If you’re serious about your business, the first step is making it legal. That means you choose to create a limited liability company, or LLC to get things in order.
What is an LLC?
A limited liability company (LLC) is a business structure that gives you the limited liability protection of a corporation but allows you to pass your taxes through your personal return as a sole proprietorship. For instance, if someone tried to sue your company, the company would take the liability and they wouldn’t be able to touch your personal assets like your house, savings, or car.
Any income losses you incur as part of that business will be passed on to the owner(s). This income is reported on your personal tax return every year.
Understanding an LLC
There are quite a few benefits to having an LLC:
- Personal liability is limited
- You avoid being double-taxed
- Creating an LLC is easier than forming other corporations.
- Less expensive to form
- Profit-sharing flexibility
- Gives you credibility in the marketplace
- Compliance requirements are usually limited.
While there are benefits to forming an LLC, it’s important to understand there may be some difficulties in understanding how LLCs run if you don’t have experience and aren’t working with an expert or attorney who can guide you with their expertise. Here are some things to consider:
In an LLC, the owners must immediately recognize their profits. This means that any profits made and distributed must be reported on the income tax of the member(s). This doesn’t have to happen with a C-corporation, as shareholders are not always taxed on profits from the corporation.
There are instances where LLC owners pay more taxes than corporations. You will also have self-employment taxes, which are currently 15.3%. You may have the option to be taxed as a C corporation or an S corporation. A tax professional could better advise you.
Transferring ownership is usually harder than when dealing with a corporation. In an LLC, the members must agree when adding new members or changing ownership percentages. In a corporation, shares of stock can be sold to someone else.
Getting Legal Counsel
Legal counsel can get expensive when setting up an LLC. On average, you will pay about $350 to $450 per hour. Some attorneys have packages that run into the thousands, which include drafting and filing your paperwork, advising you on the next steps, providing your Articles of Organization and Operating Agreement, getting your EIN number, and ongoing legal counsel. Once the LLC is set up, getting advice from them will also cost you per hour. If you’re just starting out, having to spend huge sums of money could put you under financial strain before you start making a significant return on your investment.
LLC Tools That Help Your Business
When you are looking for ways to save money but understand the ramifications of not doing things the right way, knowing the tools that can assist makes a difference. While there are many LLC tools on the market, these five have stood out as being the most economical, comprehensive, and educational in the industry. Here are the pros and cons of each one:
ZenBusiness supports small businesses in getting their LLCs taken care of. An online service, you select your filing package and the services you need. ZenBusiness has three tiers of services – the starter plan at $49 (billed annually) which takes care of the business filing, one name search, phone and email support, a year of registered agent support, and producing operating agreements and bylaws. You also get a free assessment from a CPA.
They also have ZenBusiness Pro at $199 annually, and ZenBusiness Premium at $299. Both levels have the base package included and more robust service offerings. For a new business owner, this may be ideal for one-stop stop services and add-on products. However, you may be able to find better deals elsewhere, and there is a recurring fee for registered agent services listen in the bottom-tier package of $119 after the year is over.
Incfile has made waves for its free filing plan and is known for great service at low prices. They have three-tiered pricing. The base plan is FREE plus the state fee. This includes filing, the Articles of Organization, name availability search, one free year of registered agent ($119 annually after that), document access, order tracking, company alerts, and lifetime customer support.
The other two packages are $149 + state fee, and it includes fling for the EIN, S-Corp election, a tax consultation, custom operating agreements, and a 30-minute tax consultation. The $299 + state fee includes all these features, plus a domain name and email. Although this is a great service, there are a few cons. While free sounds good, there are a lot of upsells. Additionally, the add-ons may be very attractive, but if you aren’t careful, you may end up paying more.
- Tailor Brands
Tailor Brands is known for being a one-stop-shop where you can get everything done for your business. Starting your LLC, creating an online presence, and getting branding assets to launch. Their starting LLC package includes filing the LLC, the name availability search, annual compliance report, and priority support. The annual plan is $199.
The add-on services may significantly increase the price. A registered agent is $199 per year, which may come free with other providers. Acquiring the EIN is $79, and the operating agreement is $29. Overall, the services are affordable to file an LLC, but they shine by offering the additional services to get your entire brand off the ground.
- Legal Zoom
Legal Zoom has over 20 years in the industry and is known for helping small businesses get what they need. They have a diverse range of legal services. Their business formation package starts at $79 + state fees. This includes name search, digital access to your documents, and lifetime customer support. While the package is barebones, their experience and longevity in the industry speak volumes.
One of the downsides to Legal Zoom is its upsells. You must go through a lot to get to the package you want. Additionally, their registered agent services are very expensive, starting at $299 annually. Due to their volume of business, they have a reputation for being slow in turnaround.
Corpnet is a reputable heavy hitter in the industry for creating an LLC. They have three packages – $79, $199, and $249. Their basic package includes filing, completing the Articles of Organization, 60 days of registered agent services, and automatic compliance notifications. While they have a stellar reputation, you can get more for your money with other competitors.
It’s always best to shop around and determine which service works best based on your needs. Every provider listed has its pros and cons, but they are all reliable and can help navigate the process. The best part of having these tools is knowing you have resources and options to keep you from going in blind. Do a little more research before making your decision, and get ready to step into the world of legal entrepreneurship.