Rules for forming an LLC differ from state to state
A Limited Liability Company (LLC) generally entails less paperwork than a corporation. At the same time, it offers the same legal protections of personal assets. It’s important to know that rules for forming an LLC can vary by state. All new LLCs have to file “articles of organization” with the respective secretary of state’s office. Registration rules and fees can also vary by state.
It is highly recommended, though not required by law, to create an operating agreement between all members. It clarifies the ownership percentages, roles, responsibilities and rights. The agreement protects the business from inside out and prevents conflicts that will have legal consequences. Once your operating agreement is done it’s beneficial to let an attorney read over it to make sure all members are protected.
Forming an LLC has two major benefits:
- Pass-through taxation: profits and losses are reported on the owner’s tax return, which may result in paying less in taxes
- Owners are usually not responsible for the LLC’s debts and liabilities
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While an Operating Agreement is highly recommend, business owners should think of it as required. One of the most common calls we receive from business owners involve partnership disputes, and the vast majority of the disputes would have been solved with a well-considered Operating Agreement. Learn more about our firm’s unique 4-step process for creating Operating Agreements.