Establishing an online business in the US – LLCs
The LLC is the most popular form of business in the US
The limited liability company is taxed like a partnership in the US as the default rule. There can be other types of taxation elected, but that is generally not advisable. The limited liability company is established by filing a certificate of formation or articles of formation with the state. This is like the cover page of a book. It s just a bare outline of the business. It lets the public know that the entity is formed. The legal documents which control the limited liability company is the operating agreement and a buy and sell agreement. The operating agreement establishes all the terms of the LLC, the rights of the membership, the control of the LLC, and its tax attributes. The LLC is an extremely flexible type of entity. Similar to a partnership, it is as flexible as the attorney and the owners can be in drafting the documents.
If the owners of an LLC simply adopt a form that they grab off the Internet or some service, they will be missing the main advantages of formation of the business. One example could be that you can have several different classes of membership interest. Control can be vested in one group and the investment return could be put in another membership interest. It is also good for expanding the ownership to new members without losing control.
Because of the extreme flexibility and the favorable tax treatment, most new closely held businesses in the US are limited liability companies. When a business is established, tax and business attorneys normally presume that the LLC would be the best choice of entity unless there are certain reasons to choose another form of entity.
It should be clarified that LLC’s do not have to be taxed as either a sole proprietorship, which is known as a “disregarded entity” for tax purposes, or a partnership for tax purposes. The LLC can elect to be taxed as a regular corporation or as an S corporation. Even though those choices are available, there are only very limited circumstances where a person would set up an LLC and then lashed the other tax treatment.