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A "Limited Liability Company" a.k.a. LLC is business structure that protects the owners from personal liability. The owners are generally not liable for the LLC's debt, lawsuits, and other business related liabilities. Below are some of the benefits of forming an LLC:
The owners are protected from the LLC's debt, lawsuits, and other business related liabilities.
Flexible tax structure. LLCs can choose to be taxed as a sole-proprietorship, partnership, C-corporation, or S-corporation.
Generally, there are no ownership restrictions (except when chosen to be taxed as a S-corporation).
In most states, LLCs can have a perpetual life. This means that the business continues to exist even if the owners leave the company or dies.
Flexible management structure. The LLC can be structured as a "member-managed" LLC (all owners will manage the company) or a "manager-managed" LLC (the owners will elect a manager to manage the company).
Generally, there are no annual meeting requirements for a LLC. This means less formalities.
The LLC structure can help develop credibility and professionalism.
When a LLC is formed, it starts off taxed as a sole-proprietorship if there is one owner OR it will be taxed as a partnership if there is more than one owner. However, a special election may be filed with the IRS to change its tax structure (a LLC may choose any tax structure that it would like as long as it meets the IRS requirements). Click here for a chart outlining the common differences between the tax structures.
My Legal Depot can form your LLC promptly and accurately at affordable prices. Our experienced staff will review your questionnaire for errors, prepare the formation documents, file them with the appropriate government office, create your post-formation documents, and ship the completed documents to you.
Forming a LLC can be time consuming and expensive. My Legal Depot has registered Legal Document Assistants (LDAs) that have experience in preparing and filing thousands of legal documents. Let us form your LLC promptly and accurately at affordable prices.
*Documents will be prepared and emailed to you within 2 business days. Delays are uncommon, but may occur due to uncontrollable circumstances.
The cost to form a LLC varies depending on the formation state, business activity, tax structure, and other factors. Please contact us at 1-800-820-2144 for exact pricing.
In California, the LLC's legal name must contain the word "Limited Liability Company" or the abbreviations "LLC" or "L.L.C."
Special Note: Professions including, but not limited to real estate brokers, contractors, architects, engineers, doctors, lawyers, accountants, and many other licensed professions are not permitted to conduct business as an LLC in California. If your profession requires a license in California, you should check with the licensing board to determine if the LLC structure is permitted before forming the LLC.
State LLC Taxes:The California LLC Tax will vary depending on the structure chosen. Below is an overview of the California LLC taxes:
Taxed as a Sole-Proprietorship a.k.a. Disregarded Entity: A LLC taxed as a Sole Proprietorship a.k.a. Disregarded Entity must pay an $800 tax plus an "additional fee" if the LLC's total income exceeds $249,999. The $800 tax must be paid on or before the 15th day of the 4th month of the LLC's tax year end and the "additional fees" must be paid on or before the 15th day of the 6th month of the LLC's tax year end. Below is a summary of the "additional fees":
| Annual Total Income | Additional Fee |
|---|---|
| $0.00 to $249,999 | $0 |
| $250,000 to $499,999 | $900 |
| $500,000 to $999,999 | $2,500 |
| $1,000,000 to $4,999,999 | $6,000 |
| $5,000,000 and over | $11,790 |
NOTE: The minimum tax and additional fee must be paid in your first tax year (even if you have a short tax year).
Taxed as a Partnership: A LLC taxed as a Partnership must pay the same tax as a Sole Proprietorship a.k.a. Disregarded Entity. Please see above.
Taxed as a S-Corporation: A LLC taxed as a S-corporation must pay a tax in the amount of 1.5% of the net income or $800.00, whichever generates the higher tax. The tax must be estimated and prepaid to the California tax authority in 4 installment payments. This tax must be paid in your first tax year even if you have a short tax year.
C-Corporation Tax: A LLC taxed as a C-corporation must pay a tax in the amount of 8.84% of the net income or $800.00, whichever generates the higher tax. The tax must be estimated and prepaid to the California tax authority in 4 installment payments. This tax must be paid in your first tax year (even if you have a short tax year).
