If you have big plans to start your own business, it’s always a good idea to form your own Limited Liability Company, also known as an LLC. Forming an LLC is the simplest way to structure your business to protect your personal assets in the case that your company is sued.
At The Law Office of Tankia L. Finney in Montgomery, we understand how challenging and intimidating it can be to form a business. If you have an innovative business idea and you need help navigating the legal landscape to protect yourself, our lawyers are here to help. We specialize in business formation law, and we can help you sift through the many state regulations and requirements so you can focus on what’s really important: starting your business. If you’re interested in learning more about our Alabama legal services, schedule a consultation today.
The Advantages Of Forming An LLC
There are many advantages to forming your own LLC, including protecting the business owner from certain liabilities like business debt. Let’s take a look at some of the main reasons you may want to form an LLC.
As a small business owner, it can be challenging trying to understand your tax obligations. There are many different ways that a business can be taxed, and one method is known as pass-through tax. But what exactly is a pass-through tax? When forming an LLC or business entity, the tax “passes through” the company, so the business doesn’t have to directly pay the tax. Rather, another entity, such as the business owner or customer, pays the taxes.
Another perk of pass-through tax is that the business income is only taxed once. Sometimes it’s easier to think about how the money travels through your business. If you own a retail store that sells fancy soap, money will enter your business when a customer pays for a product. When your business receives the income, the money is then added to the owner’s equity. From there, it is up to the business owner to distribute tax payments to the appropriate agencies.
There are a few different kinds of pass-through taxes that small business owners will come across: sales tax and business income tax. Let’s take a look at their differences below.
- Depending on where your business is located, you may come across sales tax. There are different sales tax requirements per state, and some states do not enforce this tax at all. When a sales tax passes through your business, you won’t have to worry about paying for it out-of-pocket. Sales tax is, instead, a percentage of the customer’s total bill. This means that you collect sales tax from customers at the point of sale and send it to the government.
- Business income tax can come out of the income a business receives for their products or services. For some business owners, the owner will pay taxes on business income through their personal tax return.
Personal Asset Protection
Another major perk of setting up an LLC is the fact that you’ll have personal asset protection. Assuming there is no fraud or criminal behavior, this means that the owners of the LLC are not personally responsible for the LLC’s debts or lawsuits.
Improve Your Business Credibility
By forming your own LLC, your business will have added credibility. LLCs are recognized as a more formal business structure than partnerships and sole proprietorships. When you include LLC in your business name, you’re letting your customers know that you mean business.
The Different Types of LLCs
Did you know that there are many different types of LLCs? If you need a business formation lawyer to help you figure out which LLC is best for you, contact Alabama’s Top Rated Local® law firm today.
If a company is conducting business in the state in which it was formed, it is normally referred to as a Domestic LLC. For example, if a company forms in LLC in California and they have been approved by California Secretary of State, it is considered a “domestic” LLC when it does business in California.
When an already existing LLC decides that they want to open an office in another state, the business will need to register in that state as a Foreign LLC. For example, if an LLC that began in Alabama opens a new business establishment in Illinois, they will have to form in Michigan as a Foreign LLC.
A Professional LLC is a limited liability company that was created to provide a specific professional service, such as a medical facility or even a legal practice. In order to classify your business as a Professional LLC, it is necessary for certain members of the LLC to possess the state licenses needed to demonstrate their professional qualifications.
Steps to Form an LLC
If you think forming an LLC is best for your business, there are a few things you can do to get the process started.
- Before you choose your business name, it’s necessary to make sure that it is not being used by another limited liability company on file with your state’s LLC office. The name of your business must end with an LLC designator, such as: Limited Liability Company or LLC. Check out this FAQ on choosing a business name for help.
- Once you have your business name, it’s time to file the “articles of organization” with your state’s LLC filing office. You’ll want to provide them with your LLC’s name, address, and sometimes, the owners of the company.
- Now you’ll want to create an operating agreement. This will contain the rules for the ownership and operation of the business. Most operating agreements include the members’ percentage interests in the business, their rights and responsibilities, and information on profits and losses.
- Obtain the proper licenses and permits to start your business. You may need to obtain a business license, and if you plan on selling your own products, you’ll want a seller’s permit.
- You’ve done it! Now it’s time to retain your LLC by abiding by certain formalities like keeping organized financial records.
Business Formation Attorneys in Montgomery
If you live near Montgomery or you’re ready to register your Alabama business as an LLC, make sure to contact The Law Office of Tanika L. Finney. We can help you navigate the complex waters of the business formation process, and we specialize in helping you with:
- Tax registration
- Business license
- Local permits
- W-4 and W-2 forms for each employee
- Withholding tax records
If you’re interested in learning more about how our attorneys can help, contact our professional staff today.