Startup/Formation FAQ

I am starting an online business that I hope will grow into a store. For now the business is dropship. Do I need to incorporate or LLC my business?

I am starting an online business that I hope will grow into a store. For now the business is dropship. Do I need to incorporate or LLC my business?

 

 

There isn’t any reason you couldn’t use either one.  Depending on your state and tax situation, there may be a reason to go one way or the other, however both entities will provide the separation of business and personal assets.

 

You could also form as a sole proprietorship as the drop ship model is very low risk, unless the product has some potential safety issues you are worried about or if you have employees.  Going into a storefront, there may be some benefit to multiple LLC if you are also going to own the building so as to create some additional liability protections and potential tax benefits.

 

 

Can I own an LLC filed in a different state than I live in to run my online business?

Can I own an LLC filed in a different state than I live in to run my online business?  When you are filling out the federal tax ID form, do you put doing business in the state for that LLC, or the state you live in – especially for a drop shipping/affiliate type business that is 100% online?

 

Answer

The big question is what is the tax structure of the LLC?

I’m assuming you’re setting up single member LLC and I would guess you’re probably using a default partnership tax structure. In that case, the net income will flow through to your personal return. If you live in a state that has a state income tax, you will pay your home state income tax on the net income. Most people are setting up LLCs in states like WY, DE etc. that don’t have personal income tax, so figuring out whether you’re on the hook for taxes in two states is probably not an issue, especially if you don’t have operations or other nexus to the LLC state of formation. You might be on the hook for a smaller tax item like a franchise tax.

If you elected to have the LLC taxed as a C-Corp, then you would potentially be on the hook for state corporate tax in the state of the LLC’s formation if applicable. Again, most people are not setting up LLCs in states with personal or corporate income taxes.

Do you have to register as a foreign entity doing business in your home state?

If you’re just working from home and don’t have an office, warehouse, etc. in your home state, you can probably get away with not registering because it’s debatable whether you’re doing enough business activity to warrant the registration. Oversight on this is usually pretty minimal. Also, even if you have to notify your state tax authority of your business earnings and presence to pay a state income tax, they usually don’t talk to the secretary of state’s office and don’t use the same systems, so disclosure to tax authority won’t necessitate registration as foreign entity. The old school, safest answer would be to go ahead and register as a foreign entity + get any local businesses licenses (either state or county), but up to your own risk tolerance. Penalty for not registering is usually past fees + penalty payment and you don’t get certain benefits like the ability to sue another company within the state.

Registered agent address vs. mailing address

You need a registered agent in the LLC state of formation but not your home state. The registered agent may or may not provide mail scanning/forwarding services. You can set up a mailing address at your house, a P.O. box, or a virtual office and use that for business mail. The registered agent will receive some official documents like your EIN, possibly initial bank documents. You could use the registered agent address to sign up for other business accounts but you would want to use the mailing address for most other purposes if someone would need to contact you by mail.

Sales tax, warehouses, etc.

There can be issues surrounding these items that it would be good to talk to an accountant who’s familiar with Amazon businesses.

 

Can A Husband & Wife With Separate Businesses Share An LLC?

My husband and I are both self employed. My husband just started a contract job and I have a small sewing business. Can we share an LLC even though our businesses are separate entities?

– Susan

Answer

You are able to operate multiple businesses under the umbrella of one LLC to get the liability protection and as an added benefit, will only have one tax return to file. If you are going to continue doing business under the existing sole proprietorship business names, lets say its “Susan’s Sewing” for example, you will need to file an assumed name notice form (also known as doing business as, DBA, etc) with the county you run the businesses out of.

You will also need to get a FEIN number and state business tax number for the LLC.

 

 

Filing LLC In California. Can I Delay The Date Of Formation To Next Year and Save On Filing Fees?

I am currently in the process of starting an LLC in California. If I file the articles of in corporation papers (LLC-1) with state this year(November/December) can I delay the effective filing date of the LLC to January 1st of next year in order to avoid the $800 minimum annual tax fee associated with the LLC( I am not selling any goods or services at the moment but plan to early next year). If so is there a separate form I also need to submit at the time I submit the LLC-1 to the state?

– Roy, California

 

 

Answer

Hi Roy

If you delay filing the Articles of Organization until after December 17th and doing no business until the following year, you will avoid paying the current years filing fee.   Filing before 12/17 or filing after 12/17 and having business activity and you will have to pay this year and again next year, regardless of whether any business is being generated.

What Is The Best State To Form A Single Member LLC?

What state would be the best to form a single member LLC for an internet company?

– Travis, Connecticut

Answer

There are several different issues with the “best state” question for where to form your limited liability company.

1. Taxes : State of Your Personal Residence Is Best

If you are forming a single member LLC to be taxed as a disregarded entity (the most common choice), then the state of your residence (where you pay state taxes) is best.

Forming an LLC in another state will NOT save you on state income taxes, because the profits and losses of the LLC flow through onto your personal tax return.

Unlike a corporation, which pays its own federal and state taxes at the corporate level, an LLC does not. Instead, all the LLC’s profits will flow through to you, and be recorded on your state income tax return.

2. Annual LLC Fees

In pretty much every case, you will pay fewer fees forming your LLC in your home state than in some other state.

The problem with forming an LLC outside your home state is that to legally do business in your home state (e.g. working on your website), you must register in your state as well as a “Foreign LLC”. Yes, it’s a bit confusing: if you live in State X, but form an LLC in State Y, you will need to register your LLC in State Y as a foreign LLC.

As such, by forming an LLC outside of your home state of residence, you are doubling the number of states to which you must pay registration fees.

3. Corporate Law

For most small businesses, the differences in corporate law between states is irrelevant. I know that every article about Delaware discusses the pro-corporate law in Delaware, but unless you’re a large company that can hire expensive lawyers to actually utilize that law, it won’t do you any good.

What it will do is cause you to spend a lot of money forming a Delaware LLC, only to have to register in your home state as a foreign LLC.

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Is A Business License The Same As An LLC?

Since I’m going to be opening a home based business, is forming my LLC the same as having my business license or is that something separate I also have to obtain?

– Jackie, Missouri

Answer

A business license is something issued by your municipality. Business licenses usually apply only to businesses that are open to the public in some way–typically, storefront businesses.

Many home-based businesses do not need a business license.

For example, if you’re selling goods on ebay from home, you probably don’t need a business license. If you’re running a website-only business, you probably don’t need a business license.

On the other hand…

If you’re operating a child daycare facility out of your home, then yes, you probably will need a business license (along with other government licenses).

If you don’t mind sharing, what type of home based business are you operating?

I might be able to help you figure out if you even need to contact your local municipality to obtain a business license.

Furthermore, if you live in a neighborhood with a homeowner’s association, you HOA bylaws typically have rules and regulations regarding operating a business out of your home. In practical terms, your neighbors won’t likely know that your business even exists if it’s purely internet or mail order based and you don’t have lots of cars and traffic at your door front.

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Can I Start A Second LLC From The Same Home Office I Am Running The First LLC From?

I already have an LLC that I am running from a home based office, with myself listed as registered agent at same address. Can I start a second LLC and run it from the same address and home office and list myself as registered agent at my home address for the second LLC in the same way I did the first? Would this pose any problems?

Answer

Yes you can:

1. Have the same person as the registered agent for many LLCs (and corporations, too).

2. Have many LLCs sharing the same address.

One caveat is that if you want to keep liability separate for these multiple LLCs, be sure that you treat them as separate entities. That means that they each have their own bank accounts (obviously), if one entity owns a piece of equipment, the other entity doesn’t use it without paying a rental charge, don’t mix money between the two (don’t deposit a check made out to LLC A into LLC B’s bank account, for example).

It is not uncommon at all for many different companies to all use the same address as their registered agent address.

One notorious example is 1209 North Orange Street in Delaware. According to a New York Times article, there are more than 285,000 (yes, more than one quarter million!) companies “headquartered” at the nondescript, one story office building.

  285,000+ corporations and LLCs are headquartered at this single location in Delaware.

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Can I Use A P.O. Box As The Primary Address For My LLC?

Can I use a P.O. box as the primary address for my LLC? I am looking to incorporate in Pennsylvania.

Answer

Most states, including Pennsylvania, require a street address (not a PO Box) for the LLC’s registered agent / resident agent. There are services such as UPS Stores that give you a real street address, and you refer to your box # as “Suite 123”.

For all other purposes, a PO Box as your LLC’s business address is usually acceptable.

Business address and registered agent address are two different concepts. A business address is where your business is located, such as a storefront or office.

A registered agent address is typically either your business address, your attorney’s office, or a separate company that acts as your registered agent.

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Can You Have A Separate EIN # For Different DBA’s Under The Same LLC?

Can you have a separate EIN # for different DBA’s under the same LLC?

Answer

No. You don’t want to (and are not allowed) to do that.

A DBA is not a separate entity. It’s just a way of letting the state and the public know that the LLC also does business by other names.

Only a separate entity can have a separate EIN.

There are some unscrupulous promoters out there telling people that they can eliminate a bad credit history, for example, by getting EINs under various business names.

This type of scheme won’t work for a variety of reasons, and I don’t want to get started on a rant, because this is very fraudulent and people unknowingly get caught up in it.

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How Do You Record Capital Contributions In An LLC?

Would it be sufficient to write “capital contribution” or “start up” on the memo line of your check from your personal account in terms of documentation or should you draw up a contract in terms of start cost and ongoing company expenses until you make a profit?

Answer

If this is a single member LLC, then you can probably get away with simply writing “capital contribution” on the check for startup money.

If you are a member of multi-member LLC, you need to have an operating agreement and make sure that it addresses what happens to your capital contribution to protect your rights vs. the rights of the other members in the LLC to a return of the capital contribution.

For example, say you make a $10,000 capital contribution to the LLC and you have 3 fellow members. You are all equal 25% owners.

Suppose the LLC makes a $20,000 profit in year 1.

How is that allocated?

Does each member get $5,000?

Do you get your $10,000 back first, and the remaining $10,000 is divided 4 ways? (eg. you get $12,500 and the other three each get $2,500).

Some other method?

In other words, while the memo line method would establish that the check to the company was a capital contribution (compared to, for example, payment for services or a loan to the company), it would not spell out the members’ rights to the capital contribution after the company earns profits and, one day, eventually dissolves.

How your capital contribution is treated is determined by your operating agreement.

If you don’t have a written operating agreement, and there are multiple members in your LLC….get one.

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Do I Need A Business License For A Home Business?

I plan on running a communications business from my home solely online.

Would that require a business license from my municipality?

Additionally, should I apply for my EIN before or after I form my LLC?

