The Limited Liability Company, or LLC, is a versatile business entity with many advantages for a small business owner. They can be used as holding companies or for profit. There may be one member (owner) who also manages the LLC, or it may have managers with no ownership interest. They are taxed like sole proprietorships and partnerships, but provide liability protection like a corporation. You can also choose to tax an LLC as a corporation if you wish. I have helped many clients use LLCs for various purposes and believe it is a business entity to consider for entrepreneurs looking to start a new business, or those looking to convert a sole proprietorship or partnership into an entity that will provide liability protection.
For those unfamiliar with LLCs, Attorney Anthony Mancuso’s “Form Your Own Limited Liability Company” does a very good job of introducing the LLC in the first two chapters. He answers the top ten questions about LLCs, explains the benefits, and compares LLCs to other business forms. He also provides some basic LLC legalities by describing the number of members, the paperwork required to establish an LLC, the responsibility of managing an LLC, and the liability of members and managers.
There is a short chapter on the tax aspects of forming an LLC. The chapter does a good job of explaining the basics and gives you the knowledge to discuss the issues further with your tax preparer.
The chapter on how to prepare the LLC’s articles of organization does a good job. There are usually only a few basic items that should be included in these items. One piece of advice the author gives is to check with her state’s procedures for submitting articles, which is very good advice. You should check with your state! In fact, many states have fill-in-the-blank items that you can use. Personally, I used to write different articles, which were similar to the samples in this book. But people should check with their state Secretary of State to see what is required.
The chapters on preparing LLC operating agreements for the LLC are, in my opinion, the most important chapters in the book. Submitting articles is fairly simple, but an operating agreement requires a bit more. The author does a good job of pointing out what should be included in an operating agreement and provides a good sample to get you started.
There is additional information that is good to know and that will help a person operating an LLC. Things like changing operating agreements, signing documents, filing annual reports, working with tax consultants and lawyers. Appendix A contains very basic information about each state, but again, you really need to check with your state, so the information in the Appendix isn’t really necessary.
Sample forms are found in tear-off form in Appendix B and are also on an included CD. The forms are: IRS Form 8832, LLC Name Reservation Letter, Articles of Organization, LLC Articles Cover Letter, Member Managed Limited Liability Company Operating Agreement, Limited Liability Company Management Operating Agreement, Minutes of meeting and Certification of authority.
Overall, this is a good basic book for someone looking to learn more about LLCs and how to form them. Again, the most important chapters are those that help create operating agreements. The samples on the CD can be used as a starting point to create your own. I’m a firm believer in educating yourself on all aspects of your business, and Mancuso’s “Form Your Own Limited Liability Company” is a great place to start if you need education about LLCs. If you think this business entity is right for you, check out this book to help you get started.