LLC stands for Limited Liability Company. It is one of the possible business entity structures business owners will use when forming their business.
In Missouri and Kansas, the overwhelming number of small businesses start as LLCs. We started QuickStart Docs to meet the needs of business owners who already know they want an LLC.
An LLC, which stands for Limited Liability Company, is a relatively new form of business licensure. Designed with small businesses in mind, this status offers a slew of benefits. Starting a new business in the current market can sometimes be a trying experience. However, the acquisition of an LLC can help with the transition. Many customers are more apt to do business with an established LLC, rather than a sole proprietor or general partnership.
Unlike sole proprietors and general partnerships, LLCs provide legal protection for its members. Just as the name suggests, owners of an LLC have limited liability, which means their personal assets — think homes, vehicles, and bank accounts — are not financially liable for business expenses, giving business owners peace of mind.
LLCs are not subject to as many state-required formalities and processes as corporations, but still provide their owners the same limited liability corporations provide. These same business owners are also at liberty to structure their business as they see fit, operating freely from boards of directors and other restrictions that accompany traditional business models.
Become an LLC Now
There are some initial fees for state filings; however, establishing your business as an LLC is a relatively cost-effective solution.
But, some very special situations might require a form beside an LLC. If you have any question about the correct form for your situation, you should consult an attorney or tax professional.
Online sites quote all kinds of prices for an “LLC.” In Missouri and Kansas, you can form a Limited Liability with the Secretary of State. That will get you “Articles of Organization,” a kind of “birth certificate” for the new LLC. Especially in Missouri, the forms look simple, but the options you check could affect your legal protections in the future! Some websites offer a low-cost “LLC,” but sometimes that only includes filing your Articles with the Secretary of State.
But there’s more to an LLC than “Articles.” You’ll also want an operating agreement. At QuickStart Docs, we have created a system to allow a single business owner (or husband and wife) to set up their LLC for as low as $299 plus the state filing fee. Each of our plans provides you with everything you need to set up your LLC. This will include properly forming you with the State, your operating agreement, initial meeting minutes, a bank authorization, and your federal tax i.d. number (a/k/a EIN).
An LLC has the flexibility to choose how it is taxed. This can include being taxed as a partnership/sole proprietorship, as an “S” Corporation, or as a “C” Corporation. If an LLC is formed and no special elections are made with the IRS, then by default that LLC is taxed as a partnership. If the LLC wants to be taxed as an “S” Corporation or a “C” Corporation, they must file the proper forms with the IRS no more than 2 months and 15 days after forming the LLC, or any time during the tax year preceding the tax year the election is to take effect.
One of the great things about an LLC is that you can change your tax structure to choose what best fits your business at that time. The election does need to be approved by all the Members of the LLC, and done prior to the beginning of the tax year the new election is to take effect. We strongly advise speaking with an attorney or a CPA to figure out which method of taxation is best for your LLC.
The S Corp is a special type of tax classification. It’s a term for all the entities taxed under subchapter S in the federal tax code. In other words, you can’t “form” an S Corp. You form an LLC (or corporation, or other eligible entity), and then elect to have it taxed under subchapter S.
S Corps can provide businesses tax benefits like the ability to filter income, credits, and deductions through to the owner’s of the business. But the S Corp is not a one-size-fits-all solution. Depending on the business and ownership structure, it might make more sense to have a different structure. That’s one reason it is so important to have the proper professionals working with you early in your start-up.
We can create an LLC, which is then eligible to qualify for S Corp classification. In addition to meeting certain requirements, small businesses that wish to obtain this status must apply by submitting the appropriate tax forms to the IRS. Some of the qualifying criteria for S Corp status includes having fewer than 100 allowable shareholders, maintaining one type of stock, and a few other stipulations. We strongly encourage speaking with a CPA to determine the most beneficial tax status for your business. If you don’t have one you trust, we’re happy to introduce you to one.
Owning rental properties, flipping run down houses and sitting on undeveloped land are popular ways people use to earn some extra money on the side. The problem is that by owning these types of real estate investments it opens you and your family up to more risk of being sued. LLCs can help you reduce this risk.
QuickStart Docs works with many real estate investors to help them provide their business with a legal structure that will minimize and diversify their risk through (1) the formation of one or more LLCs, (2) the proper titling of that real estate, and (3) advising on how they should operate that business to maintain the legal protections our client is seeking by forming these LLCs. You must have your have your LLC ready to go before you purchase the property. Deeding a property from your name to your LLC could trigger the due on sale clause in your deed of trust and cause your entire note to become due and payable immediately!
If you already have your property, but are interested in placing it in an LLC, contact us and we’d be happy to provide you with a letter to give to your lender seeking permission to transfer your property into an LLC.
Missouri and Kansas both recognize what’s called a Series LLC. State law allows you to operate an LLC with one or more series LLCs created under the initial LLC structure. Correctly operating separate series LLCs for separate aspects of a single business (i.e. different rental units) can separate the debt and liability of one series from the debt and liability of another series, even though they are a part of the same LLC, yet still allow them to act as a single taxpayer. Simply put, it can diversify your liability.
What’s the difference between an arbitration clause and a mediation clause? Do I need them for my small business?
A mediation clause says the owners will take serious disputes to a mediator, either before filing suit, or shortly after. The mediator doesn’t make a decision, but tries to see if there is room for compromise. Sometimes it’s easier to listen and talk to an outsider, and mediators often meet with the parties separately. Some mediators will ask for confidential positions from each side; without disclosing the confidences, the mediator will see if there is any room for resolution. But if there is no agreement, litigation moves forward,
An arbitration clause says the parties agree to hire a private judge (or judges) to decide. You might designate an outside arbitration forum, or decide on a way to pick one or more arbitrators. Groups like the American Arbitration Association can make decisions using their own rules, which are theoretically designed to resolve disputes quickly and affordably. In reality, arbitration can be expensive, too. One benefit of arbitration is that it isn’t necessarily a public record. But a potential downside is a limited ability to appeal the decisions of think was unfair.
For most LLCs with more than one owner, we strongly recommend adding some kind of dispute resolution agreement. These are agreements about how to decide, even when you can’t reach a decision.
Why do we need it?
Communicating is hard work. In the startup phase, people can be more open and agreeable. A typical operating agreement is written during this ‘honeymoon’ period. It’s easier for people to agree to fair rules for solving disputes before there are real problems.
It’s hard to tell where the problem will come from. But once there is a fight, it can be hard to even agree on a path forward.
And if there’s no agreement about how to solve the problem, the default answer is litigation. First, you’ll pay lawyers to develop the facts. Then you’ll ask a judge to decide what’s fair.
Plan for the day there is a disagreement. You might be in the right or the wrong. But if it is big enough to matter, you might want to negotiate before heading to court.