Answer

If your business is solely online, and there are no customers visiting your home, then I don’t see a need for a business license.

You apply for your EIN after your form your LLC. The EIN is a unique number assigned to each LLC (and corporation, limited partnership, etc.)

If you haven’t formed your limited liability company yet, then there is nothing to assign the EIN to!

There are also free EIN application instructions on this website, but again, this is to be done after you form your LLC.

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Can We Contribute Personal Funds To Our LLC?

I have an LLC, we are starting to run low on funds as our LLC was established for our ghost hunting club. This was so we could legally accept funds for tours and the like. But our funds are just about depleted and we still have expenses related to web site and the like. As well as the tax preparation in January that will empty the rest of our funds.

Is there a law against us contributing our own personal funds into the LLC, we are a partnership LLC? So this is what we must do to keep things going. So, do we just fill out more membership shares related to the contribution? Or can we just deposit the funds right into the LLC?? Please help as we don’t want to go about this in the wrong way as we just formed our LLC. Thank you.

– Rob, New Jersey

Answer

There is no problem with contributing additional funds to your LLC. Simply deposit the money into the LLC’s bank account.

You can contribute the money either as a loan to the LLC, repayable to the member who contributed the funds, or as a capital contribution.

You do not have to issue additional membership interests for the capital contribution, nor transfer membership interests/units between members.

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How Do I Convert A Sole Proprietorship To An LLC?

How do I convert a sole proprietorship with an ein # to a LLC with the same ein #?

Answer

When a sole proprietorship changes to a corporate or partnership form (such as an LLC), you need to apply for a new EIN.

Assuming that the new LLC will continue to have only you as a member, it will be a single member LLC. As an SMLLC, if you have employees, you will need to obtain an EIN. If your company has no employees, then the IRS will let you use your social security number or you can use an EIN.

Question about converting a partnership to an LLC:

My husband and I opened a business as a partnership with one EIN. We want to protect our personal assets, so we’re considering becoming an LLC. We will not add any partners or change our business structure.

To do so,
1) Do we need an new EIN?
2) What forms do we need to complete for the LLC designation?

Answer

If the partnership is relatively new, form a new LLC and operate the business under that new entity.

If you have significant assets in the partnership, there might be tax consequences to making the change and you should see an accountant and/or attorney.

You’ll need a new EIN for your LLC. Remember, you are creating a new legal entity by forming an LLC (as opposed to a partnership, which is just a combination of partners, but no entity that is wholly separate from the partners is formed).

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Could You Please Clarify Business Versus Personal Assets/Debts With Regard To Liability, Protection And Bankruptcy?

A couple questions:

1. An LLC protects your personal assets from business debts/lawsuits, etc; does it also protect your business assets from personal debts/lawsuits, etc? (Could a creditor from a personal account seek compensation from your business?)

2. The same questions w/regard to bankruptcy: If you personally file bankruptcy, can you leave your LLC in tact & untouched (including assets)? And, how does that work in the event of business debts or loans that have been personally guaranteed? (Are these discharged as personal debt within the personal bankruptcy – still leaving the business in tact – or do they expose your entire business to risk by connecting the two?

Answer

These are fairly complicated questions, but here’s the overview:

1. Your ownership in the LLC is a personal asset of yours. Think of it like a stock. If you own GM stock, GM’s creditors can’t come after your house simply due to your ownership.

On the other hand, a personal creditor of yours can seize your assets, including your GM stock.

However, your membership interest in an LLC is somewhat different from owning stock in that your LLC’s operating agreement can have provisions in it which prevent a creditor who seized your interest from exercising any control over the LLC.

In other words, the personal creditor would “own” the LLC interest in the sense that the creditor would receive any profit distributions (this right of the creditor is called a “charging order”), but could not control the operations of the LLC.

This has an interesting application. Remember how LLCs are pass-through entities? That means that the owner owes taxes on the LLC’s profits, regardless of whether the LLC pays out any money to the members.

Normally, of course, the members will pay themselves out all the profits, or at least enough to cover taxes.

However, if a creditor has taken over your LLC interest, the remaining members could do something very sneaky to the creditor.

They could cause the LLC to recognize profits (say, by selling an appreciated asset), but NOT distribute any money to the members.

Thus, the creditor would owe taxes on his share of the profits, but would receive no money to pay them with.

2. Bankruptcy would be similar to the above, but with the extra complications of bankruptcy law. You’d really need to talk to an attorney about this one.

There is some case law that says that a single member LLC owner who goes bankrupt might be in a worse position than if a member of a multi-member LLC declares bankruptcy with regards to control of the LLC, but again, you’d need to speak with an attorney.

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Is It Possible To Create An Umbrella LLC For 2 Sole Proprietorships?

My wife and I currently each own a sole proprietorship business in Ohio. The 2 businesses do not sell related products or services. I would like to create an umbrella LLC and then establish each of these existing businesses as a DBA under a single LLC name. My goal is to provide more protection for us as a LLC. Is this possible to do or recommended? Would we be limited to one EIN and thus one checking account if we do this? I believe we want to maintain separate checking accounts.

– Jay, Ohio

Answer

It is possible to establish a single LLC and then create 2 DBAs for your separate existing companies.

The problem is that, for liability purposes, both “separate” companies are actually considered one and the same.

Using a single LLC for both businesses will save you a few dollars in formation fees, however, you now expose each business to liabilities created by the other.

I would suggest that if you want the businesses separated, both financially and from a liability standpoint, you ought to create separate LLCs for each one.

To save some money on creating two LLCs, learn how to file for your own free EIN here.

Fortunately for you, being in Ohio, there are no annual reporting requirements and no annual fee per LLC. Therefore, the only additional costs for creating two LLCs is the initial Ohio formation fee.

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DBA or LLC or Both?

When filling out an Articles of Organization form, should I fill it out as Company XYZ, LLC doing business as Joe Smith Roofing or should I do the DBA separately?

Answer

A DBA and LLC formation are two separate things, and which you use (or if you use both), depends on the circumstances. Here are three scenarios and the right response for each:

1. You want to do business as a sole proprietor under the name “Joe Smith Roofing”.

In this situation, you’d simply form a DBA and not form an LLC. You have the disadvantages of personal liability, however, as a DBA is legally no different than doing business under your own personal name.

2. You want to form an LLC named Joe Smith Roofing, LLC.

In this case, you’d form an LLC, and fill out the Articles of Organization with the name as Happy Go Lucky, LLC.

3. You want to form an LLC named Joe Smith Enterprises, LLC, but do business as Joe Smith Roofing.

In this third situation, you’ll need to form an LLC called Joe Smith Enterprises, LLC. Then, in a separate form (with a separate fee to the state), you’ll need to file a DBA for Joe Smith Enterprises, LLC d/b/a Joe Smith Roofing. The second scenario is the most common way people name their LLCs, though there are situations like yours where you are seeking the third option.

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Do DBA Names Need To Be Unique?

I want to use a business name that is already taken. Do DBA names need to be unique?

– X, New Jersey

For example:
1) I wanted to name my company Joe’s Pizza, LLC, but that was already taken.

2) I ended up incorporating with my full name:
Joe Arthur Fonzerelli Pizza, LLC
.

3) Can I still create a DBA name as Joe’s Pizza?

4) What if someone else has already registered a DBA name of Joe’s Pizza? Does the DBA name need to be unique in the state where it is registered? (New Jersey)

Thank you!

NOTES: All names above are fictitious. Any similarity to a real person or company is coincidental. My real circumstance happens to be with a software development company.

Answer

DBAs, as well as your legal corporate name, cannot be identical to another name already in use in the state.

While the state might permit to register Joe’s Pizza as a DBA (because the names aren’t identical letter for letter due to the “LLC” at the end), if the owner of Joe’s Pizza, LLC objects, he could probably successfully sue you for trademark infringement and/or unfair competition claim for choosing a confusingly similar corporate name.

You should avoid choosing a confusingly similar name to a business already in existence, particularly if the two businesses compete in the same market.

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Do I Need To Set Up An LLC To Trade Stocks?

Starting out as a part time private stock investor. However, have invested $ already in training programs, and will continue to travel to classes, and incur more business expenses that could be used toward write offs. I’ve been told that it would be best to just set up an LLC. Does this make good financial sense?

Answer

If all you’re doing is trading stocks on the national exchanges (and not buying majority interests in companies and running them yourself or through a manager), then you don’t need an LLC.

As an ordinary shareholder of, say, Microsoft stock, you have no liability for any debts of Microsoft. The added limited liability protection of purchasing common stock through an LLC is an unnecessary expense.

Secondly, your investment expenditures are tax deductible against your investment income (dividends, interest, capital gains), regardless of whether they are owned by you directly or through an LLC.

In conclusion, there is little reason to form an LLC to invest in stocks.

The only thing that might change my mind is if you plan on having a partner investing with you, in which case you might want to create an entity and spell out precisely each member’s contributions, responsibilities, and profit/loss sharing in your LLC’s operating agreement.

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Is A Nevada Or Delaware LLC The Best?

The short answer is yes…if your business is located in Nevada (or Delaware).

Otherwise, your best bet is to form your business entity in the state where your business operates and you live.

There are many myths about forming Nevada LLCs and corporations. One such myth is that you can avoid paying income tax by incorporating in Nevada. Repeat after me: “there is no (legal) way to avoid income tax except by earning no income”.

Another myth is that you can hide your assets from your creditors (including ex-spouses and bankruptcy trustees) by forming a Nevada corporation and handing bearer shares in the corporation to an accomplice.

Needless to say, these techniques don’t work. Bad things happen when you try to cheat the IRS or a bankruptcy judge.

In many cases, it’s unnecessary. Most people, if they used the tax rules to their fullest, would save more money than they do already. It is not necessary to cheat to lower your tax bill.

Costs of Nevada and Delaware LLCs

Ok, so say you don’t want to cheat the taxman or creditors…are Nevada or Delaware LLCs nonetheless cheaper to form and operate compared to other states?

Each state charges a different fee for forming a limited liability company.

In addition, some states also require that each LLC file an annual report and pay an annual fee for the privilege of doing so.

The states with the highest formation fees do not necessarily charge the highest annual fees.

Therefore, to best compare the cost of forming an LLC, this site uses a “total cost of ownership” approach which adds up the entire cost of having an LLC in a specific state for 5 years.

Delaware and Nevada are both aware of their popularity as destinations for the formation of corporate entities–and they charge fees accordingly.

Delaware charges a $250 annual reporting fee while Nevada charges $325.

In contrast, there are 28 states that charge less than $100 annual reporting fees, and 8 states that charge no annual LLC reporting fee.

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Does A LLC Have To Carry Insurance?

Is a LLC required to carry liability insurance?