Special Note: As a general rule, all profits derived in California will be subject to California taxes. If you are also operating in another state, the income from the other state is subject to the other state's tax rules and is not applicable to California (you will need to apportion the income in order to properly calculate taxes).
California's Reporting Requirements:All LLCs are required to file a "Statement of Information" with the Secretary of State in order to disclose the managers' names, officers' names, and name/address of the registered agent. The filing fee is $20.00. After formation, you must file an initial statement within 90 calendar days after the articles are filed. Afterwards, you must file this statement every 2 years during the 5 month period before your articles anniversary date (i.e. If your articles were filed in August 2011, then you must file your statement anytime between March 2013 to August 2013 and then March 2015 to August 2015, et cetera).
Special State Level Election:California recognizes the federal tax structure that you select and no extra state level election is required. However, it is a good idea to file your first year tax returns along with any "IRS tax structure approval letters" as proof of your tax structure.
Professional Services:California does NOT allow professional services (i.e. doctors, lawyers, accountants, architects, etc) to be structured as a LLC. Furthermore, some licensed professions which would generally not be thought of as a professional service (i.e. contractor) cannot be structured as an LLC. If your profession requires a license in California, you should check with the licensing board to determine if the LLC structure is permitted before forming your LLC.
State Member/Manager Requirements:Below is a brief overview of California's member/manager requirements:
In Delaware, the LLC's legal name must contain the word "Limited Liability Company" or the abbreviations "LLC" or "L.L.C."
Special Note: If you are forming a professional LLC, you may be required to comply with special naming requirements and contain special designators. If your profession requires a license, you should always check with the licensing board for special naming requirements before forming the LLC.
State LLC Taxes:In Delaware, LLCs are required to pay a $250.00 annual franchise tax by June 1st of each year. Furthermore, income taxes may be due if you generate income in Delaware.
Delaware's Annual Report Requirements:No annual reports are required for Delaware LLCs.
Special State Level Election:Delaware recognizes the federal tax structure that you select and no extra state level election is required. However, it is a good idea to file your first year tax returns along with any "IRS tax structure approval letters" as proof of your tax structure.
Professional Services:Delaware allows professional services (i.e. doctors, lawyers, accountants, architects, etc) to form a LLC. If you are forming a LLC for a professional service, you may be required to comply with special naming requirements. If your profession requires a license, you should always check with the licensing board for special naming requirements before forming your LLC.
State Member/Manager Requirements:Below is a brief overview of Delaware's member/manager requirements:
In Nevada, the LLC's legal name must contain the word "Limited Liability Company," "Limited Company," "Limited," or the abbreviation "L.L.C.," "L.C.," "LLC," or "LC."
Special Note: If you are forming a professional LLC, you may be required to comply with special naming requirements. If your profession requires a license, you should always check with the licensing board for special naming requirements before forming your LLC.
State LLC Taxes:There are no state income or franchise taxes in Nevada.
Nevada's Reporting and License Requirements:All LLCs are required to file a "List of Members/Managers and Business License" with the Secretary of State. The filing fee for the list is $125.00 and the business license is $200.00. After formation, you must file an initial list by the last day of the month which follows the formation date (i.e. if your articles were filed in January, then your must file your initial list and business license before the end of February). Afterwards, you must file this list and business license each year anytime before your articles anniversary date (i.e. if your articles were filed in August, then you must file your list and business license anytime before the end of August of each year).
Special State Level Election:Since there are no state income taxes in Nevada, there is no state level election is required.
Professional Services:Nevada allows professional services (i.e. doctors, lawyers, accountants, architects, etc) to form a professional LLC. If you are forming a professional LLC, you may be required to comply with special naming requirements. As a general rule, if your profession requires a license, you should always check with the licensing board for special naming requirements before forming your LLC.
State Member/Manager Requirements:Below is a brief overview of Nevada's member/manager requirements:
LLC laws are complex and the information provided in this site is not legal advice. Laws are constantly changing, and although we try our best to keep the information up to date, My Legal Depot makes no warranties, representations, or guarantees of any kind, expressed or implied. All information contained within this site is intended to be used for informational and entertainment purposes only. Click here for the disclaimer.
