How To Start An Llc: An LLC or Limited Liability Company (LLP) is simply a company formation offering the much needed protection of limited liability and flexible taxation options. However, it is important that you choose the right LLC for your requirements before proceeding any further. The simple fact is that different types of business structures will have different tax needs and there are many differences in what an LLC and an S-Corp offer. Hence, here are the simple yet very important steps on how to start an llc in your state.
First, select a state. Depending on the business you are opening, the specific location of its operation may vary. Most medium to large corporations have their own established operating code that can serve as the basis for your LLC's business model and law. As such, a good starting point when you want to know how to start an LLC in South Carolina would be understanding the basic operational principles that govern LLCs.
A good example of this would be the Limited Liability Company. This business entity is designed to shield its owners and officers from personal liability incurred by the business itself. In other words, it limits its members to the personal assets owned by its members. This means that in case of default, the members of the LLC are individually responsible for their actions rather than being jointly responsible to the business entity as a whole.
How To Start An LLC - Step 4 & 5
As for how to start an LLC in South Carolina, an S-Corp rather than a limited liability company is preferable because an S-Corp is considered a "self-regulating" business entity. This is because an S-Corp is formed by the members voluntarily joining as an LLC instead of by the filing of an Articles of Organization with the secretary of state. Also, an S-Corp is not required to file annual reports with the secretary of state. Lastly, an S-Corp has greater flexibility than a limited liability company as it allows its members to manage their business in a number of ways including issuing dividends, controlling their debt and spending funds, all activities which are not allowed under a limited liability company.
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As previously mentioned, LLCs are run by its members as a pass-through entity. This means that for each transaction the LLC incurs, an entity known as a pass-through income is created. Usually, pass-through income refers to income that accrues to an LLC member by virtue of having an account in a bank or other pass-through financial institution. However, an LLC may also receive income tax benefits if certain conditions are met. One of these is that an LLC may designate more than one income. In addition, in some states an LLC may be treated as a corporation even if it is an LLC.
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An important key takeaway from this discussion is that an LLC is not required to be filed with the state in order to be treated as an S-Corp. This means that an LLC can be much more profitable when it is started than when it is actually filed. This is because an LLC operates as a pass-through entity which means that the portion of the profit that accrues to the member's personal account is only half the amount that would normally be generated if the LLC were filed as an S-Corp. As a result, many small business owners choose to form an LLC rather than accept an S incorporation.
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The next step in how to start an LLC is to choose its operating agreement. A majority of the states allow for a one-party election where all LLC owners can propose their own operating agreement. A majority of the states also permit one-owner elections where the individual owner can propose their own agreement and then the other owners can ratify the agreement if they agree. However, the majority of states still require that any person choosing to start an LLC must file a valid articles of organization with the office of the Secretary of State.
The last step in how to start an LLC is to file the Articles of Organization along with the required fees. It is important to remember that the Operating Agreement and Articles of Organization are considering the bylaws of any LLC and must be followed closely. If there are any problems or questions regarding the formation of the LLC, it is recommended that an attorney is retained early on in order to review and make sure that everything is done appropriately.
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