Answer

Usually not, though it’s a good idea to carry liability insurance to protect your business assets and to have the insurance company pay for your legal defense.

In some states, if you are a professional LLC, such as a law firm or doctor’s office, your licensing board might require insurance.

If the LLC has enough employees to fall under the state’s Workers Compensation law, then it might have to purchase that type of insurance.

If the LLC owns a business vehicle, then state law regarding minimum auto liability insurance is, of course, necessary.

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Established LLC/S Corp investing in a new LLC

I am a 50% partner in an LLC/S Corp. My partner and I want to establish a second business (unrelated to first) first as an investment (hopefully for tax benefits) and then as a potential source of income. I understand we can form a new LLC and name the S Corp a partner and another person a (percentage) partner. The S Corp could then ‘invest’ in the new LLC and run it separately, but be a part of its gains and losses for tax purposes.

At the point of establishing the new LLC, does the established LLC/S Corp simply transfer money into the new LLC as the initial investment — for the new LLC to purchase inventory or the like to get started? Is the investment into the new LLC then tax deductible for the established LLC?

Thank you in advance.

Answer

The established LLC/S Corp would invest the money in the new LLC and either take stock (thus the investment would be a capital contribution) or take back a promissory note (in which case it would be a loan).

The mere investment of money into the LLC is not a taxable event for either party.

When the new LLC spends money and incurs business expenses in excess of its revenue (i.e. recognizes a loss), then that loss “passes through” to the owners.

In this case, at least one of the owners/members is the LLC/S Corp. So the LLC/S Corp would take the deduction.

But again, the deduction would not be taken until the new LLC actually posts a loss by having currently recognizable expenses that exceed revenue.

Think about when you individually purchase a stock. When you buy $10,000 worth of stock, you don’t get a deduction. Same here–when the established LLC invests $10,000 in the new LLC, it doesn’t take a deduction. Not until the new LLC posts a loss (or it goes bankrupt and cannot pay back the capital contribution and/or loan), does the investor get a deduction.

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Forming An LLC In The U.S. While Technically Living Abroad

We are a military family (US residents) currently residing the Germany. I would like to form an LLC to start a business providing deposition summary services to Stateside lawfirms. Although while technically a resident of Illinois I have no real property there. Must I incorporate in Illinois or can I form the LLC in another state, ie Arizona. The business will be 95-100% electronic. The business address would be our military address.

– Christina, Germany

Answer

Because you are living outside the United States, you ought to choose to incorporate in the state with the lowest formation fees, lowest on-going compliance requirements (e.g. no annual reports), and most pro-business laws.

That probably means NOT Illinois, New York, or California 🙂

You are a good candidate for a Delaware or Nevada LLC, or even from one of the low cost, no-annual reporting states.

States with No Annual Reporting Requirement for LLCs

  • Alabama
  • Maryland
  • Missouri
  • New Mexico
  • Ohio
  • Pennsylvania
  • South Carolina
  • Virginia

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Forming An Out Of State LLC With A Cheaper Filing Fee

I wanted to form a llc in a state with a cheaper filing fee–I’m in Pennsylvania. Is this legal, and will I have a problem operating in Pennsylvania if the llc was formed out of state? This is for a property management company.

– Michelle, Pennsylvania

Answer

Yes, it is legal to form an LLC out of state.

In Pennsylvania (as in most states), an out of state LLC (called a foreign corporation) is permitted to do the following:

§ 4122. Excluded activities.

1. Maintaining or defending any action or administrative or arbitration proceeding or effecting the settlement thereof or the settlement of claims or disputes.
2. Holding meetings of its directors or shareholders or carrying on other activities concerning its internal affairs.
3. Maintaining bank accounts.
4. Maintaining offices or agencies for the transfer, exchange and registration of its securities or appointing and maintaining trustees or depositaries with relation to its securities.
5. Effecting sales through independent contractors.
6. Soliciting or procuring orders, whether by mail or through employees or agents or otherwise, and maintaining offices therefor, where the orders require acceptance without this Commonwealth before becoming binding contracts.
7. Creating as borrower or lender, acquiring or incurring, obligations or mortgages or other security interests in real or personal property.
8. Securing or collecting debts or enforcing any rights in property securing them.
9. Transacting any business in interstate or foreign commerce.
10. Conducting an isolated transaction completed within a period of 30 days and not int he course of a number of repeated transactions of like nature.
11. Inspecting, appraising and acquiring real estate and mortgages and other liens thereon and personal property and security interests therein, and holding, leasing, conveying and transferring them, as fiduciary or otherwise.

Foreign corporations are also permitted to:
——————————————-
§ 4143. General powers and duties of nonqualified foreign corporations.

(a) Acquisition of real and personal property.-Every nonqualified foreign business corporation may acquire, hold, mortgage, lease and transfer real and personal property in this Commonwealth in the same manner and subject to the same limitations as a qualified foreign business corporation.
——————————————

What is the penalty for doing business in PA as a foreign corporation?

————————–
§ 4141. Penalty for doing business without certificate of authority.

(a) Right to bring actions or proceedings suspended.-A nonqualified foreign business corporation doing business in this Commonwealth within the meaning of Subchapter B (relating to qualification) shall not be permitted to maintain any action or proceeding in any court of this Commonwealth until the corporation has obtained a certificate of authority. Nor, except as provided in subsection (b), shall any action or proceeding be maintained in any court of this Commonwealth by any successor or assignee of the corporation on any right, claim or demand arising out of the doing of business by the corporation in this Commonwealth until a certificate of authority has been obtained by the corporation or by a corporation that has acquired all or substantially all of its assets.
————————-

In other words, you can’t sue in a PA court if you’re a foreign corporation acting without a certificate of authority.

I would check with PA attorney to see if the exception under 4143 includes property management activities. He or she could probably quickly find some PA caselaw on that issue.

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Can I Form An LLC From Abroad?

Hi! we want to found an LLC from Europe.  Can we fill all the papers for founding ? How many papers we need to fill?  I know we need an agent. How big cost have we to estimate for the agent?

What is the total cost of founding LLC?  In operating our LLC,we keep all the invoices we give and receiving. Will we pay the tax by the balance of incoming and outgoing invoices?

Can we make our annual report ourselves?  thanks in advance your infos.

– Joseph, Europe

Answer

In terms of forming an LLC, the fact that you are a non-resident of the United States is not a problem.

This is not so with S-corporations, for example, where each shareholder must be a US resident or citizen.

As a foreign citizen forming an LLC in the US, I would suggest that you get help with the formation.

You are correct in knowing that you need a registered agent located in the state you’re forming your LLC in.

As far as taxation, you’ll need to talk to a tax advisor in your home country, as many countries permit you to offset taxes paid in one country against taxes owed in your home country. However, this depends on which countries you are talking about.

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H1B Forming An LLC

Hi,

I am in Maryland on H1B. I work full-time for a software company.

I am planning on starting my own LLC which conducts R&D and software development while of course, working full-time to maintain my H1 status.

Are there any things I should know off? Will I be able to operate the business? How about making a profit?

Also am I eligible to claim business expenses on my personal tax return (sole owner). Will the profits also be combined with my personal tax return?

Thanks!

Rick, Maryland

Answer

There are no restrictions on who can own interests in an LLC, and this includes non-citizens on H1B visas.

By contrast, some other business entities (such as the s corporation) have limitations on foreign citizens/residents owning interests.

No such limitation exists with the LLC.

As far as operating your business at a profit…that’s up to your marketing, business savvy, etc.

There is no requirement that you work at your business full time, nor any prohibitions against working full time while also operating your LLC.

In terms of tax reporting, if you form a single member LLC, the IRS will treat it as a disregarded entity.

All your LLC’s revenues and expenses will be reported on Schedule C of your personal tax return (1040). If your LLC shows a profit, then your personal income tax return will show higher taxable income, whereas as loss will reduce your taxable income.

The key to minimizing your taxes with an LLC is to maximize your legitimate business deductions. A business owner has far more opportunities to take deductions than an employee.

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Should An Independent Sales Rep Form An LLC OR Incorporate?

Independent sales rep should they incorporate ?
my wife is a MaryKay consultant and i an independent sales rep for a manufacturing company.Should we incorporate seeing that everything is paid on commission on a 1099 ?
thanks.

– Bobby, Florida

Answer

Take a look at the basic reasons to incorporate–protecting your assets and potential tax savings.

I’d say it’s a toss-up for your wife–the MaryKay consultant–and that you probably don’t need to incorporate.

As a reseller of MaryKay products, if there is, for example, a products liability issue (say the cosmetics injure people), then the resellers could get dragged in.

Having a corporate form would protect your personal assets in that situation.

Only you can decide if the expense is worth it.

Other Questions About Whether An LLC Is Appropriate For Your Business

Question: LLC for Consultant?

You mention in your Veil Piercing section that one of the major downfalls to LLC protection is if you have little to no ‘capital’ invested in the LLC. If your main business model is Consulting (with little investment capital required), is it common to still obtain an LLC?

–Chris, Ohio

Answer

What is a “little” amount of capital is, of course, relative to the business you’re in.

If you are starting a large manufacturing company and hiring hundreds of employees, that’s going to require more capital than a consultant who might only have incidental office expenses.

Consultants and other low-overhead service businesses often choose that LLC format for its lower administrative burden than a corporation.

A thousand dollars in capital (with the rest of the startup money for the business in the form of loans from you to the LLC), could be sufficient. This amount could come in the form of, in the case of a consultant, office equipment/computer donated to the LLC for use in the business.

Question: If your company is going to be home-based is an LLC recommended? — Jackie, Missouri

Answer

Yes, I would recommend the LLC for home-based businesses.

The limited liability company is one of the simplest business entities to operate in terms of administration while still maintaining limited liability protection for your personal assets.

For people working from home, forming a single member LLC with yourself as sole member can give you the advantages of incorporation without adding much of an administrative burden.

Corporations–both C and sub-S–require far more ongoing paperwork to maintain than an LLC.

You can create a very streamlined LLC for a home-based business by:

1. Form a single member LLC;
2. Act as your own registered agent;
3. Apply as a disregarded entity with the IRS.

Your ongoing paperwork burden will increase very little from being a sole proprietor.

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LLC Adding Partners Or Selling Stock?

I am looking to start an LLC with one partner. We will have to hire a CEO soon, as I do marketing and he does programming.

Does an LLC allow you to offer shares to a new partner?

I do not want to start an LLC and then have to incorporate immediately.
Thanks

Answer

Yes, you can buy and sell membership interests in a limited liability company. These are generally equivalent to owning “shares” in a corporation. However, the Operating Agreement will specify particularly what powers a member has with respect to those shares and how taxes are allocated.

