Can an S Corp Own an LLC Or Vice Versa?

YES, it’s possible for an S Corp to own an LLC. But should you? Read on to find scenarios when this business structure best works.

Most of the entrepreneurs after their initial research prefer LLC or Limited Liability Company. The personal asset protection, pass-through income, and reduced paperwork are some of the most common reasons why most entrepreneurs prefer the LLC structure.

But look carefully, and you will see that almost similar benefits are also available with the S Corp structure.

After understanding both the business structures, a lot of entrepreneurs wonder whether it is possible for an S Corp to own an LLC? Or, can an LLC own an S Corp?

If you want to know the same, you have reached the right place. In this post, we will try to understand both of these business structures and see whether they can own one another.

S Corp vs. LLC

While both, S Corp and LLC, are known to offer almost similar benefits, there are some considerable differences between the two.

For instance, LLC is a state-level business entity which files state taxes. On the other hand, an S Corp is similar to a standard Corporation or C Corp, and it files federal taxes. This also means that S Corps get to enjoy many Corporate structure benefits such as stock offering, perpetual existence, and some tax-free benefits.

LLCs do not get these benefits. LLCs have a defined lifespan, and in some of the states, an LLC can only exist for up to 30 years. But registering an S Corp is more complex and expensive than forming an LLC.

Also, there is no restriction on the total number of members or owners an LLC can have. Even the citizenship of the LLC members is not restricted. This makes it easier for LLCs to attract foreign investors.

So, Can an S Corp Own an LLC?

Yes, it is possible for an S Corp to own an LLC. While the ownership requirements vary between states, in most cases, an S Corp can own an LLC by becoming its member or owner.

Now, an important question here is what about the taxation of an LLC which is owned by an S Corp?

LLCs are pass-through tax entities. The business income passes through the owners who then file the taxes along with their personal income tax. If an S Corp has a single owner and the LLC it owns has not elected Corporate taxation, the LLC’s taxation will be similar to that of a disregarded entity. The LLC income in such cases will pass through the S Corp for taxation.

But if the S Corp has more than one owner, the LLC it owns will be a multi-member LLC. In such cases, its taxation will be similar to that of a partnership. The owners will pay taxes on the business income as per their ownership share in the business.

If the LLC elects Corporate taxation, it will have to file its own taxes separate from the owners.

Can an LLC Own an S Corp?

In most of the cases, it is not possible for an LLC to own an S Corp. This is mostly due to the strict S Corp requirements of the IRS which makes most LLC owners ineligible to own an S Corp. But in some cases, a single-member LLC can be an exception.

If it is a multi-member LLC, it will have to elect between partnership and Corporate taxation. Both of these entities cannot own any interest in an S Corp. But if an LLC is a single-member LLC which has not elected Corporate tax structure and if the single owner of the LLC is eligible for owning an S Corp, it is possible for that LLC to own an S Corp.

Why Do S Corps Own LLCs?

As the tax treatment of both of these business structures is similar, there is no tax benefit for an S Corp if it owns an LLC. But many of the S Corps still own LLCs due to the flexibility that the LLC structure offers.

For instance, in the case of an S Corp, the profits of the business are divided as per the ownership share of the owners. But with the LLC structure, the members can split the profits equally. A lot of times when an S Corp sees a new business opportunity and believe that owning a particular LLC is important to benefit from the opportunity, they consider owning the LLC.

Conclusion

Is it possible for an S Corp to own an LLC? In most cases, yes. But if you reverse the question, the answer is mostly no. A lot of things also depend on state laws. So, check with the Secretary of State’s office to know more about the laws in your state.  

If you are an S Corp and want to own an LLC, ensure that you thoroughly understand the whole process. Go through the pros and cons of owning an LLC as an S Corp and only consider it if you are sure to experience some big business benefits.

The post Can an S Corp Own an LLC Or Vice Versa? appeared first on .

source https://businessentity.org/learning-center/can-s-corp-own-llc/

What is a Professional LLC (PLLC) | How it differs from a LLC

If you are planning to start a new company, it can be challenging to select the right business structure.

