Written by attorney Adam Nathaniel Williams

Steps to Establish a Limited Liability Company

One or more individuals or entities form a Limited Liability Company (LLC) through a special written agreement. The agreement details the organization of the LLC, including provisions for management, assignability of interests, and distribution of profits and losses. LLCs are permitted to engage in

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Advantages include it protects members from personal liability for business decisions or actions of the limited liability company; it typically exempts a member’s personal assets from collection if a creditor obtains a judgment against the limited liability company; a limited liability company requires less startup costs and record keeping that a corporation; few restrictions govern the sharing of profits; and the members decide who earned what percentage of profits based upon expertise, hours worked, and capital invested. Disadvantages include the Federal government considers members of a limited liability company self-employed; this requires a self-employment tax contribution toward Medicare and Social Security; this subjects the entire net income of the limited liability company to the tax; all members must pay taxes on company profits, even if they receive no distribution; and a limited liability company receives fewer fringe benefits such as group insurance and medical reimbursement plans compared to a corporation.

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