What that means is that you can write the rules for your LLC that makes membership units as easily transferable as in a corporation. On the other hand, you can tighten up the rules such that existing members have to approve new members, have the right of first refusal if a member wants to sell his/her units, prevent creditors that take membership units involuntarily from exercising decision making control, and so forth.

At a minimum, you will want written evidence that the shares were issued and money paid (or services rendered) in exchange for the membership units.

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LLC Based In NY, Can I Work In CT?

My LLC is based in New York. Will I be able to have clients in Connecticut?

Answer

A business can transact business anywhere in the country, regardless of whether it is incorporated in that state or not.

At most, you will have to apply for a certificate of authority to transact business in CT as a foreign corporation.

However, you might not even have to do that. “Doing business” or “transacting business” usually means something more than having a customer in another state.

Each state has its own law regarding whether a company is transacting business in that state for the purposes of requiring registration.

Here’s an example from Kansas (most states have similar laws):

Activities of a foreign corporation which do not constitute doing business within the meaning of K.S.A. 17-7301, and amendments thereto, include:

(1) Maintaining, defending or settling an action or proceeding;

(2) holding meetings or carrying on any other activity concerning its internal affairs;

(3) maintaining bank accounts;

(4) maintaining offices or agencies for the transfer, exchange and registration of the corporation’s own securities or maintaining trustees or depositories with respect to those securities;

(5) selling through independent contractors;

(6) soliciting or obtaining orders, whether by mail or electronic commerce or through employees or agents or otherwise, if the orders require acceptance outside this state before they become contracts;

(7) creating or acquiring indebtedness, mortgages or security interests in real or personal property;

(8) securing or collecting debts or foreclosing mortgages or other security interests in property securing the debts, and holding, protecting and maintaining property so acquired;

(9) conducting an isolated transaction that is completed within 30 days and is not one in the course of similar transactions of like nature; and

(10) transacting business in interstate commerce.

(b) The ownership in this state of income producing real property or tangible personal property, other than property excluded under subsection (a), constitutes transacting business in this state.

(c) This section does not apply in determining the contacts or activities that may subject a foreign corporation to service of process, taxation or regulation under any other law of this state.

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Should Authors Have An LLC?

I recently published a book and plan to sell it to middle and high schools. Do I need an LLC?

Answer

I think the main consideration is whether you are solely an author (writing) or if you are engaged in the active publishing of your work (printing, distribution, marketing)

* Most authors are sole proprietors.

* Almost all publishing companies are incorporated in some form or another (corporation or LLC).

The primary purpose of the limited liability company is to protect your personal assets from liabilities generated by your business.

Do you foresee significant liabilities from your book?

I doubt you’re going to get sued by someone tripping and falling over your book….however, there are a few potential sources of liability I can think of.

Employees: Are you hiring any employees to work in your publishing enterprise?

I would strongly recommend that every small business person avoid employees like the plague unless absolutely necessary.

In today’s regulatory climate, it’s almost as expensive to dissolve the employer-employee relationship as it is to dissolve a marriage–plus, ex-employees sue more often than ex-spouses.

Contracts: While your publishing business doesn’t have much tort liability (slipping and fall over your book), you are involved in making contracts with printers, resellers, etc.

You are possibly exposed to contractual liability.

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Whats best, A DBA or LLC?

Trying to figure out whats best: DBA or LLC. Basically, I want to protect our home first and foremost. Been married 6 months and the home is in my wifes name only. Im an independent contractor doing delivery and we want to seek our own clients and do our own thing. My wife and I want to form a company. We have the name, etc. and a couple potential clients in waiting.

The dilemma we face is how to form the LLC to alienate ourselves personally and financially from the the LLC and create a veil.

Should we create it in her name only and I sub-contract from her? Do we then open a separate business account at a bank and the company checks go in and she pays me a commission from that?

Would that still provide us any protection in the event of a lawsuit considering we’re married and live at the address listed as our business?

Or, should I just call it a day and open the business as a DBA and keep her completely out of matters to protect our home?

Thank you very much!!!

– Steve, Missouri

Answer

A DBA provides no liability protection to an individual. If John Smith is Doing Business As “XYZ Contracting”, then for the purposes of liability, XYZ and John Smith are the same.

I would suggest creating an LLC in both names. The reason is that separating out the work between the LLC as contractor, and you sub-contracting from the LLC as an individual subjects you to personal liability.

Under your scenario, in the event of a lawsuit against the LLC, the plaintiff would probably name you personally, as the subcontractor who actually did the work, in addition to suing the LLC.

Even worse, if you aren’t careful with the paperwork of the subcontracting arrangement, a court could look at the entire enterprise (you, your wife, your LLC), as all being alter-egos of you and your wife. At that point, all jointly held assets are subject to liability.

The best solution to protect your house is to do one of the following:

1. Form an LLC with both you and your wife as members and be careful about keeping your business and personal assets separate.

2. Operate your business as a DBA but ensure that your wife has absolutely NOTHING to do with your business from an operational or managerial standpoint.

The common address between your home and your business does not automatically pierce your veil.

However, if your wife fields calls/writes letters/signs documents with customers/vendors/etc. and lawsuit arises, there could be a claim against her personally for her own acts of negligence.

That’s why in scenario 2, where you operate as a DBA, you must ensure your wife has no involvement in the company.

Otherwise, forming a limited liability company with both of you as members will be a better strategy.

Also, as an aside, in Missouri, when a primary residence is purchased by a married couple, the default rule is that the property is owned by the couple as joint tenants in the entirety. What this means is that if a creditor has a judgment against only one spouse, they cannot take the home.

Is there a reason why your house is not owned by both you and your wife as joint tenants in the entirety?

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What Are The Tax Advantages And Disadvantages To Being An LLC?

I looking to start my own LLC and I was wondering what the tax advantages and tax disadvantages are to being an llc?

Answer

The main advantages of the LLC over the corporation are:

1. Pass-through taxation which lets you take a personal tax deduction for the (usual) early losses incurred by a startup.

2. Only a single level of taxation, instead of the corporation’s double tax of corporate income tax + tax on dividends.

Now that a new administration is taxing place, it is likely that the low dividend tax rate of 15% will expire (it was part of the Bush tax cuts), and dividends will be taxed at the highest income tax rates. That would mean a 35% corporate tax + up to a 39.6% dividend if Obama returns rates to pre-Bush (Clinton-era) tax rates.

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Do You Need To Include “LLC” In Your Logo And Advertisements?

Do you need to include “LLC” in your logo and advertisements as long as it is included in the legal name?

Answer

No. The letters “LLC” do not need to be in your logo.

However, I would ensure that all your legal documents–meaning contracts, leases, purchase orders, etc.–use your full LLC’s legal name, and that you sign any documents in your capacity as a member of the LLC and not personally.

In other words, you should sign as “Jenny Smith, Member XYZ, LLC.” and not merely as “Jenny Smith”.

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Mailbox Forwarding

If I am operating a home based business and use a mailbox forwarding service, can I use that address as my business address and registered agent address (if I am sole proprietor) when I register my business with the state?

Would I have to use my home address first when I register and then use my mailbox forwarding service. I would prefer not to get all the solicitations to my home.

Answer

Your registered agent address must be a physical, street address. I’m not sure exactly how the mailbox forwarding company you’re using is setup, so it’s unclear if it would “count” as a physical, street address for the purposes of your registered agent.

The best way to avoid too much junk mail to your home address is to use the registered agent service offered by an llc creation service.

For a reasonable annual fee, they will act as your registered agent and keep your home address off the junk mail lists (which are compiled from the public records of new businesses formed).

When dealing with your customers and suppliers, you of course use your mail forwarding service address and NOT your registered agent address.

The registered agent address is only for the state’s purposes so you can be served summons and other legal papers.

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Can You Have A Manager And A Managing Member?

Can you have a manager and a managing member?

What is the difference between the two?

– Adam, Florida

Answer

A manager, as used in the context of a “manager-managed LLC”, is a person who is not a member of the LLC who nonetheless has the power to make decisions for the LLC.

It’s equivalent to an officer at a corporation–the shareholders “own” the corporation, but the officers run it.

The other option for operating your LLC is to have it member-managed. That is, the members (owners) operate the LLC on a day-to-day basis and make decisions for it. In a company where one member is running the day to day operations while the other members are more passive, the member operating the LLC would be the “managing member”.

The details of which members have management authority for the LLC is covered in the LLC’s operating agreement. This is why it is important for all LLCs (especially those with more than 1 member) to have a written operating agreement to prevent misunderstandings about what powers and responsibilities each member has.

There are some advanced taxation topics with using a manager-managed LLC vs. a member-managed LLC. Specifically having to do with self-employment taxes and the ability for passive members to deduct losses from the LLC on their personal tax return.

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Managing Member vs Member

In a LLC structure, is there a difference of being called or titled a Managing Member vs being titled or called Member?

– Spencer, New York

Answer

All Managing Members are Members, but not all Members are Managing Members.

Managing Members are those specifically able to bind the LLC contractually. In the legal world they have “actual authority” to contract on the LLC’s behalf.

Members may or may not be able to bind the LLC contractually, and doctrines like “apparent authority” come into play.

The Managing Members should be the people who are transacting the business of the LLC, and should be thought of like the executives of the LLC.

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How Do I Start A Single Member LLC?

I have a few questions about starting an LLC.

1. Do i need resident agent ?
2. Can i put my name resident agent, i live in texas and have my apartment address which is also my LLC address
3.Veil-piercing happens to me as i m single member LLC ?
4.What to do to avoid Veil-piercing ?
5.Can i form LLC by my self ? which column or information i need to worry for Veil-piercing and for passthrough tax eligibility

6. what are the benifit to use LZ services to form an LLC

Thanks

Answer

1. Yes, every LLC requires a resident agent.

2. Yes, you can be your own resident agent, and use your home, business, or apartment address. You cannot use P.O. Boxes for your resident agent address.

3. Veil-piercing does not depend on the type of entity that you are. Veil-piercing occurs when your LLC is sued, and the plaintiff seeks to attack the personal assets of the LLC owners. In order to do this, a judge must do what’s called piercing the corporate veil.

Piercing is not a simple process. In most states, a plaintiff must show that several factors are present in order to pierce a corporate veil. These include:

  • Ignoring corporate formalities
  • Commingling corporate and personal funds
  • Zero capitalization of the LLC
  • Fraudulent siphoning of LLC funds to the owner after a lawsuit is initiated or threatened
  • Other “unjust” behavior on the part of the LLC owners

Usually it takes at least two or more of these factors to be present to pierce the corporate veil.