This decision is crucial as it has a direct impact on a host of essential aspects of your business.

If like most people you are trying to know more about common business structures, you will mostly come across options such as LLC, partnership, and corporation.

But another not so popular business structure is PLLC. If you do qualify for this structure, your business can experience some valuable benefits.

But what is a PLLC? Who can form a PLLC? What are the benefits of this business structure?

Let us find answers to these essential questions.

What is a PLLC?

A PLLC or Professional Limited Liability Company is a type of LLC. This business structure is only available to a few licensed professionals. With this business structure, the company can only offer services related to their profession.

It is important to note that only a few states in the US let licensed professionals select between LLC and PLLC. In many other states, it is mandatory for licensed professionals only to form PLLCs. But there are some states where the PLLC structure does not exist. In such states, licensed professionals can go ahead with the standard LLC structure.

Just like an LLC, a PLLC can also have a single owner or multiple owners. The owners are known as members. In case if it a single-member PLLC, its taxation will be similar to that of a sole proprietorship. Taxation of a partnership will apply for multi-member PLLCs.

Who Can Form a PLLC?

There are many different types of licensed professionals who can form a PLLC. The state laws designate the professions that can create a PLLC.

While the laws vary between states, some common professions eligible to set up a PLLC are as follows-

• Doctors
• Lawyers
• Architects
• Dentists
• Chiropractors
• Psychologists
• Veterinarians
• Engineers
• Accountants

Benefits of Forming a PLLC

PLLCs are just a type of LLC. As a result, they offer all the benefits available with the LLC business structure. For instance, PLLC also provides limited liability protection. If someone files a lawsuit against the PLLC, the personal assets of the owner/s remain protected. But there are limitations to this protection.

They can also have employee retirement plans that have higher limits for contribution as compared to partnerships or sole proprietorships. Taxation flexibility is also an excellent advantage which makes PLLC an ideal choice for licensed professionals.

Forming a PLLC

Forming a PLLC is similar to creating an LLC. It is a 2-step process in which the PLLC first needs to file the Articles of Organization. The next step is to get the professional license and Articles of Organization reviewed by the state licensing board.

For instance, if you are a doctor and you want to form a PLLC, the medical licensing board will review your license and Articles of Organization. Also, some of the states require your business name to have “PLLC” in it.

Taxation of PLLC

Just like an LLC, a PLLC pays taxes like a sole proprietorship or a partnership depending on the number of members it has. PLLCs are also pass-through tax entities. This means that the PLLC taxes pass through the personal income tax of the owners.

In the case of multi-member PLLC, the members will pay taxes by their ownership share in the PLLC.

Difference Between PLLC and LLC

PLLC and LLC are fundamentally the same. It is just that to form a PLLC; you have to be a licensed professional. Apart from this, the formation, taxation, and functioning of LLCs and PLLCs are the same.

But it is essential to know about PLLC as in some of the states it is compulsory for some licensed professionals to only form a PLLC and not the standard LLC.

What is a PC? Is It Similar to PLLC?

No, PLLC or Professional LLC is a type of LLC and PC, or Professional Corporation is a type of corporation. While both the business structures require licensed professionals to be the owners, there are significant differences between the two.

For instance, a PLLC is a pass-through tax entity wherein the business profits are passed through the personal income tax of the owners. But with a PC, a corporate rate of tax is applicable, and taxation of the owners is as per the dividends they receive from the business.

There are other significant differences with regards to the formation, management, and functioning of PLLC and PC.

Conclusion

As you can see, LLCs and PLLCs are mostly same business structures. The difference in the name is due to the requirement of some states where some specific licensed professionals can only form a PLLC.

So, if you are a licensed professional wanting to form a legal business entity, make sure that you go through your state laws. It is possible that PLLC might be mandatory, optional, or not applicable in your state.

If you want to select between PLLC and PC, know that PC is a more complex structure. However, in a lot of cases, the PC structure can be a better choice. Consult a legal professional in this matter to make the right decision.

