Organizing Your LLC
Incorporation, also known as a limited liability company (LLC), is a flexible form of business entity. It incorporates elements of both partnerships and corporate structures.
In the United States it is a legal form of a small business or company. One that provides day to day limited liability to its owners. An excellent business tool to protect your wealth.
In more basic terms, it is a hybrid business. This hybrid legal entity has certain characteristics of both corporation services and a partnership or sole proprietorship. This, of course, is dependent on the number of owners there will be within the company.
An LLC is a type of unincorporated association and is not a corporation. The greatest similarity an LLC shares with a corporation is limited liability. The greatest similarity it shares with a partnership is the availability of pass-through income taxation. More times than not, it is more flexible than corporation services. It also is well-suited for companies with a single owner.
Dependent on the number of owners there will be within the company. An LLC is a type of unincorporated association and is not a corporation. The greatest similarity an LLC shares with a corporation is limited liability.
The greatest similarity it shares with a partnership is the availability of pass-through income taxation. More times than not, it is more flexible than corporation services and is well-suited for companies with a single owner.
Types of LLC’s
Choosing which LLC type comes down to which tax method you prefer. The LLC operating agreements are sole proprietor, partnership, C corporation or S corporation. As long as the different types of business qualifies for such tax treatment.
The result is a great deal of flexibility. Another advantage to organizing an LLC is that it involves much less administrative paperwork and record keeping than a corporation does. The structure of a limited liability company, or LLC, makes it relatively easy to give new partners stakes. While giving new partners stake is relatively easy. Although sharing equity works a bit differently than it does in corporation services.
In an LLC, there are two types of equity compensation. The first a capital interest and secondly a profit interest. A capital interest entitles a partner to a share (cut) of the profits. As well as an interest in the company assets. On the other hand, a profit interest entitles a partner to a share of the profits. Although it does not have an interest in the company assets.
The difference becomes important not only with what class of stock you can issue. But also when LLC owners decide to sell the company. When selling an LLC, a capital interest entitles the partner to a share of the proceeds. Meanwhile a profit interest entitles the owner a cut only of the company’s increase in value. Capital interests become taxable upon receipt, but profit interests typically aren’t.
Partnerships in LLC’s
In case a partner chooses to not invest capital contributions in the small business startup. The next step is they should put in three to five years before claiming full interest. You can vest over time or present the whole package at the end.
In the case your partner leaves early or can’t meet performance goals, they forfeit their unvested share. On the other hand, if they do invest capital, they should receive a fully vested capital interest.
We recommend the an attorney & a financial adviser. Before entering a general partnership or handing over shares of stock. They will help outline the specific details of the partner agreement to form an llc.
Having professionals will also help establish articles of incorporation & articles of organization. Not to mention the benefits that can be established regarding employment tax & franchise tax on that tax year.
You should also draw up a buy-sell agreement. One that specifies when your partner can sell the stake, to whom, and at what price. This will avoid the sell of the company to unwanted competitors or unwanted partners.
If you are interested in organizing an LLC please follow the link below to find and fill your appropriate state forms.
Contact the business consultants at BryteBridge. BryteBridge where our team serves as an all-encompassing solutions and services center for startup and established small businesses. For more information visit: www.BryteBridge.com.