4. See above.

5. Yes, you can form an LLC yourself. There are three different “levels” of LLC formation, at various costs.

One, you can hire an attorney, spend a few thousand (plus state filing fees), and have an LLC formed.

Two, you can use a service like Legalzoom, and it will cost a few hundred (plus state filing fees).

Three, you can download Articles of Organization forms for free, fill them out yourself and file directly with Texas.

In terms of pass-through taxation, you simply check the box. If you use Legalzoom to form your LLC, there is a question they ask on their questionnaire asking if you want to be taxed as a partnership or a corporation.

For pass-through taxation, select “partnership” (or as a single member LLC, “disregarded entity”).

Just as a side note, many people confuse disregarded entity with veil-piercing. They have nothing to do with one another.

Disregarded entity is a term used by the IRS, which states that your LLC does not have to file a separate informational tax return. Instead, your disregarded entity LLC will record your income and expenses on your Schedule C, making your tax preparation much simpler.

I have not seen any evidence that the corporate veil of a single member LLC treated as a disregarded entity is more likely to be pierced than other LLCs.

In the end, you’re going to need to use these documents in the course of your business, so it makes sense to get it all done at the beginning, at the lowest overall cost.

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I Would Like To Form A Single Member LLC

I would like to form a single member LLC. I teach bellydance and self defense, at park and recreation centers and at homes.. and want to create an LLC to insulate myself/my home from liability since my home and husband are not connected to my business. I would like to put all of my business entities under this one LLC, since all together all of my individual distributorships of products and teaching are not of high dollar amount and I would like to put all of this in one business.

How do I put all of my seperate entitites under this one LLC Umbrella. Do I rename my seperate entities one name..?
like…”blah blah blah self defense” “blah blah blah bellydance”

In total I take in $1200 to $6000. a year with all of my entitites and would like to continue to show my net profits on my joint tax return with my husband.

Thank You

– Sandra, Colorado

Answer

When you say you have difference business “entities”, do you mean that you have filed DBAs for these businesses? Have you incorporated any of them?

If not, then simply form your LLC, and operate all the businesses using that LLC.

To use a trade name for operating the businesses, you can file a DBA for your LLC for each business.

So, you could have “Weeks Enterprises, LLC” (I know, it’s not a very creative name…)

Then, you can have the LLC file a DBA for each of the sub-businesses — “Weeks Bellydancing” and “Weeks Self Defense”, and so on.

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LLC Owned By A Foreigner

Hello,
I am foreigner (non citizen or resident of US) interested in open a company in Delaware and I have few questions:
1. If I obtain an EIN and I open a bank account for my company in US I must report annually something to IRS?

2. It is possible to have a Director of the company that is an US citizen without losing the zero taxes advantage?

My LLC will not operate my business in US and the LLC will not obtain any income from US.

Thank you!

– Dan, Europe

Answer

These are some fairly in-depth international tax questions that need professional guidance.

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Do I need a SMLLC??

I have some money saved up in the future in my personal name but I am afraid of any lawsuits from past business that I did as and some documents signed in my name. Should I or can I make a SMLLC and put the money in there?? will that protect the money if anyone is suing me in my name??

– Jeff, Hawaii

Answer

No, no, that is not a good idea.

A SMLLC is a good way to protect your personal assets from a liability generated by the business which runs within the SMLLC.

A SMLLC is NOT a good place to “stash” your personal assets to avoid judgments rendered against you personally.

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What All Do You Need To Start A Single LLC?

What all do you need to start a single LLC? Or is it smarter to go in as a Sole Proprietorship. Not sure on what the difference is but want to be able to have everything in the business and not related to my name.

– John, Illinois

Answer

If you don’t want things in your name, then you need some type of business entity (e.g., an LLC or corporation). A sole proprietorship is a fancy word for doing business under your own name.

You start a single member LLC by forming an LLC and having only a single member (you).

If you don’t want to wrestle with the forms, a company like Legalzoom can take you through the process. It costs between $100-$300 (depending on the level of service you want) plus your state’s filing fees to form an LLC.

You can also form an LLC yourself and avoid Legalzoom’s fees by filing Articles of Organization in your home state.

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SMLLC And Banking

If a person has several SMLLCs, are they allowed to use their individual name and TIN when opening bank accounts for each SMLLC or do they have to use the SMLLC name and EIN?

The SMLLC has no employees.

Answer

I would advise that you open LLC bank accounts using the LLC’s name and EIN.

Otherwise, those accounts are in your own name, and therefore are your assets, and you really have not segregated your business and personal assets at all. It’s commingling in a serious way.

A bank might be willing to work with you on reducing fees (or eliminating them), so that having multiple accounts doesn’t eat you alive in fees. Ask around…in this environment, I think banks should be happy to get any new deposits!

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Forming An LLC For A Jewelry Business

I have a full time job, but have started making/selling jewelry. I want to make this hobby legitimate, so that I can deduct my “loses” from my income tax…as well as purchase wholesale with a federal tax ID number (EIN). Right now my expenses are more then I’m making. It seems the SMLLC is the right way to go…any advice?

– Tracy, Tennessee

Answer

The single member LLC setup will let you deduct your losses from your personal income taxes.

This is one of the big benefits to an LLC over a corporation (personal tax deduction of losses during startup, which you cannot do with a corporation).

One thing I need to clarify you on, though. When it comes to wholesale purchasing, you are likely going to need a sales tax ID from your state in addition to an EIN.

The sales tax ID allows your wholesalers to sell to you without charging sales tax.

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Does A SMLLC Need To File For A FEIN?

Does the SMLLC need to file for a FEIN?
I provide a “middle-man” service for several companies and some ask for a EIN for their tax records. What do I give?

Answer

Your LLC needs to have an EIN (employer identification number).

Your only other alternative is to use your personal social security number.

There are two ways to get it (one free method, one paid):

1. Follow the directions on how to obtain an EIN yourself.

2. Use LegalZoom or BizFilings service

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How To Change From Schedule C To Single Member LLC?

What process is necessary for an individual who has been self-employed for the past 10 years but would like to become a single member llc in order to reduce liability?

– Steve, New York

Answer

I assume by your question that by “self-employed” you mean that you have been operating your business as a sole proprietorship for the past 10 years.

The simple answer is that you form an LLC and begin operating your business through your LLC. Here is an overview of the steps:

1. Form your LLC by filing Articles of Organization with your state.

2. File form SS-4 with the IRS so you can get your EIN (Employer Identification Number; also called an FEIN for Federal EIN). Even if you don’t have employees, your EIN is analogous to a social security number for your LLC, and you’ll need it to open a business bank account, among other things.

3. Open a business bank account in the name of your LLC, using your EIN.

4. All of your future business related expenses should come out of your business checking account, and all of your business income should be deposited there.

5. As your LLC earns a profit, you can write a check from your LLC’s business checking account to yourself. You do not need to do withholding taxes (but don’t get too excited, you still have to pay self-employment tax at the end of the year).

6. As a single member LLC, you are treated by the IRS as a disregarded entity, meaning that you don’t have to file a separate informational return for the LLC. Instead, all of your revenues and expenses are recorded on your Schedule C. Which, from your question, is something you are familiar with.

Steps 1 and 2 can be performed for you at a reasonable charge by a company like LegalZoom.

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What Is The Next Step After Filing My LLC?

Once I have filed my Articles of Organization and obtained my EIN, what is the next step? Do I need to acquire a separate business license from the state, or does this cover it? What about registering the name of my company with local and state officials?

Thank you in advance for your help!
– Heidi, Illinois

Answer

As far as registering your name with state and local officials, filing your Articles of Organization has already done that.

With regards to business licenses, it depends on the type of business and where you live.

For example, if you are opening a bar, then you’d probably need a local liquor license, fire and health inspection of the premises, etc.

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Operating As An LLC In Another State

If I formed my llc in a state but have chosen to do most of my business in another state, do I file all over again in the new state?

– Norman, New Orleans

Answer

If you are actually “transacting” business in another state (state #2), you need to register as a foreign LLC in the new state.

The meaning of “transacting business” is defined by state statute.

Most states do not define what is considered transaction of business by a foreign LLC. Instead, they have a list of activities that do not require registration (I know, strange).

For example, here is Arizona’s statute regarding foreign registration (none of the following activities requires registration):

      1. Maintaining, defending or settling any proceeding.
      2. Holding meetings of the board of directors or members or carrying on other activities concerning internal corporate affairs.
      3. Maintaining bank accounts.
      4. Maintaining offices or agencies for the transfer, exchange and registration of memberships or securities or maintaining trustees or depositaries with respect to those securities.
      5. Selling through independent contractors.
      6. Soliciting or obtaining orders, whether by mail or through employees or agents or otherwise, if the orders require acceptance outside this state before they become contracts.
      7. Creating or acquiring indebtedness, mortgages and security interests in real or personal property.
      8. Securing or collecting debts or enforcing mortgages and security interests in property securing the same.
      9. Owning, without more, real or personal property.
      10. Conducting an isolated transaction that is completed within thirty days and that is not one in the course of repeated transactions of a like nature.
      11. Conducting affairs in interstate commerce.
      12. Being a limited partner of a limited partnership or a member of a limited liability company.

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Payroll Tax Responsibilities Of An LLC

Can a single member LLC elect to be treated as a Sub S by electing under Form 2553 and pay himself/herself a “reasonable compensation” salary and receive the balance as K-1 profit. Or is all of the income from a single member LLC, electing Sub S status subject to FICA/MED .Is this where I’ll see your response? http://www.llc-made-easy.com/single-member-llc.html

Answer

If you select sub-S classification, then your “reasonable” compensation will be subject to FICA/MED, also known as self-employment taxes.

The remainder of the LLC’s profits can be distributed as dividends, which are still subject to income tax, but not self-employment tax.

The problem with electing sub-S classification is that there are more rules for sub-S than for an LLC taxed as a partnership or sole proprietor.

For example, every owner of an S corporation must be a natural person (not another LLC, corporation or partnership). If you add partners to your SMLLC, and you wish to allocate profits unevenly between yourselves, then you will lose your S-corp status.

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What Are The Pro’s And Con’s Of Multiple LLCs?

What are the pro’s and con’s of multiple LLCs?

Answer

Cons

Let’s start with the cons first.

The most obvious con of multiple LLCs is cost.

It costs money to form your LLC, and some states charge an annual fee (such as California’s $800 franchise tax on LLCs and other entities) for each LLC.

There is also a con in the sense of additional administrative work, particularly at tax time.

Every multi-member LLC must either file a Form 1065 annually (for those taxed as partnerships) or a Form 1120 (for LLCs taxed as corporations).

Then, each multi-member LLC must issue K-1s to all the members.

