., member, manager, managing member, managing director, chief executive officer, president, and partner. As such, it can be difficult to determine who actually has the authority to enter into a contract on the LLC’s behalf.
• Taxing jurisdictions outside the US are likely to treat a US LLC as a corporation, regardless of its treatment for US tax purposes, for example if a US LLC does business outside the US or a resident of a foreign jurisdiction is a member of a US LLC.

There you have it.  Now let’s see how you become one.

How to become an LLC:

File for it.

This Fortune article (from CNN) discusses how you can become an LLC – let me pull out the highlights:

LegalZoom charges $139, plus state filing fees (usually about $500), for a basic LLC registration and $369 for a “deluxe package,” which includes express delivery of your finished paperwork within seven to ten business days. Some sites, such as mycorporation.com, also clearly explain the nature of an LLC and its pros and cons.

…

But if you’re worried only about paperwork, Anthony Mancuso, a lawyer who has written books about LLCs, asks, “Why pay a service when you can file yourself for the cost of state filing fees?”

To do so, go to the website of the secretary of state for your state. Mancuso notes that it is wise to hire a lawyer to help you weigh the pluses and minuses of forming an LLC – especially the effect on your tax status – but the paperwork is fairly easy to complete without paying extra legal fees. In many states you can file online. In others, including Indiana, the secretary of state’s site gives clear directions for filing by mail.

Sounds pretty easy.  Pay some fees, fill out some forms, and FWAM… you’re an LLC.

But maybe you don’t WANT to be an LLC.   What are your other options?

Partnership, Incorporation, and many more.

For people in the UK:

• Public Limited Company (PLC)
• Private company limited by shares (Ltd, Limited)
• Company Limited by Guarantee
• Unlimited company
• Limited Liability Partnership (LLP)
• Limited partnership (LP)
• Societas Europaea (SE): pan-European Union company structure
• Royal Charter (RC)
• Community interest company

Do some research and figure out what would be in your company’s best interest!

Post from: EveryJoe

How to Become an LLC