The post What is a Professional LLC (PLLC) | How it differs from a LLC appeared first on .

source https://businessentity.org/learning-center/what-is-a-professional-llc-pllc/

How to Change LLC Name?

If you are running an LLC for some time now, it is possible that you might want to change the name of your LLC due to many reasons.

You might just not like the existing name anymore, or it might not be in line with your current branding or business strategy.

So, is it possible to change the name of your LLC? Yes, you can change the name of your LLC anytime you want. While this is mostly a straightforward process, it can be time-consuming, especially if you have operations in multiple states.

Also, a lot of LLCs rather than legally changing the name of their LLC, prefer filing a fictitious business name or DBA.

Let us have a close look at the process of changing the name of your LLC and why do businesses prefer DBA.

Changing the Name of Your LLC

Following are the steps to change your LLC name-

Step 1- Check Availability of Business Name

The first step is to check whether the new name you have for your business is available in your state. It is very much possible that there might be another business already operating under the new name you are planning for your LLC.

You can check the secretary of state’s website to make sure that your new business name does not have any conflicts with existing businesses in your state.

Refer our 50-State guide for checking business name availability (opens in new tab).

Step 2- Fill and Submit the Amendment Form

LLCs have to file Articles of Organization with the state to form the LLC. To change LLC name, you will have to make changes to those articles. You can find the amendment form from the secretary of state’s website. The amendment form is different in every state. So, make sure that you only use the amendment form of your state.

Fill this form and submit the same to your state. Most states have a fee for filing this amendment form.

Step 3- Notify Licensing and Taxing Agencies

Once you submit this form, the next step is to notify the name change to license and tax agencies. In some states, you get a certificate after you file the amendment form. Some of the licensing agencies might require you to provide a copy of this certificate to change your LLC name in their records.

Similarly, you will also have to notify local, state, and federal tax authorities.

Step 4- Changing LLC Name on Business Accounts and Other Business Documents

To change the name of your LLC, you will also have to change the name on your business accounts. Moreover, you should also notify about the name change to your suppliers, vendors, lenders, and landlords. If you have a website, the same needs to be updated with the new name as well.

Once all of this is done, you will also have to change the business name on your brochures, business cards, stationery, and signage. Your customers would also need to know that you are changing the name of your LLC. You can do this with the help of advertisements.

This is it! You now have a new name for your LLC.

Why Do LLCs Prefer DBA?

As you can see, the LLC name changing process can be very time-consuming. As a result, a lot of businesses prefer applying for a DBA (Doing Business As) or fictitious business name unless the name change is due to a serious reason.

It allows businesses to get a new trade name for the products or services it offers while the legal name of the business remains the same. In comparison to legally changing the name of your LLC, applying for a DBA is easier and less expensive in most cases.

An entrepreneur can operate several businesses under the same LLC by applying for several DBAs.

Changing Name of Foreign LLCs

If you have operations in multiple states, your LLC registration in those states might be as foreign LLCs. If you want to change the name of your LLC, you will have to file the amendment form in each of the states where your foreign LLC is registered.

This is another reason why most LLCs prefer applying for DBAs.

Name Change in Case of Typographical or Spelling Error

A lot of times, LLCs want to correct their business name and not entirely change it. This is generally the case with new LLCs that sometimes have a typographical or spelling error in their name.

To correct the name of your LLC, most states offer something known as a “Certificate of Correction“. Just like the amendment form, you will have to submit this certificate of correction to the state for correcting the LLC name.

Conclusion

Changing the name of your LLC is a decision which you should only take if the name change makes some business sense. In all other cases, it is better to apply for DBA which will allow you to use another business name while keeping the same legal name of your LLC.

While the steps for changing LLC name are almost similar in all the states, make sure that you do check the secretary of state’s website to know more.

The post How to Change LLC Name? appeared first on .

source https://businessentity.org/learning-center/how-to-change-llc-name/

Choosing a Name for Your LLC

Selecting a name for your business is one of the most important and often challenging aspects of starting a new LLC.

With so many things like business licenses and permits, LLC registration, and more already on your mind, coming up with a name for your business can be stressful.

