Forming a limited liability company (LLC) is a relatively easy process, but it can significantly shield a business owner from potential personal liability in case of a lawsuit. The paperwork is administered by your state's Secretary of State office and often can be completed in a week.
Significance of an LLC
An LLC creates a separate entity from the owner. Absent the LLC or some other form of creation in the eyes of the state, a business is assumed to be either a sole proprietorship or a partnership. This can expose the owner to significant liabilities if the business were sued because the plaintiff can seek recovery from the personal assets of the owners as well as from the business itself. This option is not generally available to those who sue an LLC.
Information Needed for an LLC
An LLC needs a name that has not already been taken in the state where it is formed. It also needs an address and the type of business should be described. Similarly, the owner of the LLC should be clearly specified, though it does not have to be a person--it can be another LLC or a corporation.
Filing for an LLC
Filing for an LLC is relatively easy. The application should be filed with the state Secretary of State. Most states make it possible to file online. The application normally requires completion of a basic form, a small filing fee, and some states require inclusion of the articles of incorporation for the LLC. However, there are some states that allow the state-created form to substitute for articles of incorporation that would be tailored to the LLC.
Renewal of an LLC
In most states there is an ongoing obligation to renew the LLC every year. This generally requires nothing more than a renewal fee and completion of a form confirming the accuracy of contact information for the LLC.
Independence of an LLC
The liability protections of an LLC can be circumvented in instances where the "line" between the LLC and the owner is blurred. Consequently, though it is not fail safe, it is advisable to maintain separate bank accounts for the LLC and the individual owner. Likewise, equipment owned by the LLC should not be used for personal purposes in order to help maintain the division between the LLC and the individual owner.
