FREQUENTLY ASKED QUESTIONS

2. Is an LLC right for my business or venture?

Very probably. Refer to Who Needs It? Although there are certain criteria (see 14 & 15 below) to be considered in making the decision to organize as an LLC, the protection offered along with the tax advantages gained and the flexibility of operation make it such an attractive package that any business owner should consider it. Review additional information.

3. Why should I care?

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4. How much does it cost?

It depends. If you use an attorney in your area you will pay the going hourly rate. That will probably be anywhere from $200 - $350 and the total fee, not counting filing fees, will be from $1000 - $3000. If you use the Limited Liability Company Kit the cost will be less than one-half hour of an average attorney's time.

5. Do I need a lawyer to form an LLC?

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6. Is an LLC better than a Subchapter S corporation?

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7. Is an LLC better that a limited partnership?

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8. Can one person form an LLC?

Although most states permit single member LLC's , the LLC KIT is designed to be used by two or more members. This is because there is debate in the legal community as to whether a single member LLC will be afforded the same limited liability status by the courts as a multi-member LLC. The  single member LLC has not been fully tested in litigation and it is uncertain as to how they will ultimately be treated in various situations. By definition, one person cannot be a partnership and therefore you might lose this advantage. Additionally, it is relatively easy to get around this issue by just making a family member a 1% or more owner. A husband and wife are considered two different members for this purpose. Most states use the same forms for  single member LLC formation so if you need to organize this way you can but seek legal and/or tax advice before doing so.

9. How long does it take to form an LLC?

Filing of the Articles of Organization (a one page form in most states) with the secretary of state is all that it takes to form an LLC. This can be done in person, by mail and on line in certain states and usually only takes a few days.

10. Does an LLC pay income tax?

An LLC is usually treated as a "flow through" entity. As such it does not pay any income tax itself. Profits and losses flow through to the tax returns of the individual members. You can elect to be taxed as a corporation but seek legal and/or tax advice before doing this.

Some states do charge a franchise tax which is not income tax but a fee for being allowed to conduct business in the state. 

11. Does my state have an LLC law?

All states now have an LLC law.

12. Who can and cannot be a member of an LLC?

Members can be any person or entity. This can include foreigners, both out of state and out of the country, corporations, trusts, other LLC's etc. This makes the available pool of potential investors virtually limitless which is not the case with corporations.

13. Can professionals practice as LLC's ?

Some states permit professional LLC's and some do not. California is currently very restrictive and prohibits anyone whose service requires a license through the Business and Professions Code from operating as an LLC. In any event, in those states that do permit professional LLC's, the professional remains responsible and liable for his/her own torts.

14. Can a corporation convert to an LLC?

Yes, but this is probably not a wise move because IRS regulations would require that the corporation liquidate first and this could create considerable tax liability.

15. Can a partnership convert to an LLC?

Yes. Due to the similarity of the structure the IRS does not look at the conversion as a taxable event.

16. Can the members of an LLC participate in management without losing their liability protection?

Yes. This one of the major benefits of the LLC that distinguishes it from a limited partnership.

 

17. Which is the best state form my LLC in?

Probably the one where most of the business activity is. If you file in another state to save fees or take advantage of that state's particular laws, then you will have to register in the state where the actual business activity is conducted to preserve your liability protection. That will create double fees and usually is not worth it unless your company is very large and "forum shopping" makes sense.