• What is an LLC?

LLC stands for Limited Liability Company. Forming an LLC is the simplest way of structuring your business to protect your personal assets in case your business is sued.

The limited liability Company or LLC is not a partnership or a corporation. It is a business structure that is a hybrid of a partnership and a corporation. Its owners are shielded from personal liability and all profits and losses pass directly to the owners without taxation of the entity itself. To form an LLC, articles of organization must be prepared and filed with the state and filing fees, initial franchise taxes, and other initial fees must be paid.

LLCs can be owned by one or more people, who are known as LLC “members”. An LLC with one owner is known as a single-member LLC, and an LLC with more than one owner is known as a multi-member LLC.

• Why form an LLC?

Protects you against lawsuits and other legal actions.

Reduces paperwork compared to corporations and other legal entity types.

Prevents your company from being taxed twice.

Makes your business appear more credible to customers and creditors.

• Benefits of an LLC

Personal asset protection. Provided there is no fraud or criminal behavior, the owners of an LLC are not personally responsible for the LLC’s debts or lawsuits.

Pass Through Taxation. An LLC’s profits go directly to the LLC owners, who then report their share of the profits on their individual tax returns. Hence, an LLC’s profits are only taxed once. This is known as pass-through taxation. In Iran LLCs are taxed annually between 10 to 35 percent depending on their profit. (Iran Tax Law, 2001, clause 105)

Simplicity. Limited liability companies are relatively easy to form and maintain with little paperwork. Unlike C-Corporations and S-Corporations, LLCs are not required to assign formal officer roles, hold annual meetings, or record company minutes and resolutions.

Flexibility. There are few restrictions on how an LLC owner can structure the ownership and management of an LLC:

• Your LLC can be single member or multi-member
• A Multi-Member LLC can be managed by its members, termed as member-managed.
• or A Multi-Member LLC can be managed by a manager that is appointed by its members, termed as manager-managed.

In addition, an LLC can elect to be taxed as a C-Corp or S-Corp if that is more beneficial.

C-Corp: refers to any corporation that is taxed separately from its owners.

S-Corp: generally is not taxed separately.

Increased Credibility. Forming your business as a limited liability company brings added credibility. An LLC is recognized as a more formal business structure than a sole proprietorship or partnership. Including LLC in your business name lets customers and partners know that you are a credible business.

• Disadvantages of LLC

There are also some disadvantages that LLC has. Such as:

1. Because LLCs are pass-through entities, LLC owners are responsible for paying taxes on their personal share of LLC income, whether or not they are given a disbursement.
2. All members must wait until the LLC sends out K-1 forms to complete their personal taxes. For this reason, most investors will not fund LLCs.

K-1 form: A Schedule K-1 is a tax document used to report the incomes, losses, and dividends of a business’s partners.

• Name of an LLC

According to the Small Business Administration, states generally require LLC business names to meet certain requirements. Names have to be different from other LLC business names in the states they’re registered in. LLCs must have LLC or limited Company within their business names. Also, LLCs cannot have certain words that are restricted in their titles. For example, LLCs cannot have the word “bank” in their names, because banks are ineligible to operate as LLCs.

• Who will Manage the LLC?

Generally, an LLC is managed by its members, known as member-managed. However, in some cases, members will appoint a manager to handle the LLC’s daily operations, and this is called manager-managed.

The membership of an LLC and the way it will be run are laid out in a legal document known as an operating agreement. This is an internal agreement among all the members of the LLC.

• Dissolving of an LLC

While a corporation’s existence is perpetual, an LLC typically has a limited life span. Most states require that an LLC list a dissolution date in its articles of organization and certain events such as the death or withdrawal of a member can cause the LLC to dissolve. Also, typically the approval of the other members must be received to transfer shares in an LLC.

• Different Kinds of LLC

1. A Professional Limited Liability Company (PLLC, P.L.L.C., or P.L.) is a limited liability company organized for the purpose of providing professional services. Usually, professions where the state requires a license to provide services, such as a doctor, chiropractor, lawyer, accountant, architect, landscape architect, or engineer, require the formation of a PLLC.
2. A Series LLC is a special form of a Limited liability company that allows a single LLC to segregate its assets into separate series. For example, a series LLC that purchases separate pieces of real estate may put each in a separate series so if the lender forecloses on one piece of property, the others are not affected.
3. An L3C (Low-profit Limited Liability Company) is a for-profit, social enterprise venture that has a stated goal of performing a socially beneficial purpose, not maximizing income. It is a hybrid structure that combines the legal and tax flexibility of a traditional LLC, the social benefits of a nonprofit organization, and the branding and market positioning advantages of a social enterprise.
4. An anonymous Limited Liability Company is a LLC for which ownership information is not made publicly available by the state. Anonymity is possible in states that do not require the public disclosure of legal ownership of a LLC, or where an LLCs identified legal owners are another anonymous company.