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What Is Step 3 and . . .
Why Is It Important To You?
Why Is It Important To You?
What Is Step 3 and . . .
The LLC Resource Center - www.incsource101.com - 2160 S. Twin Rapid - Boise, ID 83709 - inc@rmci.net
Copyright 2008, All Rights Reservedl
Copyright 2008, All Rights Reservedl
This website is owned by Documents, Inc., dba The LLC Resource Center and much of the information has been provided for customers by attorney Robert (Bob) Montgomery. Bob has been counseling and incorporating businesses for more than 25 years. During that time he's helped set up more than a 1000 corporations and limited liability companies (LLC's). He's a former business owner himself and has been corporate legal counsel for numerous small business corporations. He's presented lectures and seminars on the benefits and procedures involved with incorporating or forming LLC's and how to operate them for maximum benefit. He is a respected member of the legal community and is licensed to practice law in three states. References will gladly be provided upon request. However, neither Documents, Inc., nor any of its agents or employees can provide legal services or legal advice. The information contained in this website is provided for general information only and should not serve as a substitute for legal advice from an attorney familiar with the facts and circumstances of your specific situation.
One of the most important reasons for forming any legal entity like an LLC or corporation is the liability protection. I don't need to tell you that a growing lawsuit epidemic is going on in the the United States and it only appears to be getting worse? Statistics reveal that 1000's of lawsuits are being filed each day in the US and small business owners are prime targets.
One expert said your chances of being sued are higher than your chances of going to the hospital this year? Starting a business only increases the risk.
Small business owners need to protect themselves. The most important step you can make to protect yourself is to operate your business activities through a properly formed and maintained entity like an LLC.
The LLC was specifically created to provide a layer of protection between the business and its owners. With our lawsuit crazed society, the number of LLCs being formed has grown by over 90% in the past few years. The reason is protection.
Small business is great - it helps make dreams come true for many people and it can be your path to financial freedom, independence and success.
However, it also brings with it added risks.
The best way to reduce those risks is through intelligent business planning. Many new business owners think that lawsuits and personal loss will never happen to them. Once a lawsuit is filed, its too late to start thinking about forming an LLC.
If you are going to start a business, it is very important that you take the necessary steps to protect yourself as much as possible.
Wise business planning includes the formation of the proper business entity and the purchase of liability or business insurance when available. You cannot eliminate every possible risk when starting a business but you can reduce the liklihood of a devastating lawsuit through proper planning.
End of Article - Back to Top
One expert said your chances of being sued are higher than your chances of going to the hospital this year? Starting a business only increases the risk.
Small business owners need to protect themselves. The most important step you can make to protect yourself is to operate your business activities through a properly formed and maintained entity like an LLC.
The LLC was specifically created to provide a layer of protection between the business and its owners. With our lawsuit crazed society, the number of LLCs being formed has grown by over 90% in the past few years. The reason is protection.
Small business is great - it helps make dreams come true for many people and it can be your path to financial freedom, independence and success.
However, it also brings with it added risks.
The best way to reduce those risks is through intelligent business planning. Many new business owners think that lawsuits and personal loss will never happen to them. Once a lawsuit is filed, its too late to start thinking about forming an LLC.
If you are going to start a business, it is very important that you take the necessary steps to protect yourself as much as possible.
Wise business planning includes the formation of the proper business entity and the purchase of liability or business insurance when available. You cannot eliminate every possible risk when starting a business but you can reduce the liklihood of a devastating lawsuit through proper planning.
End of Article - Back to Top
"Why Every Business - Online
or Off - Should Consider an LLC"
or Off - Should Consider an LLC"
Special Articles
One of the Biggest Mistakes LLC Owners Are Making
By Attorney Robert Montgomery
By Attorney Robert Montgomery
If you’ll give me just 5 minutes of your time, I’ll explain how you can avoid a serious mistake I see many LLC owners make. They try to form a limited liability company (LLC) by filing the initial form with the State Filing Office, usually the Secretary of State.
However, they stop at this point and do not complete the whole process. This puts them at risk for losing the protection for their personal assets they were trying to get by filing the LLC in the first place.
How do I know this? Because I’m one of the people they often call to fix the problem.
Setting up an LLC is a process with several important steps. It’s not hard, but each step is essential. I’ll tell you what these steps are in a minute, but first I wanted to explain how the liability protection of an LLC works.