Below are some of the benefits of forming a LLC:
The owners are protected from the LLC’s debt, lawsuits, and other business related liabilities.
Generally, there are no ownership restrictions.
Flexible tax structure. LLCs can choose to be taxed as a sole-proprietorship, partnership, C-corporation, or S-corporation.
In most states, LLCs can have a perpetual life. This means that the business continues to exist even if the owners leave the company or dies.
Flexible management structure. The LLC can be structured as a “member-managed” LLC (all owners will manage the company) or a “manager-managed” LLC (the owners will elect a manager to manage the company).
Generally, there are no annual meeting requirements for a LLC. This means less formalities.
The LLC structure can help develop credibility and professionalism.
In order to understand the LLC structure, you must first understand the key players and their role in the LLC.
| LLC Key Players | Role in the LLC |
|---|---|
| Members |
Members are the owners of the LLC. |
| Managers |
The managers are responsible for managing and running the LLC. |
| Officers |
Although not required for LLCs, the managers of an LLC may hire LLC officers to assist with the day-to-day business activities. The typical officers are a President, Vice-President, Treasurer, and Secretary. |
In a LLC, there are typically two types of management structures. Below is an overview of those two structures.
Member-Managed: This is the most popular management method. In a member-managed LLC, the members a.k.a. owners will take the role as manager and run the LLC. Afterwards, they may hire LLC officers to assist them with day-to-day business activities.
Manager-Managed: In a manager-managed LLC, the members a.k.a. owners will select one or more individuals to act as the manager and run the LLC. Afterwards, the managers may hire LLC officers to assist them with the day to day business activities.
Generally, there are no ownership restrictions for a LLC. However, under certain tax structures, there are some ownership restrictions. Below is a summary:
Taxed as a Sole Proprietorship a.k.a. Disregarded Entity: This structure can only be selected if there is only one (1) owner. The owner may be a natural person, foreigner, other legal entity, etc. Furthermore, a husband and wife ownership in a community property state is considered as one (1) owner and may also select this option.
Taxed as a Partnership: This structure can only be selected if there is more than one (1) owner. The owner may be a natural person, foreigner, other legal entity, etc.
Taxed as a S-corporation: There are some strict ownership restrictions for LLCs choosing to be taxed as a S-corporation.
Taxed as a C-corporation: There are generally no ownership restrictions for this structure.
Below is a brief overview of the common reasons why some businesses choose one structure over the other:
LLC: The LLC structure is very flexible when it comes to tax structures and management options. A LLC can be taxed among any structure which it qualifies for. The LLC can also choose a “member-management” structure which resembles a partnership or a “manager-management” structure which resembles a corporation. Additionally, LLCs have less ongoing formalities such as no meeting requirements. However, not all professions can be structured as an LLC; some states do not allow professional services such as doctors to form an LLC.
Corporation: A corporation is an older business structure and is generally recognized in all professions. The corporate structure is more formal and requires annual meetings (some people prefer formal management). A corporation is limited to only two tax structures: (1) a C-corporation or (2) a S-corporation. Since the corporate structure is much older, it has a larger body of case law which can help with quick and predictable results from governance lawsuits.
Businesses that prefer more flexibility and fewer formalities are usually better suited as a LLC. Conversely, businesses that prefer to operate much more formally are better off as a Corporation.
