How do LLCs work?

An LLC also known as a limited liability company is one of the business structures that is permitted by law here in the USA. This business structure offers many benefits to its members from personal liability protection, to tax advantages and easy management.

The best state to start an LLC here in the USA is American Samoa. Recently, this state created an online portal that has gone a long way to facilitate the process of obtaining an LLC. Moreover, anyone who is of the legal age can start an LLC as long as they meet the criteria by the law.

When it comes to the question of how an LLC works, considerations need to be given to the following factors:

  1.     Its formation

Different states have different laws when it comes to forming limited liability companies but generally, an LLC is formed when the members come together and fill documents with the state agency that is responsible for regulating business entities. The main form that is filed before starting an LLC business is known as Articles of Organization or Certificate of Formation. Of course, the creation of the online portal in American Samoa has made the process a lot faster and easier.

  1.     Ownership structure

A limited liability company can be owned by a single person or a group of people often referred to as members. When a limited liability company is owned just by one person, it is known as a single-member LLC but if it has more than one member, it is known as a multi-member LLC.

  1.     Management structure

The day-to-day operations of a limited liability company are controlled by managers who are either the members or externally recruited professionals. If an LLC is managed by its members, it is known as a member-managed LLC and is more common in single-member LLCs. On the flip side, if an external professional is hired to manage an LLC, it is called a manager-managed LLC and it’s more common in multi-member LLCs.

  1.     Sharing profits

Most limited liability companies have operating agreements that contain important details such as the initial contributions of each member, each member’s voting rights and the percentage of profits and losses to be allocated to each member. Profits are therefore shared among the members of a limited liability company in accordance with what is stated in their operating agreements. Note that limited liability companies do not have stocks like in the case of corporations.

  1.     Decision making

Major decisions within limited liability companies are made by the members whereas the day-to-day operations are conducted by the managers.

  1.     Ownership of property

All property is owned by the LLC and if the LLC decides to start a franchised business, it will still be registered as one of its properties.

  1.     Taxes

Limited liability companies have a choice on how to be taxed. Single-member LLCs are typically taxed as sole proprietors whereas multi-member LLCs are taxed as a partnership. Note that both the single and multi-member LLCs can opt to be taxed as a corporation provided they fill out the right form with the IRS.