When a lawyer sues an LLC, they often sue the individual owners also. They do this because they know that most small businesses operated as an LLC do not have enough assets in the business to pay off a legal judgment so they go after the individuals and their personal assets also.
However, You can protect your personal assets from a judgment if you can prove that you organized and operated your LLC as a separate legal entity under the law. This is called limited liability protection. It’s the long established law that protects your personal assets from judgments against your business.
Limited liability protection can shield your home, vehicles, retirement benefits, savings, recreational vehicles and other personal assets from judgments against your business. This protection is one of the main reasons why business lawyers, like myself, strongly urge people to operate their business in the form of an LLC or corporation. However, this protection is not automatic. It requires the LLC to be set up and operated properly. If not, you leave yourself wide open to personal liability.
It’s no secret that we live in a lawsuit crazy society where many people are willing to sue at the drop of a hat. Unfortunately, if you’re in business, you make an easy target. A lawsuit can come from an unhappy customer, an injured person, a mad competitor or disgruntled former employee. Regardless of the source, the results can be financially devastating to you. And please don’t make the mistake of thinking it can’t happen to you. Believe me, it can. I’ve seen it.
The good news is that it’s fairly easy to complete the process of forming an LLC. By doing so, you place yourself in a much stronger position to protect your personal assets.
There are a number of essential steps and each step of the process is important to help prove that you have fully organized and are operating your business as a separate legal entity. This is what entitles you to the limited liability protection of the LLC structure or form.
End of Article - Back to Top
How to Elect S Corporation
Status for Your LLC
Yes, an LLC can be taxed similar to an S corporation. You may be wondering, why would you even want this type of tax treament? Read on and I’ll explain.
Owners or members, as they are usually called, of an LLC have the choice to elect how the LLC will be treated for tax purposes. However, this was not always the case. In the past, the Internal Revenue Service (IRS) classified business entities as either partnerships or corporations based on four different factors.
The four factors included: (1) Limited liability; (2) Centralized management; (3) Continuity of life; and (4) Free transferability of interest. If a business entity possessed two of the four characteristics, the entity would be taxed as a partnership. But if three of the four characteristics applied, the entity would be taxed under the double taxation regime of corporations. This “four factor” approach led to a lot of confusion and uncertainty for business owners.
Then in 1997, new IRS regulations became effective which allowed the owners of business entities like LLCs to choose the tax treatment they desired. These regulations were known as the "check-the-box" regulations.
The change in the law provides several different options to entities such as an LLC. It will allow a business operated as an LLC to enjoy all of the beneficial characteristics of a corporation but still be taxed as partnership or, in the alternative, it provides for an LLC to elect corporation tax status and then make the S corporation election.
In a nutshell, partnership taxation provides for the income and deductions to flow through or “pass through” to the partners who then report and pay income tax on their individual tax returns. This is the basic form of taxation for most LLCs and S corporations. On the other hand, if an entity is classified or determined to be a corporation, income taxes will generally have to be paid by the corporation on income that it earns and then later when that income is paid to the shareholders in the form of dividends, they will have to pay tax at their personal level. This is called the “double tax” of corporations.
The partnership form of taxation avoids this double tax and is one of the main reasons why it is beneficial to most small businesses. LLCs by default receive partnership taxation. This means if the owners do not make an election by filing Form 8832 to be taxed as something different than a partnership the LLC and its members will automatically be subject to partnership taxation principles.
A corporation which makes the S election is also subject to the basic partnership taxation principles with a few exceptions. In other words, standard LLCs and S corporations are both treated similarly, with a few exceptions, based upon partnership taxation principles.
Most tax professionals I work with suggest that a business owner can reduce (not eliminate) the FICA or 15.3% self employment tax by forming a corporation and making the S election. However, this reduction in FICA taxes is not available in most cases to the members of an LLC. So a business person can form an LLC and then make the election to be taxed as a corporation and then make the S election.
Since both the S corporation and the LLC provide limited liability protection to the shareholders or members, an LLC which elects tax treatment similar to the S corporation, may be an attractive option to discuss with your accountant or tax advisor. You get limited liability protection, basic partnership taxation, with a few exceptions, the chance to reduce FICA taxes for the individual members and the opportunity to operate with less formal legal requirements than a corporation.
End of Article - Back to Top
However, they stop at this point and do not complete the whole process. This puts them at risk for losing the protection for their personal assets they were trying to get by filing the LLC in the first place.