You want to make sure that your LLC name is unique and relates to your products or services as much as possible. It should be easy to pronounce and remember, and most importantly, it has to meet the legal naming requirements of your state.

So, how are you planning to come up with a business name? To make things easier, we have a few valuable tips that are sure to help.

Meeting the Legal State Requirements

When thinking about a name for your LLC, you first need to make sure that the name you select matches the naming requirements of your state. In most of the states, there are some restricted words which you cannot use in a business name. Similarly, there can be some mandatory words too.

For instance, in a lot of states words such as “insurance”, “certified”, “federal”, and “bank” cannot be used in an LLC name. The states generally maintain a list of such restricted words on their Secretary of State website. Go through this website first to know about the words which you cannot use in your LLC name.

With regards to mandatory words, most of the states require you to add “LLC” or “Limited Liability Company” in your LLC name.

After going through the list of restricted and mandatory words, you can then start thinking about the name. 

Choosing the Perfect Name for Your LLC

Here are a few tips to make the selection easier:

Understand Business Foundation

While you might be having several options in your head, the easiest way to come up with an LLC name is to review your business foundation. You can go through your business plan, mission statement, and your USP to come up with something that easily relates to your business.

Also, consider your target audience when thinking about the name. Focus on the type of audience you want to target and what you want them to feel and think when they hear your business name.

Select a Name That Is Memorable and Meaningful

It is essential to ensure that your LLC name is something that people can easily remember. Having a memorable name is crucial as it is possible that your customer or client will prefer you over your competition if they remember your name. The name should also be easy to pronounce and not too long unless it is necessary.

Your LLC name will also play an influential role in your marketing strategies. So, prefer something meaningful rather than something that is just fun and engaging. Just by listening to your LLC name, people should understand what type of products or services you offer.

Be Unique

A lot of times, uniqueness becomes more important in comparison to being meaningful and memorable. This is often the case for businesses that have a lot of competition. Your LLC name should be something that makes you stand out from the competition.

With advertising channels and modern media getting increasingly popular, you do not want your LLC to be one among hundreds of companies with similar names. So, try to be unique, and if that requires you to select a name that is not very meaningful, you should still go ahead if that makes business sense.

Consider Your Future Business Goals

When naming your LLC, you should also consider what you’d like to do with your business a few years down the line. A lot of enterprises expand to other states after setting their foot in the state of their initial registration. If you have similar plans, do consider the same when selecting a name for your LLC.

For instance, California Rentals can find it very difficult to rebrand itself if it decides to expand to another state in the future. So, avoid selecting something that can result in problems down the line.

Think About Your Online Presence

After registering your LLC, you will surely want to create a business website and also promote it on social networking platforms. When selecting the name, do a quick search to see what domain names you can get for your LLC. It is possible that someone might already have a domain name registered to that name.

Similarly, also go through the popular social platforms to make sure that your LLC name or some variant of the name is available for creating social pages.

Check Name Availability

By now, you might already have a few good name options for your LLC. Note that it is possible that a business might already have an exactly similar or almost similar name in your state. In such cases, you will not be able to go ahead with the name.

In most of the states, you can now check the availability of business names online. Check the Secretary of State website to know more about this.

To make the search easier, we’ve created a step-by-step guide on how to check for business name availability across all 50 states. Here is the Link (Opens in new tab).

Also, check the trademark database of the US Patent and Trademark Office. While the name you are planning to select might be available in your state, it is possible that some US company might already have a patent or trademark on that name.

Examples of Good vs Bad LLC Business Names

• The Google Marketing Services LLC – Bad, Infringes trademark of Google.
• STD Contractors LLC – Really bad, offensive/inappropriate
• Best Alaska Landscaping Contracts LLC – ok but not that great. Too long and boring
• Alaska Landcapers LLC – Great name, short and sweet.
• Epic Web Media LLC – Good name

Conclusion

Coming up with a good LLC name is worth the effort and time as it can significantly impact your future business. The name will help you create a brand and play a significant role in helping you achieve your business goals.

