Self Employment Taxes Although we listed Pass Through Taxation as an LLC benefit, it can also be a disadvantage. Oftentimes the taxes that are passed through and reported as personal income of LLC members will be higher than the taxes at a corporate level. You will also still pay for federal inclusions such as Medicare and Social Security. If you're confused if this business structure will be the right tax choice for you, it's a good idea to speak to your accountant or financial advisor.

The first step in forming an LLC is to file your company’s Articles of Incorporation with the state in which you are looking to establish your business. Once this has been completed, it is recommended that you take the time to develop a formal set of documents that will explicitly outline the ownership and management structure of the business, as well as establish your initial bank accounts.


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Limited liability companies are easy to maintain while remaining extremely flexible, so it's not surprising that it is a popular choice among businesses of all different shapes and sizes. Often, owners of an LLC are self employed or run smaller businesses, where the simplicity of pass through taxation and a lack of annual requirements makes a lot of sense. Since the profits and losses are reported directly on the owners personal tax returns, filing taxes is much easier.
The articles of organization also should include information about how your LLC will be managed. You need to indicate whether the members of the LLC will do hands-on management or if there will be hired management. Another requirement is to discuss how long the LLC will be in existence (there is no limit on this, so it is fine to say in perpetuity).
No Ownership Restrictions The LLC does not have any residency or citizenship restrictions, which allows foreign nationals to have ownership in an LLC, if desired. In addition, other corporate entities may be LLC members which means that other corporations or LLCs (or other entities) may be a member of the LLC, or may be the sole member (although an LLC with a sole member that is a corporation or LLC is treated for tax purposes as a partnership or multi-member LLC).

An LLC that does not want to accept its default federal tax classification, or that wishes to change its classification, uses Form 8832, Entity Classification Election (PDF), to elect how it will be classified for federal tax purposes. Generally, an election specifying an LLC’s classification cannot take effect more than 75 days prior to the date the election is filed, nor can it take effect later than 12 months after the date the election is filed. An LLC may be eligible for late election relief in certain circumstances. See About Form 8832, Entity Classification Election for more information.
Please note that we cannot guarantee the results or outcome of your particular procedure. For instance, the government may reject a trademark application for legal reasons beyond the scope of LegalZoom's service. In some cases, a government backlog can lead to long delays before your process is complete. Similarly, LegalZoom does not guarantee the results or outcomes of the services rendered by our legal plan attorneys or attorney-assisted products. Problems like these are beyond our control and are not covered by this guarantee.
Articles of organization are short, simple documents. In fact, you can usually prepare your own in just a few minutes by filling in the blanks and checking the boxes on a form provided by your state's filing office. Typically, you must provide only your LLC's name, its address, and sometimes the names of all of the owners -- called members. Generally, all of the LLC owners may prepare and sign the articles, or they can appoint just one person to do so.
The LLC is typically the best choice for smaller entities. The LLC structure provides a great deal of ownership flexibility in that an LLC may have any number of Members (owners) including non-US citizens and subsidiary companies. LLCs are also able to distribute several different classes of stock or ownership interest. However, their owners are typically required to pay a self-employment tax.
Your name must be unique, and not deceptively similar, to any other trademarked name or business. It is also required that your name not be used to intentionally misrepresent the products or services you offer. For LLCs, nearly all states will also require you to add a signifier of your limited liability status, such as "LLC" or "L.L.C." to the end of your company's name. You may be able to operate under a name other than your formal LLC name by applying for and using a dba.
Versatile Tax Status One of the most advantageous aspects of the LLC is that it has the ability to choose how it is treated as a taxable entity. According to the IRS an LLC is, by default, federally taxed as a partnership (in the case of a multi-member LLC) or as a sole proprietor (in the case of a single member LLC). The LLC, however, may elect to be taxed as a C- or S-corporation at any time the members so choose.
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On the other hand, if you are not responsible for its tax, then you should declare the equipment in Part III of the Business Property Statement (Equipment belonging to others). Where equipment is declared in Part III of the Business Property Statement, the Assessor will also send a Notice to File to the person reported as the equipment's actual owner.
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