So, if you have multiple LLCs, you’re going to have multiple tax filings and K-1s flying around.

Pros

The biggest pro of having multiple LLCs is the liability protection.

This is particularly the case with real estate.

We have clients that are commercial developers, and every new development is a separate LLC. Often times, each phase of the development will be a separate LLC, as will there be separate LLCs for the commercial and residential portions in a mixed-use, planned community (such as new-urbanism communities).

The reason for separating your real estate into separate LLCs is so if there is a problem with one piece of property, the liabilities caused by the property don’t affect your other assets.

We’re not talking only about the proverbial “slip and fall” case. While the prospect of someone falling and injuring themselves on your property is a common concern portrayed by the media, one of the biggest risks to owning property is environmental.

Environmental cleanup costs can often exceed the value of the particular piece of property. And you don’t have to be at fault to be liable for cleanups–if there is contamination at your property, the government will hold the owner responsible. If someone else caused the problem (such as a “midnight dumper”), then you are free to pursue them. But in the meantime, the government expects you to pay.

If all your properties are owned in a single LLC, then a problem at one of them can wipe out your equity in all the rest.

The worst situation is to own real estate in your own name. (other than your personal residence. The second worst is to own all your real estate in one entity.

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Questions About Personally Funding Your New LLC

You have to use your money to start your business. Is it wise to put your money in your business bank account when you first open it and then proceed to purchase things for your business out of that account to be able to track everything accurately for taxes and other breaks?

Answer

Absolutely!

You do NOT want to put your startup business expenses on a personal credit card. That would technically be commingling of funds (though, in reality, it takes a lot to pierce the corporate veil, so don’t lose too much sleep over it).

—Note—
The above does NOT apply to the expenses you incur in forming your LLC. Obviously you won’t have a business credit card or business account before your form your LLC. So, formation costs and state filing fees you can pay personally. Buying equipment for your business after it is formed…use a business check or credit card.
—Note—

It’s bad business practice to mix your personal and business funds. Even if a judge wouldn’t pierce your veil for mere sloppy business practice (though you’re rolling the dice, because you never know what kind of judge you’ll get), why be sloppy?

You can pay for the initial LLC formation with personal funds, as the company does not yet exist. Those expenses can be considered a capital contribution to the LLC.

After formation, and you have an EIN, go directly to the bank and open up a business checking account. You’ll need the EIN because banks won’t open an account without one.

All of your business expenses must be written out of your business checking account.

If you need a credit card for your business, then apply for a business credit card. Trust me, you’ll start getting offers in the mail very quickly after forming your LLC–particularly if you use your home address as your registered agent.

Will your business need a Paypal account? Then get one in your business’ name, using your business EIN.

Finally, buy a copy of Quickbooks and use it to track your business expenses.

If you have employees, you absolutely need to use a payroll service. Do not attempt payroll on your own…trying to do your own payroll is like trying to do your own laser eye surgery.

As owner, you are personally liable for all payroll taxes that you fail to pay. These debts are difficult to discharge in bankruptcy and the IRS can follow you around for a long time, racking up penalties and interest.

A followup question on the same topic:

Funding Your New LLC

Question: Can you continuously put money into your business account from your personal account to fund your business like to purchase equipment and pay for utilities until you start receiving a profit from it? Would that be perceived as commingling?

Answer

Yes, you can fund your business with personal funds (in fact, every business has to even if just to pay for incorporation, legal, accounting and state filing fees).

The key here is to understand that “you” and the LLC are legally separate individuals.

Which means that if you are giving money to your LLC, you need to be getting something in return — either you are making a capital contribution to the LLC or you are loaning it money.

You wouldn’t give money to some random corporation unless you got either stock or a bond in return–the same principle applies here.

The key is to create the proper paper trail, in particular, through the use of promissory notes if you are treating the deposit as a loan.

There are many forms of promissory notes you can download for free on the internet, and some you can pay for.

More followup questions
Using personal account to buy equipment for business

Question: Ex boss is selling equipment from his business at great price.He is giving us first pick before he auctions it off. Problem is LLC paperwork will not be processed in time to be able to open a business account to pay for it. Can we use personal account to purchase equipment as start up or would that be commingling of funds. He won’t hold the equipment.

Answer

You can buy the equipment with personal funds and then sell them to the LLC. Just make sure to writeup a receipt and have the LLC pay you for the equipment.

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Is A Single Member LLC A Reasonably Good Means Of Protecting Personal Assets?

Given the very high cost of liability insurance for certain types of law practices, is a single member llc a reasonably good means of protecting personal assets?

Answer

If you are worried about malpractice as a solo attorney, it’s unlikely an LLC alone will protect you, as you would be personally liable for your OWN professional negligence.

That said, if there are multiple attorneys in your practice, then you absolutely want to form an entity other than a general partnership. In a general partnership, you would be personally liable for your partner’s malpractice, in addition to your own.

That’s a terrible situation to put yourself in.

Therefore, also every law firm these days is either limited partnership, limited liability partnership, professional corporation (basically a corporation), or LLC.

Nonetheless, an LLC will protect you from other, non-malpractice liability such as contractual disputes arising from your business and possible tort liability for things like a slip-and-fall at your office.

Purchasing malpractice aka professional liability insurance is probably a very good idea.

I do know of some professionals that practice “naked” (without malpractice insurance) where they are married, in joint tenancy by the entireties states, with all their assets in joint name with their spouse. There are many potential cons to this arrangement, but people still do it to save on insurance premiums.

Nurse Practitioner

by Lisa
(MO)

Hello, I work as an independent contractor as a nurse practitioner for a doctor.

I get no taxes removed from my pay. I have personal liability insurance. I have thought of incorporating to make sure if ever I was sued (hopefully never), that my personal assets would be safe.

1) Is this true?
2) Would I be a single member LLC

I have also been told that if I make myself an employee of my incorporation that would further protect myself.
What do you think?

Answer

Incorporating probably will NOT protect you from medical malpractice liability for your own negligence. This is why you must always keep your malpractice premiums current.

The only advantage incorporating (vs. a partnership) has for professionals is that you will not be personally liable for your partner’s malpractice (though the company might be). If you don’t have partners, then this isn’t an issue for you.

As a single member LLC, you would still be personally liable for your own medical negligence in the O.R. or where ever else you are performing medical treatment.

Where the LLC could protect you is if your practice has contractual disputes–say with your employer, supplier, or landlord–and therefore limit their recovery to your LLC assets.

So, for example, suppose you lease office space for your practice. By having the lease under your LLC and not you personally, you could avoid personal liability if you are sued under the lease.

Note that you’ll have to negotiate hard to get a landlord to lease property to your LLC without a personal guarantee.

If you are involved in a lot of transactions (like leasing real estate, or buying large amounts of supplies/equipment), it might be worth it to form an LLC.

However, forming an LLC will not protect you from medical malpractice claims. Have a good insurance policy.

Also, you would probably have to form a Professional LLC, if you are performing medical services in Missouri.

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Registered Agent Questions

hi,
I wish to be the registered agent to my llc company in Virginia.

What is the form do I need to fill in and submit to VA state corporation commission ?

Do I need to mail this to
Clerk of the State Corporation Commission
P.O. Box 1197
Richmond, Virginia 23218-1197

Thanks

Answer

Assuming that you have already formed your Virginia LLC, you can request a change of registered agent form here:

http://www.scc.virginia.gov/clk/ElectronicFormRequest.aspx

If you have not formed your Virginia LLC yet, then you will name your registered agent on line 4 of your Articles of Organization, which you can download in .PDF format below:

Virginia Articles of Organization.

For those with LLC’s outside of Virginia, the same situation applies.

If you have not already filed your Articles of Organization, then that is where you will select your registered agent.

If you already have filed, most states have a form you can file to change/update your registered agent address.

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Salary, Banking And Expenses – Self-Employed Vs LLC

I am a self employed consultant but currently do all my work for one company and the pay is deposited directly to my personal checking account.

When I change to a single member LLC would the process be to open an account with the llc name, have the company make out the check to the llc name, deposit it to the llc account and then transfer my “salary” (basically all of the pay) into my personal account?

What document should my “salary” and these banking withdraw rights be stated on to maintain the integrity of the llc benefits?

Do I pay estimated tax or perhaps a life insurance premium out of the llc account or my personal account if married filing jointly?

– Janet, Maryland

Answer

You essentially have the process down:

1. Form your single member LLC.

2. Open a business checking account in your LLC’s name.

3. Have checks from your clients made out to your LLC.

4. Deposit those checks into your LLC bank account.

In addition to these steps, you also want to pay all your business-related expenses from your LLC checking account.

That means everything from web hosting to postage, to parking, to rent for an office space.

Assuming that your LLC makes money after all expenses, you can distribute those profits to yourself at any time.

The process for distributing profits from your LLC to yourself personally is simple — write a check from the LLC’s bank account to yourself personally.

This is not technically a “salary”, in the sense that the LLC must withhold taxes.

Remember than an LLC is a pass-through tax entity. Any profits or losses from the LLC flow through directly to your personal income tax forms through the Schedule C (assuming a single member LLC).

Write “profit distribution” or something similar in your LLC’s check to yourself.

In terms of risks to your corporate veil, this would only be an issue if your LLC was operating at a loss, and yet you kept writing checks to yourself, thus defrauding your LLC’s creditors.

But, if your LLC is turning a profit, you clearly have the right to withdraw that profit personally.

The key is to keep good accounts for your LLC.

Because your LLC doesn’t withhold taxes for you like an employer would, you must pay estimated taxes on your own.

An explanation of quarterly estimated taxes, and the forms, are found at www.irs.gov , search for “Form 1040 ES”.

First, as for benefits, an LLC, unlike a corporation, cannot pay benefits such as life or health insurance premiums. The LLC can of course pay all business-related expenses, but life insurance, for example, is a personal benefit that should not be paid from the LLC account, it is not a deductible LLC expense. (Imagine this taken to the extreme: you could decide your LLC provides you housing, a car, meals, etc.)

On the subject of operating and payment documentation, I understand that none is required, especially for a single-member LLC. However, an Operating Agreement can’t hurt, and this is were profit distributions could be spelled out, if desired. And, certainly keep a record of the “profit distribution” payments.

You cannot deduct personal expenses from your LLC’s revenues to reduce its profits (or increase losses).

In other words, its not which entity that writes the check that determines deductibility, but rather the nature of the expense.

Business expenses are deductible, personal expenses are not.

When it comes to health insurance premiums,however, you CAN take a deduction for premiums paid if your were self-employed and show a profit on your Schedule C.

See line 29 of your Form 1040.

From the IRS:

“You may be able to deduct the amount you paid for health insurance for yourself, your spouse, and your dependents if any of the following applies.

