New business filings are on the rise across the entire state of Oklahoma, and Rivas & Associates is eager to help current and prospective clients along the way. The nationally recognized law firm has enhanced its catalog of legal services to include business formation services.
One of the first things a business owner or entrepreneur should consider doing is setting up a limited liability company (LLC).
Licensed to practice in both Oklahoma and Texas, attorney Natalie Leone is here to help walk you through the process of acquiring an LLC by answering some of the most commonly asked LLC questions.
What is an LLC?
A limited liability company (LLC) is a business structure that offers limited liability protection and pass-through taxation. As with corporations, the LLC legally exists as a separate entity from its owners. Therefore, owners cannot typically be held personally responsible for business debts and liabilities.
Setting up an LLC enables pass-through taxation, as its income is not taxed at the entity level; however, a tax return for the LLC must be completed if the LLC has more than one owner. Any LLC income or loss as shown on this return is passed through to the owner(s). The owners, also called members, must then report the income or loss on their personal tax returns and pay any necessary tax.
You can almost think of having an LLC as building a brick wall on a property line. On one side is the business and everything it owns. On the other side are the owners and all their personal property. If you don’t keep a strong wall in between, you risk creditors of one reaching through the wall to grab the property of the other.
What are the benefits associated with starting an LLC in Oklahoma or Texas?
Although there are some costs in obtaining an LLC, the benefits typically outweigh any perceived disadvantages. Some of these include:
- Limited liability: Members (which is what the owners of an LLC are called) are shielded from personal liability for acts of the LLC and its other members. Creditors cannot pursue the personal assets (house, savings accounts, etc.) of the owners to pay business debts. The personal assets of sole proprietors and general partners, on the other hand, can be pursued against the business’ debts.
- Flexible membership: Members can be individuals, partnerships, trusts, or corporations.
- Enhanced credibility: Starting an LLC may help a new business establish credibility more so than if the business is operated as a sole proprietorship or partnership.
- Management structure: Members can manage the LLC or elect a management group to do so. Corporations, on the other hand, are managed by a board of directors, not by their owners. When an LLC is managed by members (a “member-managed” structure), owners oversee daily business operations. When managed by appointed managers (a “manager-managed” structure), the LLC resembles a corporation, where business management is the responsibility of the manager rather than the owners.
- Pass-through taxation: LLCs typically do not pay taxes at the business entity level. Any business income or loss is “passed-through” to owners and reported on their personal income tax returns. Any tax due is paid at the individual level. This avoids the double-taxation problem faced by corporations.
How much does is cost to set up an LLC?
One of the most commonly asked LLC questions. The cost to set up an LLC depends on the complexity of your individual LLC. For example, LLCs with more than one owner are usually more expensive to set up than LLC with just one owner because the operating agreement has to cover a lot more contingencies. In addition to the legal fees to set up your LLC, each state also charges an application fee that must be paid. In Oklahoma, the application fee for a new LLCs is $104, while the application fee for registering an existing LLC that was formed out of state is $304.
How do I file for an LLC?
If you have an attorney assisting you with forming your LLC they will typically handle filing the application for you. If you are doing it on your own, you can file online through the Secretary of State in the state where your business is headquartered. If your business is headquartered in Oklahoma, you would file your application on the Oklahoma Secretary of State website. The site also gives you the option of downloading PDF forms and submitting them later.
Why should I consult with a business attorney before setting up an LLC?
While submitting an application for an LLC with the Secretary of State is a relatively straightforward process, submitting the application is only the tip of the iceberg in making sure your LLC is set up correctly.
There are key business legal documents that need to be drafted in order to ensure your LLC complies with state and federal laws. If these documents are not done correctly, your LLC may be found to be invalid, even though it’s been registered with the state. If your LLC is found to be invalid, it won’t have the limited liability protection you were trying to establish, and you will lack legal standing for important things like the ability to file or defend a lawsuit.
In order to ensure your LLC is set up correctly you should use the assistance of an attorney who specializes in business formations to draft key documents such as your
- Operating Agreement
- Buy Sell Agreement
- Acceptance of Appointment of Registered Agent
- Ownership Log, Certificates of Ownership
- Notice of Initial Meeting of Members/Managers
- Initial Formation Meeting Minutes
An experienced attorney can also help you with additional tasks like reserving a business name, obtaining your company’s EIN (employer identification number) from the IRS, helping you fill out other business applications (like sales tax permits or loan applications), and making referrals to other business professionals like tax preparers and commercial insurance agents. A business attorney will also give you advice on the ongoing things you have to do every year in order to keep your LLC status once it’s been obtained.
If you are considering setting up an LLC or have any questions about the process, contact Rivas & Associates today to set up a consultation.