So, rather than selecting something random, use the tips discussed in this post to come up with a great LLC name. Even if this requires you to spend a lot of time and efforts, do it as it will all be worth it in the end. You can also consult your family, friends, employees or clients and they might help you come up with something that ticks all the right boxes.  

The post Choosing a Name for Your LLC appeared first on .

source https://businessentity.org/learning-center/choosing-a-name-for-your-llc/

LLC vs. S Corp – Differences and Tax Implications

The structure you select for your business significantly impacts several crucial business issues. This includes liability exposure, financing, business growth, tax implications, and more.

Among all the different business structures, LLCs and S Corp are very popular. Both the structures offer limited personal asset protection along with pass-through taxation.

But while both the structures offer this basic business benefits, there are many essential differences between them.

For instance, do you know that S Corp is not really a business structure? Yes, S Corp is just a taxation method for LLCs, and it is not a business structure like LLC or a Corporation.

Moreover, while LLC is a business structure, there is nothing known as an LLC tax structure. An LLC has to select one of the tax structures from options such as disregarded entity, Corporation or partnership.

Confusing, right? Read this post, and you will understand the differences between the two better.

What is an LLC?

An LLC or a Limited Liability Company is a state-registered business entity. LLCs are legally separate from their owners (known as members). LLCs can have a single owner or multiple owners.

Most small businesses prefer LLC structure as it is more credible than sole proprietorship and offers more flexibility in comparison to a Corporation.

What is an S Corp?

While LLC is a business structure, there is no business structure known as S Corp. It is only a designation which refers to how a business pays its taxes.

If you have an LLC, you get the option to select between different tax structures. These options include disregarded entity and Corporation (S Corp or C Corp) for single-member LLCs. If you select the disregarded entity, your taxation will be similar to a sole proprietorship.

For multi-member LLCs, the options are partnership or Corporation (S Corp or C Corp).

LLC vs. S Corp

There are several similarities between LLCs and S Corps such as-

• Both are separate legal entities
• Offer limited personal asset protection
• Are pass-through tax entities
• Have ongoing compliance requirements of the state

But there are some significant differences too. For instance, IRS only classifies business structures like sole proprietorships, Corporations (S Corp or C Corp) and partnerships for tax purposes. There is no separate tax structure known as “LLC tax structure”.

This means that an LLC’s taxation can only be as a sole proprietorship, Corporation or a partnership.

Taxation of LLC and S Corp

Business taxation is based on the net profit or loss of the business. Deductible expenses are subtracted from the sales and revenues for calculating the net profit or loss. Let us have a look at the different options an LLC has for taxation-

 

• Taxation as a Disregarded Entity (Single-Member LLC)

 

If a single-member LLC’s taxation is as per a sole proprietorship, reporting of all the business income and expenses is through the personal income tax of the owner. The owner of a single-member LLC is self-employed and has to pay Medicare and Social Security taxes on the profits.

 

• Taxation as a Partnership (Multi-Member LLC)

 

In case if an LLC is a multi-member LLC with a partnership tax structure, reporting of all the business income and expenses is through the personal income tax of the owners. However, as there are multiple owners in multi-member LLCs, the tax calculation is as per their ownership share.

For instance, if the net profit of a two-member LLC is $100,000 and your ownership percentage is 50%, you will pay taxes on $50,000.

 

• Taxation as an S Corp (Single-Member and Multi-Member LLC)

 

When an LLC is an S Corp, it will pay a “reasonable salary” to the owner who is a working employee of the company. The remaining net income of the business after paying the owner’s salary passes through the personal income tax of the owner.

For instance, let us assume that the net profit of an S Corp is $20,000 after paying a $20,000 salary to the owner. In case of a single-member LLC, you will pay taxes on $40,000 as you are the single owner. The only benefit you can get here is avoiding self-employment taxes.

 

But if it is a multi-member LLC and you have 50% ownership in it, you will pay taxes on $30,000. $20,000 will be the salary from your LLC, and $10,000 is from your 50% share in the net profits of $20,000.

Who Pays More Taxes? LLCs or S Corps?

