What You Need To Know When Creating An LLC
When beginning your Flagstaff business endeavor, it is important to think about the best way to set up your company. Limited Liability Companies – or LLCs – are a popular way to classify your business. But what are the benefits of creating an LLC? And how do LLCs differ from other business models?
What is an LLC?
An LLC is a Limited Liability Company. It is one of the simplest ways to set up a business to protect personal assets in case your business or organization is sued or held liable for misconduct. It is also the simplest and most versatile enterprise structure. An LLC is its own separate entity which means that it deals with its own lawsuits and debts. LLCs can be owned by a single member or multiple members. Either way, LLCs have their own federal tax ID or social security number to keep track of the entity. This allows the LLC to do business all under its own identity.
There are three different types of Limited Liability Companies.
- Domestic Limited Liability Company: This type of LLC operates in the state it was created in.
- Foreign Limited Liability Company: This type of LLC is needed when a domestic LLC wants to change the state it operates in or open a new office in another state which it is not located. For example, if your domestic LLC is located in California but you would like to extend your services to Washington, you would need to create a foreign LLC.
- Professional Limited Liability Company: This type of LLC is for companies like legal and financial practices.
What are the benefits and drawbacks of LLCs?
Since an LLC is one of the most versatile enterprise structures, and they offer many benefits.
The benefits of creating an LLC:
- Creating an LLC is beneficial in protecting you against lawsuits
- All profits go to the members of the LLC, so taxation only happens once
- LLCs add credibility to small businesses
- There is less regulation on LLCs
- They offer personal asset protection
The drawbacks of creating an LLC include:
- Potential confusion about roles within the company
- Self-employment taxes that ask individual members to pay for federal items
- Limited lifespans due to members potentially leaving the company
Is an LLC right for me?
Limited Liability Companies have become an extremely popular way to do business in Arizona, but there are unique responsibilities that come along with them. If you are thinking about creating an LLC in Flagstaff, AZ make sure you have an understanding of what they are, how you can benefit from them, and how they can hurt you in the long-run. At Vaughn S. Winborne Attorney at Law, we can assist you in navigating your new business and setting it up to be an asset to you for years to come.