CREATING AN LLC IN THE UNITED STATES: ADVANTAGES AND DISADVANTAGES

 CREATING AN LLC IN THE UNITED STATES: ADVANTAGES AND DISADVANTAGES

In the United States, an LLC (Limited Liability Company) corresponds to the American form of Limited Liability Company. Halfway between a corporation and a partnership, the LLC is a legal entity that grants its members limited liability, as its name suggests. Available throughout the country, the LLC is enjoying growing popularity across the Atlantic. With it, there's no double taxation as a "corporation and individual": the LLC thus combines the best of sole proprietorships and partnerships under a single entity. Investir.US takes a completely objective look at the advantages and disadvantages of the LLC.

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LLC (Limited Liability Company) in outline

An LLC, Limited Liability Company, is a limited liability company that operates as a separate entity from its owners. Unlike a corporation, which pays its own taxes, an LLC is considered a pass-through tax entity. In fact, the company's profits and losses are transferred to its owners, who include them on their personal tax returns, just as if they were owners of a partnership or sole proprietorship.

Broadly speaking, the main characteristics of an LLC are:

Limited personal liability of owners

LLC owners are thus protected from the company's debts and claims. In short, if the company is unable to pay a creditor (e.g., a supplier), the creditor cannot claim the personal assets of the LLC members. Only the company's assets can be used to repay debts. Thus, LLC directors only risk losing the amounts invested.

While the liability of LLC owners may seem largely limited, it should be noted that they do not enjoy absolute protection. For example, an LLC owner can be held liable if they injure someone, fail to pay employee payroll taxes, or commit fraud. LLC directors are personally liable for their actions.

Possibility of additional protection

LLC owners can use an insurance policy to protect against items the LLC does not cover. This insurance protects personal assets in the event that the limited liability status is ignored by a court in the event of a dispute. Insurance

protects the business against lawsuits and claims. However, it generally does not cover personal or corporate assets from unpaid business debts, whether personally guaranteed or not.

Intermediate taxation

One of the unique features of an LLC is that it is separate from its owners for tax purposes. The Internal Revenue Service calls this a "pass-through entity." The company's income is passed through to the LLC's members, who report their share of profits or losses on their individual tax returns. It is the responsibility of each LLC member to pay their taxes to the IRS quarterly.

Additionally, even though the LLC is not subject to tax as an entity, the owners must complete Form 1065 each year and submit it to the IRS. This allows the Internal Revenue Service to ensure that each member of the Limited Liability Company reports and pays their income.

LLC Management Flexibility

Typically, owners of small LLCs manage their LLC themselves. Aside from this option, there is a management structure called "manager management." One or more owners, or even a third party, is/are designated to take over responsibility for the LLC. Non-managing owners, who may also be family members of the manager(s), remain in the background and share in the company's profits. In this type of structure, only the designated managers have voting rights on decisions and act on behalf of the LLC.

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Simplicity of creation

The process of forming a Limited Liability Company is relatively straightforward. Filing fees vary by state, ranging from $100 to $800. Across the United States, it is possible to form an LLC with a single person.

In addition to filing the articles of incorporation, an LLC operating agreement must be drafted. This document is important because it defines the responsibilities and rights of each LLC member, their percentage ownership in the company, and their share of the profits.

Closing an LLC

Closing an LLC varies from state to state, but generally, when a member wishes to leave the Limited Liability Company, the latter is dissolved. Each member must fulfill remaining business obligations, pay debts, and share assets and profits. The remaining members can then decide to create a new structure if they wish. However, the rules may change if the LLC's operating agreement provides otherwise.

Steps to Create an LLC in the United States

To create a Limited Liability Company in the United States, 8 steps are essential:

1. Choose a State

International business owners are generally advised to establish their LLC in a state that does not impose state taxes. This means paying only U.S. federal taxes.

However, if your business requires you to be physically present in a state, you should establish the LLC in that state.

2. Name your LLC

Although each state has its own naming rules, it is generally recommended to include 'LLC' or the words 'Limited Liability Company' in full with the name. Certain names are excluded, particularly those that might be confused with the name of a state organization.

3. Use an authorized agent

To form an LLC in the United States, it is advisable to use a registered agent. Note that many states require this process. The agent in question must be a resident or a company authorized to do business there.

4. Register your LLC

Your Limited Liability Company's Articles of Organization must now be filed with the state. These documents, which are a kind of certificate of organization, describe the company's organizational structure.

5. Create an operating agreement

An operating agreement isn't required in all states, but it's common practice to have one. It's a legal document that outlines the formalities of ownership and operation of the LLC. It ensures agreement between owners and minimizes future disputes.

6. Get an Employer Identification Number (EIN)

In the United States, the EIN stands for Employer Identification Number. It is a tax identification number for the LLC.

You do not need a U.S. Social Security number (SSN) or Individual Taxpayer Identification Number (ITIN), or even a U.S. mailing address, to obtain an EIN.

7. Create a physical address in the United States

You'll need to create a physical address in the state of your choice to open a bank account there. This involves either establishing a physical office or, if applicable, using a service that can provide you with a physical address in the U.S.

8. Open a bank account

The most tedious part of the process of forming an LLC in the United States is opening a bank account. This is possible once you have obtained your EIN.

Advantages and disadvantages of LLC in the United States

To best present the advantages and disadvantages of an LLC, here is a summary table:

Benefits of Limited Liability Company (LLC) Disadvantages of Limited Liability Company (LLC)

Creation Ease of creation

Relatively simple process

Annual costs

Budget several hundred dollars for annual reports and fees

Members and Management Flexibility, ownership and member control

The number of members and owners is unlimited and there are several management possibilities

Little flexibility in modifying members

Changing members within an LLC entails stringent administrative requirements

Access to capital Simple cash distribution

Owners/members may receive amounts based on profits made rather than receiving a salary

Limited investment options

It is difficult to obtain investments outside the company framework

Taxation Intermediate taxation

Simplified and (potentially) lower taxation

Miscellaneous taxes

Unbalanced tax burden

Intermediate taxation does not necessarily translate into tax reductions

Formalities Credibility

Registering a formal business structure is enough to give credibility to the company

Legal liability Limited personal liability

The personal assets of the owner(s) and member(s) are protected in the event of business losses