1. You were self-employed and had a net profit for the year.
2. You used one of the optional methods to figure your net earnings from self-employment on Schedule SE.
3. You received wages in 2005 from an S corporation in which you were a more-than-2% shareholder. Health insurance benefits paid for you may be shown in Form W-2, box 14.”

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Single Member LLC – Texas – Franchise Tax

Do single member LLC’s in Texas avoid the payment of the Texas franchise tax (margin tax)?

– Joe, Texas

Answer

Unfortunately, no.

According to the the Texas Comptroller’s site, the Franchise Tax is imposed on the following:

      The franchise tax is imposed on each corporation that is chartered in Texas and each non-Texas corporation that does business in Texas. See Franchise Tax Rule 3.546 for a list of some activities considered to be “doing business in Texas.”
      For franchise tax purposes, the term “corporation” also includes a bank, state limited banking association, savings and loan association,

limited liability company

      , professional limited liability company, a corporation that elects to be an S corporation for federal income tax purposes, and a professional corporation. Professional associations and partnerships are not subject to the franchise tax.

There is some good news for small Texas businesses, however:

    Corporations will not owe any tax if the gross receipts from their entire business for both taxable capital and taxable earned surplus are each less than $150,000 during the period upon which the tax is based. These corporations must file an abbreviated information report.

See the Texas Comptroller’s page for more information about the Texas Franchise Tax.

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Single Member LLC owned by an S corp

We were recently told by our accountants that we could contribute our single member llc to a newly formed s corp. They told us that my husband would still remain the single member. That does not make sense to me b/c he contributed the LLC to the S corp for 100% ownership in the s corp.

Wouldn’t the new member be the S corp?

And can we pay my husband wages through the LLC? (now that it’s owned by the s corp, can issue his wages through the LLC instead of the s corp)

I believe that the llc will will flow through all of it’s income/expenses onto the s corp return. correct?

Answer

It’s a little unclear what your accountant is suggesting.

Is the SMLLC to become a shareholder in the s-corporation?

Or did you mean to say “convert” your SMLLC to an s-corporation taxation?

The general rule is that only natural persons can be shareholders of s-corps (no LLCs or corporations).

Perhaps there is a new letter ruling that makes an exception for SMLLCs, and this is what the accountant is referring to.

Does the SMLLC have significant assets which would cause tax issues by changing form to another type of entity?

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Single Member With Multiple LLC’s Can You Use One Check Book?

We file as sole Prop. on our taxes. We have multiple LLC’s and use only one checkbook. Do we need to set up other checkbooks for each LLC?

Answer

Each limited liability company should have its own bank account–otherwise, you are clearly commingling funds and you’ll lose all liability insulation between the LLCs. In other words, if you’re not going to have separate bank accounts for each LLC, then you might as well just run all those businesses in the same entity.

If each LLC has its own bank account, but you keep track of expenses and revenue using a single checkbook, then that shouldn’t be a problem.

Other Visitor Questions About Multiple LLCs

Question

If I have three distinct LLC’s, am I better off having one LLC or Corp own the three or just run them all separately? Thanks

Answer

If you’ve already formed 3 LLCs, you’re asking if you should form a fourth to act as a “parent” LLC.

I don’t see any compelling reason to create another entity. If you have an advisor (such as an attorney or accountant) who can articulate a good reason for creating a 4th entity, then you should follow their advice.

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Single-Member LLC Veil Piercing Protection

I am in the process of filing to form my LLC company. I was going to file for it to be treated as a single-member LLC, but how real is the possibility of veil-piercing? Can this be solved by filing for the LLC to be treated as a Corporation instead?

– Sergio, Texas

Answer

I am not aware of any caselaw where a judge has held that the mere fact of being a single member LLC alone was a factor in deciding to pierce the corporate veil. There is some caselaw out there on the issue of reverse veil piercing. In reverse veil piercing, the single member has personal debts and tries to prevent his personal creditors from getting at the LLC’s assets.

The method of taxation (corporate vs. partnership), should have no bearing on veil piercing.

Veil piercing is an extraordinary remedy, which will only be used when there is clear indication of fraud by the owner and corporation.

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How To Answer The Specific Purpose Question When Forming A Missouri LLC

In Missouri, it asks for your “specific purpose” of doing business. If you put something, for example online selling, does that mean that in the future if you decide to sell art work from your home or out of a brick and mortar that you couldn’t do it from that business?

Thanks.

– Jackie, Missouri

Answer

In the old days, corporations had very defined statements of purpose.

If the corporation performed business activities not defined in their corporate charters and/or articles of incorporation, these acts would be considered ultra vires, and voidable by the company under certain conditions.

This could cause a lot of problems for anyone dealing with that business–they would literally have to read the corporate charter before engaging in a transaction.

That sounds confusing, right? Well, you’re not the only one confused. Which is why many states, including Missouri in your example, permit the following to be used in describing your LLC’s business purpose:

2. The article listing the purpose or purposes should include at least one sentence which defines the specific purpose for which the company is organized (for example, what it will do to make a profit). You may also include, if desired, a purpose statement such as

“and all other legal acts permitted limited liability companies.”

Taken from Missouri limited liability company Articles of Organization Instructions.

So, here’s your solution. Enter one sentence explaining your business’s main activity as you think it will be now. Then, add the following language to the end of the sentence:

“and all other legal acts permitted limited liability companies.”

If you are forming a real estate holding company, for example, it could read:

To purchase, sell, hold, own, and operate real property within the state of Missouri and and all other legal acts permitted limited liability companies.

This will protect you in case your business direction changes over time.

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State Filing Number vs. EIN?

I heard that along with obtaining your EIN for federal you are also supposed to apply for a state filing number.

It would make since considering you pay state and federal taxes when you work for your employer, but I haven’t heard how you would go about doing this or if this is true.

I just thought that you automatically received a state number when you register your LLC. Do I have to apply for a state number and if so how do I go about this?

– Missouri

Answer

There is no state equivalent to your limited liability company’s EIN (employer identification number).

Just like you file your personal state taxes using your social security number, your LLC’s state taxes (which are passed through to you anyway), use your federal EIN.

You might be thinking of a state sales tax number. As the name implies, this is for sales tax, not income tax. Each state has a different procedure for applying for sales tax ids for resellers.

If you are purchasing products for resale, then your suppliers will probably ask for a state sales tax resale number. This allows them to sell products to you at wholesale without charging you sales tax.

For businesses that do not sell sales-taxable items (such as most services), you do not need a state sales tax ID.

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Unsigned Operating Agreements

I have been with a company 14 months where another person filed the company registration papers with the state. A partnership agreement was draw up sent to my attorney we countered and ultimately the agreement was never agreed to or signed. Does that mean there is no partnership? What are my legal rights/risks in IL to walk away from the company?

Answer

Is this a “partnership” or an LLC? I’m going to assume it’s an LLC, and that you are using “partnership” in the colloquial and not legal sense. If they were drawn up by an attorney for an LLC, they would be labeled an “Operating Agreement”.

You need to verify whether these “registration papers” were Articles of Organization (for an LLC) vs. the formation of a limited partnership under Illinois law.

First off, you really need to see a licensed Illinois attorney who is familiar with LLC and closely held business disputes (e.g. not the guy who fixed your DUI).

But, you can get yourself familiar with the overall picture, so you can follow your lawyer’s reasoning.

Without a signed Operating Agreement, you’re stuck with the “default” rules in Illinois under the Illinois Limited Liability Company Act.

805 ILCS 180/et. seq.

You can view the entire act here (grab a cup of coffee–you’ll have a tough time staying awake reading this):

Illinois Limited Liability Company Act

You want to look at section 805 ILCS 180/35-50&70 (Dissolution/Dissociation).

Unsigned llc operating agreement legal?

by chris
(new hampshire)

I wish to leave an llc I have been a part of for a few months now. An operating agreement was drawn up but never signed by either party.

Is there any action I need to take at this point? I have not signed any documents, agreements, etc associating me with this llc, everything has been verbal and in good faith.

Can I simply walk away?

Thanks,
Chris

Answer

Is your name listed on the Articles of Organization?

Is your name on any bank accounts of the LLC, or have you signed any leases, opened a credit card, or any other activity that associates your name with the company?

If the answer to any of the above is yes, then the safest route is to formally remove yourself as a member.

Because you don’t have a signed operating agreement with the other members of your LLC, you are at the mercy of New Hampshire’s default LLC statutes.

You’re going to need to see a New Hampshire attorney about this one to draft documents complying with NH law.

Another question about unsigned operating agreements:

What are the possible downfalls of not having ones name on an LLC , when you have a partnership?

(New York)

I own a business in NY and an LLC was formed in CT by my partner (where he resides) for this business. His is the only name listed on the LLC, but he is as I said a partner in the NY business. Will the fact that my name is not on the LLC have any repercussions on the business (or me personally for that matter) should the business ever become for sale, or, if there are any possible royalties incoming from an entity that may want to “buy-in” or invest in the property?

Answer

Some questions for you:

1. After the CT limited liability company was formed, did you transfer the assets of the NY business into the CT LLC? In other words, does the CT LLC own anything?

2. What form was the NY business in before your created the CT LLC? (e.g. did you have a partnership, a sole proprietorship, a corporation, etc.).

3. If the NY business was an incorporated entity, are there documents showing a purchase of the the NY business by the CT LLC?

Your interest in the LLC is not determined by who is listed in the Articles of Organization. It is determined by how many membership interests you own.

You should have documentation in your Operating Agreement stating what percentage of the LLC you own. If the LLC started out with your partner owning 100%, and then you purchased 50% of the membership interests, there should be a purchase and sale agreement for the membership interests.

Unsigned operating agreement

by David Smith

(Atlantic beach, Florida)

What is the legal standing of an unsigned Florida LLC operating agreement. I believe that no company is formed and the document can be change at will until signing.

Answer

I think you are confusing Articles of Organization with an operating agreement (don’t feel stupid, these are common mistakes).

No LLC is formed until the Articles of Organization are filed with, and accepted by, the state of Florida.

If Articles have been filed and accepted, a company is formed.

The operating agreement governs how the LLC will be run. An unsigned operating agreement is not going to be binding (though an oral operating agreement is binding in some states), and therefore Florida’s default LLC rules will govern the LLC.

Whether the operating agreement is signed or unsigned, it can be amended by written consent of all the parties to it.

Is this operating contract valid?

In March 2008, A, B and C, who are all US citizens based in San Francisco, enter into an Operating Agreement for their newly formed California Limited Liability Company. Each of the parties has signed the agreement by logging into a website with their personal username and password and clicking on an ‘Agree’ button after having the chance to scroll through and read the agreement.