In most cases, S Corps pay more taxes in comparison to LLCs. This is because they have to pay state Corporate taxes and payroll taxes which may be applicable. Also, salaries which they give to the owner is also subject to disability tax, unemployment tax, Medicare and Social Security tax.

LLCs with single owners do not pay these taxes. But they also do not get the disability or unemployment benefits as LLCs do not pay anything to these funds.

So, Why LLCs Choose S Corp Tax Structure?

A large number of new businesses nowadays are run by independent contractors generally working with a single client. IRS generally prefers hiring of these contractors who function as consultants as employees and not independent contractors. This makes S Corp structure a better option in comparison to an LLC functioning as a sole proprietorship.

Also, LLCs have to pay estimated taxes on its net profits every quarter. A lot of owners are not very diligent with quarterly tax payments and get into serious problems with the IRS. As S Corps use payroll service, tax payments are taken automatically from the salary.

Can Every LLC Be an S Corp?

As per the S Corp definition of the IRS, every LLC does not qualify as an S Corp. Most of the single-member LLCs generally qualify. But there are a few reasons when they cannot. A few of these reasons are-

• Non-resident alien owner of the LLC
• Foreign LLC
• Business structure is as such that the LLC is a partnership or a Corporation

Also, multi-member LLCs which have more than 100 members do not qualify to be an S Corp.

How to Select Between LLC and S Corp?

To select between LLC and S Corp, try to evaluate the benefits of both the structures. For instance, see if the S Corp taxation can help you save more money as compared to a sole proprietorship or partnership taxation.

Focus on the reasonable salary for the owner as the IRS is very serious about the salary of the S Corp owner being reasonable. So, make sure that you do not select something that is artificially lower or higher than what you should receive.

Once you know the reasonable salary, see how much profit the business will be left with. If the leftover profit is not considerable, S Corp might not be the right choice for you. But if the gains are significantly higher after deducting your salary, S Corp taxation can help you save money.

But if you do select S Corp structure, note the tax return filing process will be more complicated. Also, if you are a single owner, you will also have to work on tax withholding.

Conclusion

There are only a few cases where an LLC can significantly benefit from electing the S Corp tax structure. Most businesses, as a result, prefer being a sole proprietorship or partnership. Some of the LLCs also go with the C Corp structure.

As a lot of intricacies are involved in this decision, consult a professional lawyer or accountant to help you make the right choice.

The post LLC vs. S Corp – Differences and Tax Implications appeared first on .

source https://businessentity.org/learning-center/llc-vs-s-corp-differences-and-tax-implications/

How to Properly Close an LLC Properly | Step-By-Step Guide

If for some reason you want to shut down your LLC, it can be very tempting just to shut your operations and skip the legal formalities.

But just like there are steps to form an LLC, there are steps to close an LLC as well.

Without following the correct legal steps for LLC dissolution, there can be many serious legal troubles.

For instance, if an LLC owns any property, it is only after correctly closing the business that the property will personally belong to the owner. But if you do not follow the steps, the property will continue to be in the name of your LLC. You cannot claim it to be your personal property.

Similarly, there can be many other problems related to state fees, business bills, filing requirements, permits, and more.

Why get in all these troubles when you can legitimately close your LLC easily? Most states in the US have clear laws and provisions for shutting down an LLC and avoid any lawsuits or debt liabilities.

If you are planning to shut down your single-member or multi-member LLC, read this post to know the exact steps you should follow to close your LLC.

Note that the steps can slightly vary between states. But they are more or less the same in most of the states.

Step 1- Vote to Dissolve

To close an LLC, the first step is to take a formal decision that you actually want to dissolve your business. This is easy in case of a single-member LLC as you are the only one to make the decision.

But if you have a multi-member LLC, you will have to call a meeting of all the members for confirming the decision. In most states, the standard majority dissolution vote is applicable. But there are some states where a 2/3rd majority vote is required.  

Moreover, there are also a few states where every member of the LLC has to give their confirmation to dissolve the LLC in writing. You can check the dissolution requirements of your state to know more about this.

Step 2- Informing the Secretary of State

Now that the decision is final, the next step is to inform the same to the Secretary of State. The official website of your Secretary of State will mostly have a form for dissolving LLCs.