How do I know this? Because I’m one of the people they often call to fix the problem.
Setting up an LLC is a process with several important steps. It’s not hard, but each step is essential. I’ll tell you what these steps are in a minute, but first I wanted to explain how the liability protection of an LLC works.
When a lawyer sues an LLC, they often sue the individual owners also. They do this because they know that most small businesses operated as an LLC do not have enough assets in the business to pay off a legal judgment so they go after the individuals and their personal assets also.
However, You can protect your personal assets from a judgment if you can prove that you organized and operated your LLC as a separate legal entity under the law. This is called limited liability protection. It’s the long established law that protects your personal assets from judgments against your business.
Limited liability protection can shield your home, vehicles, retirement benefits, savings, recreational vehicles and other personal assets from judgments against your business. This protection is one of the main reasons why business lawyers, like myself, strongly urge people to operate their business in the form of an LLC or corporation. However, this protection is not automatic. It requires the LLC to be set up and operated properly. If not, you leave yourself wide open to personal liability.
It’s no secret that we live in a lawsuit crazy society where many people are willing to sue at the drop of a hat. Unfortunately, if you’re in business, you make an easy target. A lawsuit can come from an unhappy customer, an injured person, a mad competitor or disgruntled former employee. Regardless of the source, the results can be financially devastating to you. And please don’t make the mistake of thinking it can’t happen to you. Believe me, it can. I’ve seen it.
The good news is that it’s fairly easy to complete the process of forming an LLC. By doing so, you place yourself in a much stronger position to protect your personal assets.
There are a number of essential steps and each step of the process is important to help prove that you have fully organized and are operating your business as a separate legal entity. This is what entitles you to the limited liability protection of the LLC structure or form.
End of Article - Back to Top
How to Elect S Corporation
Status for Your LLC
Yes, an LLC can be taxed similar to an S corporation. You may be wondering, why would you even want this type of tax treament? Read on and I’ll explain.
Owners or members, as they are usually called, of an LLC have the choice to elect how the LLC will be treated for tax purposes. However, this was not always the case. In the past, the Internal Revenue Service (IRS) classified business entities as either partnerships or corporations based on four different factors.
The four factors included: (1) Limited liability; (2) Centralized management; (3) Continuity of life; and (4) Free transferability of interest. If a business entity possessed two of the four characteristics, the entity would be taxed as a partnership. But if three of the four characteristics applied, the entity would be taxed under the double taxation regime of corporations. This “four factor” approach led to a lot of confusion and uncertainty for business owners.
Then in 1997, new IRS regulations became effective which allowed the owners of business entities like LLCs to choose the tax treatment they desired. These regulations were known as the "check-the-box" regulations.
The change in the law provides several different options to entities such as an LLC. It will allow a business operated as an LLC to enjoy all of the beneficial characteristics of a corporation but still be taxed as partnership or, in the alternative, it provides for an LLC to elect corporation tax status and then make the S corporation election.
In a nutshell, partnership taxation provides for the income and deductions to flow through or “pass through” to the partners who then report and pay income tax on their individual tax returns. This is the basic form of taxation for most LLCs and S corporations. On the other hand, if an entity is classified or determined to be a corporation, income taxes will generally have to be paid by the corporation on income that it earns and then later when that income is paid to the shareholders in the form of dividends, they will have to pay tax at their personal level. This is called the “double tax” of corporations.
The partnership form of taxation avoids this double tax and is one of the main reasons why it is beneficial to most small businesses. LLCs by default receive partnership taxation. This means if the owners do not make an election by filing Form 8832 to be taxed as something different than a partnership the LLC and its members will automatically be subject to partnership taxation principles.
A corporation which makes the S election is also subject to the basic partnership taxation principles with a few exceptions. In other words, standard LLCs and S corporations are both treated similarly, with a few exceptions, based upon partnership taxation principles.
Most tax professionals I work with suggest that a business owner can reduce (not eliminate) the FICA or 15.3% self employment tax by forming a corporation and making the S election. However, this reduction in FICA taxes is not available in most cases to the members of an LLC. So a business person can form an LLC and then make the election to be taxed as a corporation and then make the S election.
Since both the S corporation and the LLC provide limited liability protection to the shareholders or members, an LLC which elects tax treatment similar to the S corporation, may be an attractive option to discuss with your accountant or tax advisor. You get limited liability protection, basic partnership taxation, with a few exceptions, the chance to reduce FICA taxes for the individual members and the opportunity to operate with less formal legal requirements than a corporation.
