8 Reasons to Register as an LLC

If you’re an existing business of any size, you’re probably required to register with your state’s filing agency. There’s little reason not to register. In most cases, the costs associated with registering are minor.

The toughest part might be figuring out the best business registration option to choose. Registering as a limited liability company or LLC is probably the best option for your business. Here are a few reasons why.

IT’S SIMPLE TO CREATE

In some states, forming an LLC is as simple as going to a website, answering a few simple questions, and paying a filing fee. In other states, the process isn’t quite as easy but if you need to hire a business registration company to help, don’t expect to get a large bill. Some companies will help you register your business for less than $50.00

IT LIMITS YOUR LIABILITY

As the name implies, when you register as an LLC, you are no longer personally liable for adverse events that take place in your company. If your company is sued or files for bankruptcy, the creditors cannot try to collect your personal assets.

While this is an advantage, there are plenty of exceptions. If your lender writes a clause into a contract or other situations exist, you could be liable but as long as you run your LLC correctly, your personal assets are safe.

PASS-THROUGH TAXATION

Your company will likely not pay taxes on its income. The tax is “passed through” to you. Other business entities are required to pay taxes at the business level. As the owner, you would pay business taxes and personal income taxes once you paid yourself. An LLC avoids double taxation.

LESS PAPERWORK

LLCs require very little state-imposed paperwork. Often, business owners pay an annual fee, update their contact information, and answer a few questions. Of course, each state varies but what is consistent is that the paperwork for an LLC is much less than an S or C corporation.

SIMPLE MANAGEMENT STRUCTURE

Does it seem a little silly to have a board of directors for your startup? An LLC allows you to choose the management structure you would like. Some other registration types require you to have a board of directors, formalized meetings with minutes, and other formal practices not appropriate for small, one or two-person businesses.

OWNERS CAN BE ANYBODY

S corporations, for example, place restrictions on the amount of owners. With an LLC, there are very few restrictions (even foreign entities can own an LLC). Because states vary in requirements, your state may have stricter requirements than some.

SOMETIMES IT’S REQUIRED

Bidding on government contracts? It’s likely that you have to be a registered business in order to land the contract. Other companies may require it as well. You don’t have to be an LLC but you do have to be registered.

MORE CREDIBILITY

With unemployment still substantial, many people who are out of work are forming businesses. This has served to diminish the notoriety of being a business owner. Forming an LLC separates you from the people who aren’t committed enough to invest the time and money into being recognized by their state. A business that is registered has perceived professionalism, ethics, and longevity.

Forming an LLC isn’t right for every business. Go to our website for more information about how to form an LLC.

Incorporating Out of Your Home State

This is a recurring question from people calling to our offices: Does it really matter where I incorporate my business? or Where should I incorporate my business? and this answer is yes. It does really matter.

First of all, you should incorporate in the State where your office is physically located. If you incorporate in another state such as Delaware, Nevada or Wyoming, you may need to submit an application to qualify as a foreign corporation or LLC in the State where you are located. This tends to be more trouble than it is worth for a small busines.

Through our life, we have seen entrepreneurs making big mistakes, thinking that they would save money in taxes by filing in "tax heavens" like Delaware, Nevada or Wyoming. Later, when they  realized about their mistake, they ended dissolving the foreign company or filing foreign qualification documents in their home states. In both cases, their errors turned out to be good business for us.

A number of years ago, there were some pretty motivating reasons why you might want to incorporate in States like Delaware and Nevada. However, times change and so do State laws. For companies that are privately owned (closely held), there are no substantive differences anymore between the corporate laws of States. If you incorporate for the purpose of owning and operating a business, the general rule is that you should incorporate in the state where your main business office is located.

For large corporations the answer is different. Nearly half of the corporations listed on the New York Stock Exchange are Delaware corporations. Many of these corporations conduct business throughout the US and abroad. They must, of course, conform to the laws of any jurisdiction they enter, but they have no problem to file foreign qualification documents in each state where they operate.

Active Filings can assist you in qualifying your corporation or LLC in any state of  your choice. Our foreign qualification service will provide you more information about how to expand your business.

When should you have a DBA? (and what the heck is a DBA?)

If the name used by a business differs from the one registered with the state, or your personal name, or the name of your partners, or LLC, a fictitious business name must be filed.

Some states use different terminology for a fictitious business name. Many refer to a “DBA” (Doing Business As), but a “trade name” or “assumed business name” have the same meaning.

However, having a DBA does not provide any extra protection from financial liability. Forming a corporation or LLC is the only way to legally protect different businesses or individuals from liability in the event of a bankruptcy or other financial debt.

Many new corporations may look to expand by opening several divisions or locations, and sometimes use different names. This is also a good idea to test a product or service without having to invest on the business formation (if the product or service starts to pick up, you can always form a legal entity to manage the new business).

In some states you register your assumed name with the Secretary of State, but in most of the cases , registration is handled at the county level, and each county may have different forms and fees for registering a name. Beyond the fact that counties and cities are not very efficient handling these filings, to register a DBA filings represent less hassle than to form a corporation or LLC.

Keep that in mind and start thinking about your next DBA, assumed name, trade name or simply, a fictitious name.