Answer

I would ask an attorney about this one. There might be an electronic signature act that covers these types of agreements.

Is there no paper document as well?

Courts are very old fashioned, and they like paper (if this were to ever go to court).

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What Is The Legal Standing Of An Unsigned LLC?

What is the legal standing of an unsigned Florida LLC operating agreement. I believe that no company is formed and the document can be change at will until signing.

Answer

I think you are confusing Articles of Organization with an operating agreement (don’t feel stupid, these are common mistakes).

No LLC is formed until the Articles of Organization are filed with, and accepted by, the state of Florida.

If Articles have been filed and accepted, a company is formed.

The operating agreement governs how the LLC will be run. An unsigned operating agreement is not going to be binding (though an oral operating agreement is binding in some states), and therefore Florida’s default LLC rules will govern the LLC.

Whether the operating agreement is signed or unsigned, it can be amended by written consent of all the parties to it.

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Do I Have To Put LLC After My Business Name?

1. Do I have to put LLC after my business name?

2. I am an artist, putting together a plan to open my own gallery. Is LLC the best option for me? The research I have done point in this direction.

Answers

1. Yes. Or you can use variations such as “L.L.C.”, “Limited Liability Company”.

2. An LLC is a good option for many small businesses.

In your particular business–an art gallery–there is some considerable risk. For example, contract disputes with artists/buyers, liability for damaged works, a rogue business partner who makes unrealistic promises to buyers/artists, and so on.

All these things can–if you are unincorporated or a general partnership–expose your personal assets to loss.

If you are starting this gallery with a partner, I strongly suggest that you form an LLC, and NOT a general partnership. Otherwise, if the relationship sours, you can be held personally liable for actions of your ex-partner made on behalf of the partnership.

Furthermore, if you are going into business with a partner, you need an Operating Agreement.

Don’t skimp on this!

You can save a couple bucks filing your Articles of Organization yourself. However, you cannot draft your own Operating Agreement (unless you happen to be an experienced business lawyer in addition to your other trade).

Either find yourself a trusted attorney, with experience in LLC Operating Agreements, to draft one for you.

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Is There A Danger Of Using My Home Address As The Registered Agent?

When forming an LLC my home address was used as there was no office space as yet to list. Will this compromise the LLC and enable anyone to claim against the home address in case of loss?

Answer

The short answer is no.

The use of a home address alone for your registered agent address will not cause your corporate veil to be pierced.

Piercing the corporate veil is an extreme remedy, and it usually takes multiple factors–including fraud by the owners/officers of the entity–to cause a court to pierce the veil.

The biggest disadvantage to listing your home address is that you will now get a ton of junk mail to your home, because your LLC filing is public knowledge and marketers can purchase list of newly formed companies.

Every state has a website where any person can search the name of a corporation or limited liability company and see, at minimum, the registered agent address. Some states further require annual filings listing the officers of a corporation, and that information is also public.

But at minimum, your registered agent address is always publicly visible. Furthermore, most states let anyone view the change history to an LLC’s registered or resident agent. If you want to keep your connection to an LLC private for some reason, then you should use an outside provider as your registered agent and not your home address.

Also, if your company is ever sued, the summons will be served at your home, which might cause embarrassment.

For example, I had a client who was sued in federal court by an out-of-state bank on a defaulted business loan, and the bank decided to have the US Marshall serve the summons instead of using a private process server. The client was obviously upset, scared and embarrassed as her neighbors saw federal agents in marked vehicles outside her home and in this world, people are likely to think she did something criminal rather than a mere lawsuit on a business loan.

You can always change your registered agent to one of the many registered agent services available in every state, such as Legal Zoom’s. They usually charge anywhere from $75-$200 per year, depending on the level of services provided and who you choose to use.

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We Have An LLC With 1 EIN And Want To Create A Sister Company

Do we need to create a new corporation? Do we need to create a new ein?

we file as an s- corp and want to gain the benefit overall of the new company that will generate at a loss for a few years.

– Jennifer, Texas

Answer

When you say a “sister corporation”, do you mean that you want an entity that is legally separate from the one you currently have?

In other words, do you want to prevent the liabilities of one company from ‘flowing’ into the other?

If so, and if you want to keep the two companies separate in terms of liabilities, then you’ll need to form separate legal entities, which means forming a new LLC with its own name, EIN, etc.

Otherwise, just have this new “business” operate within your existing LLC.

I notice you anticipate the new business incurring a loss during the startup period.

Here, you’ll want to avoid the c-corporation and stick to partnership or single member LLC (disregarded entity) status to flow those losses through to your personal income tax return and take the deduction.

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What Address Do I Use With An LLC For An Internet Business?

I’m leaning towards creating an LLC and was wondering if I need to use my home address as the LLCs address or can I use a different address like a PO Box from a UPS Store?

Also I plan on naming my LLC different from my 3 websites. I want them to be covered under my LLC, so would I need to file “Doing Business As” – DBAs for each website? And is that done at the secretary of state?

Also since I will be the owner, single member is it necessary to get an EIN? or can I just use my Social Security Number?

– Joe, Michigan

Answer

1. You can use your home address for your LLC’s business address and registered agent address. Understand that the registered agent address is public knowledge. This may or may not be a concern to use. Using an outside service will give you more privacy, but it costs more money.

You cannot use a PO Box as a registered agent address.

2. You don’t need a DBA for each domain name. Make sure that the LLC is listed as the owner of the site, that the LLC pays for the hosting, etc., and that the LLC registers for copyright for the site. In other words, you want it to be clear that the LLC is owner of all the sites. That includes having the LLC open an Adsense account in its own name (if you use Adsense); any affiliate accounts in its own name, Paypal accounts and so on.

3. A separate EIN is a good idea even for single member LLCs, even if not necessarily required because you don’t have employees.

There is no cost to obtain an EIN if you do it yourself by filing a Form SS-4 (you can even fax it or do it over the phone). You’ll be using your EIN to apply for wholesale accounts, paypal, bank accounts, affiliate accounts, etc., and using the EIN instead of your Social Security name gives you a little more privacy.

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What Is The Annual Fee For An LLC?

Is the annual fee a flat rate or increase as capital increases?

Answer

Depends on which state you’re in. Some states have no annual fee, others charge a flat fee, and still others have a fee that increases with capital up to a maximum.

For example, California has an $800 “franchise tax” that must be paid annually, along with an annual fee based on income earned in California (thanks to the case involving Northwest Energetic Services, LLC v. California Franchise Tax Board, in which the annual fee was held unconstitutional when applied to non-California income).

This California annual fee can go as high as $12,000, for LLCs with incomes of $5 million+.

It sounds like I need to create a summary of annual fees by state along with an explanation of how they operate.

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What Is The Difference Between Members Vs Managers

When choosing who should run my llc members or managers what are the differences?

Answer

A member is the owner of the LLC. Think of them like shareholders in a corporation.

A “manager” is a person who has the power to make decisions on behalf of the LLC.

In a member-managed LLC, the members (owners), make all the decisions. It’s sort of like running a partnership.

In a manager-managed LLC, a manager (who is not an owner/member), is hired by the owner(s) to manage the day to day operations of the company.

Before the IRS changed the rules to allow LLCs to simply choose whether to be taxed as partnerships or corporations (called “check the box” regulations), whether an LLC was manager or member-managed could impact its tax classification. There was a four part test to determine if the LLC was more like a corporation or a partnership.

This is not an issue anymore, which is good because the old system was complex and confusing.

If the members (owners) of the LLC are going to operate the LLC on a daily basis, the LLC should be member-managed.

If the members are hiring some non-owner to manage the company, then it is a manager-managed LLC and they need to appoint that person as Manager.

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Using “LLC” In Your Business Name

A person recently emailed me and asked:

“If I create an LLC, do I have to market my business name with the LLC at the end?”

While this site does not give legal advice, the my answer is a typical “lawyer” answer: it depends.

When you create “Your Business, LLC” that is your business’ legal name.

Some companies don’t put the “LLC” or “Inc.” or “LLP” after every mention of their name–particularly on products.

An “LLC” or “Inc.” makes for an ugly trademark.

Here are a couple of places you absolutely must use your full corporate name (i.e. with LLC or Limited Liability Company at the end):

  • On all contracts (this includes purchase orders, sales contracts, etc.)
  • Employment contracts
  • Joint venture agreements
  • Deeds
  • Other recorded instruments involving real property (e.g. liens)
  • Leases
  • Sales of real property
  • Registrations of copyrights, trademarks and patents

If your business has a trade name, something that it is known for other than your formal LLC name that you registered with the state, you can file a DBA. DBA stands for “Doing Business As“.

Suppose you have been operating a sole proprietorship (i.e. not incorporated) for years as a contractor. Your company was known as “John R. Smith Contractors”. Now, you’ve decided to form an LLC and, decided to give your new LLC the ambitious name of “International Contractors, LLC”.

However, many of your old customers remember you as John R. Smith Contractors. Your truck has John R. Smith Contractors stenciled on it, and your contracts are pre-printed with John R. Smith Contractors, and you don’t want to throw them out.

What you can do is register John R. Smith Contractors as a Doing Business As name of International Contractors, LLC.

Check out Legal Zoom’s inexpensive DBA service. 

Visitor Question:

LLC after business name?

by Shawn
(Hawaii)

1. Do I have to put LLC after my business name?

2. I am an artist, putting together a plan to open my own gallery. Is LLC the best option for me? The research I have done point in this direction.

Answers

1. Yes. Or you can use variations such as “L.L.C.”, “Limited Liability Company”.

In your particular business–an art gallery–there is some considerable risk. For example, contract disputes with artists/buyers, liability for damaged works, a rogue business partner who makes unrealistic promises to buyers/artists, and so on.

All these things can–if you are unincorporated or a general partnership–expose your personal assets to loss.

If you are starting this gallery with a partner, I strongly suggest that you form an LLC, and NOT a general partnership. Otherwise, if the relationship sours, you can be held personally liable for actions of your ex-partner made on behalf of the partnership.

Furthermore, if you are going into business with a partner, you need an Operating Agreement.

Don’t skimp on this!

You can save a couple bucks filing your Articles of Organization yourself. However, you cannot draft your own Operating Agreement (unless you happen to be an experienced business lawyer in addition to your other trade).

Either find yourself a trusted attorney, with experience in LLC Operating Agreements, to draft one for you.

Or, if you form your LLC through Legalzoom, they include a customized Operating Agreement with their formation package.

It’s a very good deal. If you require an attorney’s customization beyond Legalzoom’s Operating Agreement, rest assured that by having a document to start with, you will save a significant amount on the attorney’s revisions.

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