End of Article - Back to Top
By Attorney Robert Montgomery
• Why Every Business - Online or Off- should Consider an LLC . . .
• Where's the Best Place to Set
Up an LLC . . .
• On of the Biggest Mistakes LLC
Owners Make . . .
• How Your LLC Can Elect S
corporation Tax Status . . .
• More Articles - coming soon!
• Where's the Best Place to Set
Up an LLC . . .
• On of the Biggest Mistakes LLC
Owners Make . . .
• How Your LLC Can Elect S
corporation Tax Status . . .
• More Articles - coming soon!
Recent Articles About LLC's
Where's the Best Place to Set Up a New LLC
By Attorney Robert Montgomery
The answer is usually in the state where you intend to conduct most of your business or where you have an office or business presence. In otherwords, your home state. That’s because if you set up an LLC in a different state than the one you are conducting most of your business in, you will likely be required to file an application as a foreign corporation (meaning from another state) in any other state where you conduct substantial business or have substantial business contacts.
For example, if you form an LLC in Nevada but your business office is in Oregon and you do most of your business in Oregon, you will have to file and pay fees in Oregon as a foreign LLC doing business in Oregon, in addition to filing and paying fees in Nevada. This dual filing can be expensive and can result in substantially more record keeping which may outweigh any potential advantages. Some larger LLC's and corporations are registered as foreign entities in every state but this is expensive and time consuming for most smaller businesses.
Occasionally, there may be a valid reason for setting up an LLC or corporation in a state different than where you conduct business. There may be some special tax advantages or liability advantages in one state that are an advantage to your special type of business. This requires some advanced research into the tax and liability laws of the state you want to use. Give your accountant or tax advisor a call and discuss this with them.
Most people are aware that Delaware and Nevada are promoted as the best places to set up a new LLC or corporation. My experience is that this is not necessarily true. Delaware may be a good state for larger companies but the costs and red tape of foreign state filings likely outweigh the advantages for smaller businesses. The same is true of Nevada.
For example, Nevada boasts no state income tax on corporations or LLC's. However, LLC's don't pay income tax anyway. They are what is referred to as a pass through entity which means the LLC itself is not subject to federal or state income tax. Rather, the owners or members pay income tax on their pro rata share of the income. It is true that in some states the members will have to pay state income tax on their share of income from an LLC. There are other states which do not have state income tax but they often make up for the revenue with some other form of tax or assessment.
If you operate a business that provides its product or services everywhere, such as an internet based business, then you have more choices. However, if you do substantial business in any particular state, you may still be required to register in that state as a foreign corporation.
End of Article - Back to Top
For example, if you form an LLC in Nevada but your business office is in Oregon and you do most of your business in Oregon, you will have to file and pay fees in Oregon as a foreign LLC doing business in Oregon, in addition to filing and paying fees in Nevada. This dual filing can be expensive and can result in substantially more record keeping which may outweigh any potential advantages. Some larger LLC's and corporations are registered as foreign entities in every state but this is expensive and time consuming for most smaller businesses.
Occasionally, there may be a valid reason for setting up an LLC or corporation in a state different than where you conduct business. There may be some special tax advantages or liability advantages in one state that are an advantage to your special type of business. This requires some advanced research into the tax and liability laws of the state you want to use. Give your accountant or tax advisor a call and discuss this with them.
Most people are aware that Delaware and Nevada are promoted as the best places to set up a new LLC or corporation. My experience is that this is not necessarily true. Delaware may be a good state for larger companies but the costs and red tape of foreign state filings likely outweigh the advantages for smaller businesses. The same is true of Nevada.
For example, Nevada boasts no state income tax on corporations or LLC's. However, LLC's don't pay income tax anyway. They are what is referred to as a pass through entity which means the LLC itself is not subject to federal or state income tax. Rather, the owners or members pay income tax on their pro rata share of the income. It is true that in some states the members will have to pay state income tax on their share of income from an LLC. There are other states which do not have state income tax but they often make up for the revenue with some other form of tax or assessment.
If you operate a business that provides its product or services everywhere, such as an internet based business, then you have more choices. However, if you do substantial business in any particular state, you may still be required to register in that state as a foreign corporation.
End of Article - Back to Top
By Attorney Robert Montgomery
The LLC Resource Center
Attorney Bob Montgomery