What is an LLC? Limited Liability Company Information

LLC stands for Limited Liability Company. Limited liability means that the business is structured such that personal assets are protected if the business is sued in court. Limited Liability companies can either consist of one person known as the single member LLC, or they may be formed and owned by several persons known to form what is known as multi-member LLC.

The biggest advantage of forming your startup company as an LLC is that unlike general partnerships or sole proprietorships, your personal assets as an entrepreneur are protected from any lawsuits brought against the business. Moreover, they give your business more credibility and is easier to form and maintain as compared to the standard C-corporation. Another advantage is that you avoid double taxation. Check out this in-depth Legalzoom LLC reviews page

Types of LLCs

Most LLCs have similar features that combine the best feature of other types of business entities including pass-through taxation and limited liability. The following are the most popular LLC types you could form:1) Domestic LLC – This is an LLC that conducts its operations in the state in which it registered.

2) Foreign LLC – When an already registered LLC decides to expand operations to a new state where it has to be registered as a foreign LLC. For instance, a business that was registered in Florida that opens a new office in California will need to register in California as a Foreign LLC.
3) Professional LLC – This is an LLC that is formed to offer professional services such as a legal or medical practice. This type of company needs the professional members of the LLC to have state licenses certifying that they have the necessary professional qualifications to practice in the state.
4) Series LLC – This is the type of LLC that has one LLC provide blanket cover limited liability for several child businesses. These child businesses also have limited liability protection from the actions of the other businesses operating from the single series LLC.
How to Create a Limited Liability Company
The process for creating an LLC is pretty much straight forward:
1) You often need to go to the Secretary of State in your state search, choose and then reserve the legal name for your business.
2) You will then write up and submit your Articles of Incorporation to the Secretary of State.
3) Decide on the persons responsible for running the business (members or managers).
4) Decide how many members your company will have.
5) Apply for your company’s license including other certificates that apply for your given industry.
6) Submit Form SS-4 or if you like, go to the IRS’s website and get your Employer Identification Number.
7) Apply for any other certifications and licenses that are required by local government and state agencies.
Advantages of an LLC
1) Protection of Personal Assets– Your personal assets are protected from any lawsuits or debts of the business, as long as the charges are not related to criminal behavior or fraud.
2) Single Taxation – You avoid double taxation as all the profits are declared on individual tax returns. This is as opposed to a C-Corporation where profits are taxed prior to distribution and then on individual returns.
3) Simplicity – The LLC is one of the easiest type of company to form as the process is relatively pain-free and the company easy to maintain as compared to say S-Corporations or C-Corporations. Moreover, you do not have to record company resolutions and meetings, hold yearly meetings or have formal officer roles.
4) Increased Credibility – An LLC makes your business more credible as business partners and customers love to do business with this type of company as compared to business entities such as partnerships or sole proprietorships.
5) Easy Access to Lines of Credit and Loans – An LLC has better chances of getting access to lines of credit and business loans that other informal businesses cannot access.
Disadvantages of Starting an LLC
Forming an LLC has certain advantages though there are a few disadvantages to it:
1) Growth potential is limited – It is impossible to issue stock or shares to investors as compared to other businesses such as the C-Corp or the S-Corp.
2) Lack of uniformity – The rules and regulations for LLCs vary from state to state which can make expansion quite a complicated affair.
3) Self-employment tax – In many states the earnings of your LLC will be subjected to self-employment taxes.
4) Tax obligations on the appreciation of assets – Your company could be subject to extra taxation when there is an appreciation of its assets. You could be particularly vulnerable particularly if you are converting an existing business into an LLC.

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What You Need to Get a Business Loan

 

Are you looking for business loans? Do you want to know more about the requirements? It might not be difficult for you to get a business loan if you have a good credit score and a proper business plan. However, there will be some formalities that every bank will do regardless of your credit score. Here are a few things that you will need while applying for business loans.

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Collateral

To minimize the risk, the bank will ask for collaterals to support fifty or sometimes seventy-five percents of your loan. If your business has hard assets, then you can pledge it as collateral to get a business loan. Banks will carefully access your assets to ensure that they are not risking their money. Almost, all the small business need to pledge their personal assets for collateral to qualify a business loan.

Business Plan & Financial Details

Many loan applications will need a business plan document with a few exceptions. You can prepare a lean business plan with a brief summary of the product, team, market, company, and financials. In addition, you will have to give all the financial details of your business. It will include everything such as your current and past loans, bank accounts, debts incurred, credit card accounts, tax ID numbers, investment accounts, address, and your contact information in detail.

Account Receivable & Account Payable Complete Details

When it comes to the account receivables, it will include aging, sales and payment history, and account-by-account information. For account Payable, you will need the same information as the account receivable. But it will need some extra information. Banks will require the credit references and the information of companies that sell to your business.

Complete Reviewed or Audited Financial Statements

You will need a balance sheet with all the financial statements that include your liabilities, capital, and business assets. Also, you will need your profit and loss statement for three years. If you do not have three years statement, but you have a good credit score and assets to pledge as collateral, then exceptions can be made. It is better to have audited and reviewed statements to boost the possibility. However, it will not help much without collateral and a good credit score.

Financial Details

Final details will include everything such as net worth, social security numbers, asset details, credit card accounts, investment accounts, mortgage, and auto loans. If your business has multiple owners, then the bank will require financial statements from all the owners.

Insurance Information & Copies of Past Returns

The bank will also want your insurance details and the copies of the past returns.

Future Ratio

Some commercial loans will include loan covenants that mean you will have to agree to keep some key ratios such as current ratio, quick ratio, and debt to equity within a defined limit. When your financials will fall below the limit, then you will be in default technically.

These are some basic requirements to qualify for a business loan. Better preparation will make the process fast, easy, and hassle-free.