Ensuring you have the correct business entity is of utmost importance, whether you're a new business owner or a seasoned entrepreneur. How do you do that? You need to add an LLC, as they are the most common legal structure. But you may wonder: what is an LLC and why is it important to have? We speed-dialed an expert to give us the 411 on the true LLC meaning. Taylor Tieman, an attorney and founder of Legalmiga® and The Legalmiga Library®, gives us the scoop on all things LLCs so you can go from a novice to pro business owner.
What Is An LLC?
Let's start with the basics. LLC stands for limited liability company. "This is a type of legal entity that your state will (in most cases) allow you to form in order to create a 'legal barrier' of sorts around your business," Tieman says. "It is essentially a type of legal protection by way of forming a formal business structure."
In other words, one of the primary benefits of an LLC is that your personal liability doesn't get entangled with your business' liabilities. "If you do not have an LLC formed, your personal assets—like your home, car, property, wages—may be vulnerable in the event of a lawsuit against your business as a sole proprietor," Tieman shares. "If you have an LLC and the business is sued, then only the business' assets will be vulnerable in the event of a lawsuit as long as no fraud is being committed within the business."
It's also worth noting that not all businesses are eligible to form an LLC. "For example, in California and other states, many licensed professionals cannot form basic LLCs and must look to another business structure due to their licensing," Tieman says. Besides the legal protection that LLCs provide, she adds that LLCs also allow you to choose the best tax election for your specific needs such as an S corp.
How Much Does An LLC Cost?
The cost of forming an LLC varies from state to state. Tieman notes that filing fees usually range from $70-$250. While the filing fees may not be sizable investments, there are recurring annual or biannual filing fees to factor into your budget. For instance, California's Franchise Tax Board fees are $800 a year. "Before forming an LLC, it is imperative to understand the level of upkeep that goes along with it," Tieman adds. "While they offer great protection, it is like anything else in business; you need to keep it up-to-date in order to have it properly protecting you."
How Do You Create An LLC?
Lastly, you may be wondering how you can get an LLC. If your business is eligible and you have the means to maintain the recurring fees, Tieman strongly advises forming an LLC in your business journey right away. "The more inherently risky your industry is, the more imperative the LLC is to form early," she says.
So how do you create an LLC? You can find instructions and filing fees via your Secretary of State's website. However, before taking those steps, Teiman recommends first speaking with an attorney in your state. They'll guide you through the process, address any local compliance concerns, and ensure you are selecting the correct entity for your business, as others may be better suitable such as a corporation or limited partnership.
Written by: Jessica Estrada