Fill this form and submit the same with the state. The department will then go through your application and will formalize the LLC dissolution. After this step, your LLC name will be legally closed down by the Secretary of State.

Step 3- Formal Notice

Once the LLC members have made sure that they want to close their LLC, they also have to give a formal notice about the same to all the creditors.

In case if they want to file any lawsuit against your LLC, this will allow them to know the timeframe within which they should proceed with the suit before you shut down your LLC. Some states require dissolving LLCs to publish about it in local newspapers.

The rules vary between states. So, check with the Secretary of State to know how long before dissolution do you have to publish the notice. Also, go through how and where the notice should be published.

Step 4- Managing Finances

The next step is managing the finances of your LLC. Before closing your LLC, you have to clear all the outstanding bills of your business. You will also have to make provisions for any obligations which the owners might currently be unaware of.

Before distributing business assets, an LLC should first clear all of its debts. Every owner of the LLC is personally liable to creditors, and they can take legal actions against the owners if their dues are left unpaid.

You will also have to cancel all your vendor accounts, utility accounts, and also inform your customers or clients about the LLC closing its operations. Your employees should also know the closing date of your LLC, and you should also pay their salaries appropriately.

Step 5- Tax Obligations

When closing an LLC, one of the most important steps is to manage the taxes. You will have to close the tax accounts of your LLC with the IRS as well as the state by paying the taxes if you owe any. Also, check that the sales taxes and payroll withholding is up to date.

When filing the final tax return, check the box which says this is your final tax return for your LLC. After filing the Schedule K-1, pass its copy to each of the LLC members so that they can pay appropriate business taxes through their personal income tax.

LLCs also have an EIN (Employee Identification Number). You need to inform the IRS  that you do not require your EIN anymore.

Step 6- Closing Bank Accounts and Cancelling Business Permits

After managing the finances and taxes, the next step is to close all your business accounts. Close or cancel your business insurance accounts, licenses, permits, and registrations.

Once you do this, create a copy of everything and keep them safely with you for at least seven years in case if you are audited.

Step 7- Dividing LLC Assets

After paying the debts and taxes, the remaining assets of the LLC can be divided between the members if it is a multi-member LLC. If you are the single owner, the assets will now belong to you.

The division of assets should be according to the ownership share of every LLC member as per the operating agreement of the LLC. The LLC is considered legally closed after the completion of this final step.

Conclusion

While all of this might seem too much, know that this is the only correct way to avoid lawsuits or debt liabilities. Once you have decided that it is time to close down your LLC, go through the state requirements for shutting down the operations of LLC to know more about the steps mentioned above.

Most LLC owners rather than handling this process on their own, prefer working with tax professionals and attorneys. You too can do the same to avoid any discrepancies in the future.

The post How to Properly Close an LLC Properly | Step-By-Step Guide appeared first on .

source https://businessentity.org/learning-center/how-to-close-an-llc/

What is Certificate of Good Standing | How to Apply

Even after the formation of your LLC or corporation, you will still require many different documents for various reasons. One of the most important is the “Certificate of Good Standing“.

Also known as “Certificate of Authorization” and “Certificate of Existence”, it is issued by the state in which your business is registered.

What is this certificate? Does every LLC or corporation need to have this certificate? All of this and much more discussed in the post below.

What is a Certificate of Good Standing?

The Certificate of Good Standing is a state-issued certificate. It shows that an LLC or corporation is authorized to conduct business and meets the statutory requirements of that state. In simple words, it confirms that the business is legally registered in the state which grants it the certificate.

Apart from this, it also shows that your business has-

• Paid all the required fees to the state
• Paid franchise tax
• Filed annual report

Even an entity whose formation is in a particular state but wants to register in a new state as a foreign entity should also have the Certificate of Good Standing. The certificate comes with an expiry date before which the business should renew the certificate.

But note that the certificate is not similar to occupational or business license which is mandatory to conduct business in a state. State-registered companies which do not have this certificate can still conduct business in that state legally.

