Members:
Unless otherwise defined in the LLC Operating Agreement,
members own a pro-rata share a LLC, and therefore have rights to a pro-rata
share of a LLC's profits and losses. Members may
be individuals or separate legal entities.
Managers:
Members
may elect a manager to run the LLC. Managers may be members or nonmembers, and can be individuals or separate
entities.
Meetings:
LLCs are not required to hold annual member meetings or manager meetings.
However, a LLC may elect to mandate such meetings in its Operating
Agreement. Voting at meetings may be allowed by proxy.
Member Reports:
LLCs are not required to distribute annual reports to members updating the
status of the business. LLCs must make company information available to
members upon request. Further, members of a LLC may mutually agree to
mandate distribution of annual reports in the LLC Operating Agreement.
State
Reports: Many states require LLCs to file annual (in some states
biannual) reports with the state, updating the status of the managers, members
and the LLC in general.
Most states require one of the following words, or an abbreviation thereof,
to be included in the name of a LLC:
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names
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abbreviations
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Limited
Liability Company
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L.L.C.
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LLCs can do business under
additional fictitious names if they file for a "DBA"
in their state or county. (If you are interested in filing a DBA, please inquire
when placing your order.)
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issuing
membership interests |
LLC ownership interests
are taxed like interests in a partnership, but may be issued like shares
in a corporation. For example, the founders of a LLC may hold 10
membership interests each (as payment for services rendered to the LLC)
and investors may later be offered the opportunity to buy single
membership interests for $5,000 each.
While there is no real equivalent to the preferred stock of a C Corporation
with a LLC, members in a LLC can agree to distribute to different members a disproportionate share of profits and
losses, including a disproportionate share of profits and/or losses from different
revenue streams.
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tax
implications for a llc |
With a LLC, members can elect to have it taxed as a corporation or a
partnership. By default, a single member LLC will be taxed as a
partnership
If the LLC is taxed as a partnership, LLC profits will pass through directly
to the members without being taxed on the entity level. The LLC will have to file an annual report with the IRS stating how much the each
member earned or lost. Each member will then report their earnings or
losses from the LLC on their individual tax returns.
In some instances, a LLC may want to elect to be taxed like a C Corporation
(see C corporation page on Tax Implications and Fringe Benefits).
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tax
implications for owners of a llc |
According to the IRS, members of LLCs are subject to
self-employment taxes.
If you are an LLC member, you must pay self-employment taxes
on your share of the profits if any one of the following conditions
apply:
- You work more than 501 hours during the LLC’s tax year
- Your LLC offers professional services in the areas of
consulting, health, law, engineering, architecture, accounting or actuarial
science
- You are allowed to execute contracts for your LLC
With the current self-employment tax rate at 15.3 percent,
many business owners choose to form an S corporation rather than an LLC. In an S
corporation, only shareholders are required to pay self-employment taxes on
money paid to them as compensation for services.
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