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Forming an LLC
LLC stands for Limited Liability Company and can be described as a hybrid between a standard partnership and a corporation. By forming an LLC, you can enjoy the limited liability of a corporation without having to deal the arduous administration of a corporation.
The LLC was created so that the small-scale business owner could form a limited liability company; thereby protecting his or her own home, car and personal savings. There is however no limit to how large an LLC can be and how many members it can have. While the owners of a corporation are referred to as shareholders, the owners of an LLC are known as members.
One advantage with the LLC compared to a C Corporation is that the company pays no tax. The general rule is instead that profits and losses are passed through to the members and each member is taxed on what he or she receives. Another difference between an LLC and a corporation is that in a corporation, any disproportional allocation of profits and/or losses can cause severe tax repercussions. In an LLC, the members can decide freely how profits, losses and cash distributions will be allocated.
If you want to set up an LLC, there are basically three major alternatives:
- Contact the filing office in the state in which you wish to form your LLC. This means that you must take care of all the necessary paper work yourself.
- Contact a legal expert, such as an attorney, and ask what it would cost to have him or her form an LLC for you.
- Contact an incorporation company that handles LLC formations and ask for the price of having an LLC formed for you in the desired state.
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