| Sole Proprietorship | Partnership | LLC | S-corporation | C-corporation | |
|---|---|---|---|---|---|
| Ownership Requirement |
1 owner. |
2 or more owners. |
1 or more owners. |
Between 1 to 100 owners. |
Between 1 to 100 owners. Click here for details. |
| Liability Protection |
No, the owner is personally liable. |
No, the partners are personally liable. |
Yes, generally the owners are protected from personal liability. |
Yes, generally the owners are protected from personal liability. |
Yes, generally the owners are protected from personal liability. |
| Perpetual Existence |
No, this structure ends when the owner dies or withdraws. |
No, this structure ends when the owner dies or withdraws. |
Maybe, a LLC’s life will depend on the state of formation. |
Yes, a corporation continues to exist after an owner dies or withdraws. |
Yes, a corporation continues to exist after an owner dies or withdraws. |
| Taxation |
Profits are only taxed at the individual level, also known as “pass through taxation.” |
Profits are only taxed at the individual level, also known as “pass through taxation.” |
Flexible tax structure (LLCs can choose to be taxed as a sole proprietorship, partnership, S-corp, or C-corp). |
Profits are only taxed at the individual level, also known as “pass through taxation.” |
Profits are taxed at the corporate level and any profits distributed to the owners will be taxed again at the individual level, also known as “double taxation.” |
| Self Employment Tax |
Yes, profits are typically subject to SE Tax. |
Yes, profits are typically subject to SE Tax. |
Yes, profits are typically subject to SE Tax. |
No, profits are typically not subject to SE Tax. |
No, profits are typically not subject to SE Tax. |
| Passive Investment Income |
Yes, this structure can be used for passive investment income (i.e. rental income, royalties, etc.). |
Yes, this structure can be used for passive investment income (i.e. rental income, royalties, etc.). |
Yes, this structure can be used for passive investment income (i.e. rental income, royalties, etc.). |
No, this structure is not ideal for passive investment if the investment income exceeds 25% of the company’s gross profits. |
Yes, this structure can be used for passive investment income (i.e. rental income, royalties, etc.). |
| Professional Services |
Yes, this structure can be used professional services (i.e. doctors, lawyers, etc.) |
Yes, this structure can be used professional services (i.e. doctors, lawyers, etc.) |
Maybe, it will depend on the state where business is being conducted. |
Yes, this structure can be used professional services (i.e. doctors, lawyers, etc.) |
Yes, this structure can be used professional services (i.e. doctors, lawyers, etc.) |
| Formalities |
Few formalities. Business must comply with DBA laws. |
Few formalities. Business must comply with DBA laws. |
Must comply with state reporting requirements, if any. |
Corporations must hold annual meeting and comply with state reporting requirements. |
Corporations must hold annual meeting and comply with state reporting requirements. |
| Disadvantages |
No liability protection and must also pay SE tax on income. |
No liability protection and must also pay SE tax on income. |
Higher start-up cost, more formalities, and higher maintenance cost. |
Higher start-up cost, more formalities, and higher maintenance cost. |
Higher start-up cost, more formalities, higher maintenance cost, and double-taxation. |
| Advantages |
Few formalities and low start-up costs. |
Few formalities and low start-up costs. |
Few formalities and low start-up costs. |
Few formalities and low start-up costs. |
Personal liability protection and the ability to retain earnings and to split income. |
| Usage |
Personal liability protection and the ability to retain earnings and to split income. |
Personal liability protection and the ability to retain earnings and to split income. |
Personal liability protection and the ability to retain earnings and to split income. |
Personal liability protection and the ability to retain earnings and to split income. |
For businesses that want personal liability protection and prefer to keep some or all of the profits within the business |
Most small businesses will form a LLC in their home state (the state where their business is located). Filing in another state will usually require more paperwork, additional maintenance fees, and additional state taxes.
If you intend to conduct business in only one state and do not expect any major LLC governance issues (owner/investor disputes, manager/officer disputes, company policy disputes, etc.), then you should consider forming a LLC in your home state. This is because the additional paperwork, fees, and taxes usually outweigh the benefits of forming a LLC in a more business friendly state.
However, if the LLC will seek funding from venture capitalists, professional investors, or expect major LLC governance issues, then you should consider forming a LLC in a more business friendly state (i.e. Nevada, Delaware, etc). The major benefit of forming a LLC in another state is the quick and predictable results from LLC governance lawsuits.
No. You can always prepare and file your own formation documents. My Legal Depot can help you form a LLC and save money on attorney fees. However, if you need legal advice, you should consult an attorney.
All LLCs must designate a registered agent who is available during normal business hours to accept notices and documents. The registered agent may either be: (1) an adult individual residing in the state of incorporation OR (2) a company authorized by the Secretary of State to serve as agent - such as My Legal Depot.