Why LLC or Corporation Need the Certificate of Good Standing?

While the certificate is generally not mandatory, many of the LLCs and corporations still need to get one for a number of reasons. Some common reasons are-

• Maintaining their own records
• State government requirement when using foreign qualifications
• Lender requirement when trying to acquire financing
• Set up a new business bank account
• Attract potential business buyers or companions in foreign countries
• Renewing some types of business permits or licenses
• Business promotion

What does Certificate of Good Standing – Include?

A Certificate of Good Standing usually includes the following information-

• Trading name and number of the company
• Incorporation or formation date of the company
• A statement which confirms that the company is in existence since its incorporation or formation
• Statement from Registrar which proves that the company is not in liquidation and is not subject to any kind of administration order
• Statement from Registrar to confirm that the company has not selected any receiver or manager of the company property
• Declaration by Companies House which affirms that there are no actions against the company to strike it off or make it invalid

Does a Sole Proprietorship Need a Certificate of Good Standing?

NO, A sole proprietorship is not a state registered entity. Thus, a sole proprietorship does not need a Certificate of Good Standing.

Apart from an LLC and corporation, some of the states also require limited liability partnerships, limited partnerships, partnerships, etc. to have a Certificate of Good Standing.

How to Get a Certificate of Good Standing?

Secretary of State or other equivalent agency which is responsible for maintaining state records and filing entities issues Certificate of Good Standing. For instance, the Divisions of Corporations issues the certificate in Delaware and State Corporation Commission is responsible for issuing this certificate in Virginia.

Even if your corporation or LLC is in existence for just a few days, you can still get this certificate.

You can know more about the documents you will need and the fee for applying at the official website of the agency that issues the certificate. There are also several 3rd party companies in almost every state that can apply for the certificate on your behalf.

Can the Secretary of State or Other Equivalent Agency Deny My Certificate of Good Standing Application?

Yes, it is possible for a state agency to deny your certificate application. Some common reasons due to which the state agency may not issue a certificate are-

• The Confirmation Statement or accounts of your company are not up to date
• You have not provided information regarding the control, ownership, or constitution of your company
• The company does not have the required number of officers

Conclusion

Businesses which register at state-level such as LLCs and corporation can get themselves the Certificate of Good Standing as and when needed. The certificate is not mandatory if an entity only conducts business in the state where it is formed. But a large number of enterprises still get the certificate due to many reasons as discussed above.

If you want to apply for the certificate, visit the state agency’s office of your state to know more about the application process and fee. You can also work with a 3rd party company which will prepare and file all the documents necessary for the certificate on your behalf.

The post What is Certificate of Good Standing | How to Apply appeared first on .

source https://businessentity.org/learning-center/what-is-certificate-of-good-standing-application-requirements/

Is LLC a Corporation (INC) | Difference Between LLC and Corporation

LLC or Limited Liability Company is currently one of the most common and popular business forms in the US.

From limited personal asset protection to the tax benefits, there are several reasons for businesses to prefer LLC.

LLCs combine the benefits of a corporation and sole proprietorship or partnership. While this hybrid structure is one of the most significant advantages of LLCs, the structure is also confusing for new entrepreneurs.

A lot of entrepreneurs wanting to register themselves as LLCs generally have several queries with regards to the business structure.

One of the most common queries is whether an LLC is a corporation or gets the corporate treatment for tax purposes.

If you are looking for a straightforward answer to this question, you should surely read this post in its entirety.

What is an LLC?

LLC or Limited Liability Company is a type of private limited company. It is one of the simplest business structures after sole proprietorship. LLC structure offers many benefits generally available with the corporation and sole proprietorship or partnership.

If the business has a single owner, the LLC can be a Single Member LLC. If there are two or more owners, it is a Multi-Member LLC. The LLC business structure is popularly known as a pass-through business structure. This means that all the profits and losses of the LLC will pass through the personal income tax of the owner/s.

With LLC, the owner gets limited personal asset protection. This helps in protecting their personal assets if someone files a lawsuit against the LLC. Such protection is not available with a sole proprietorship.

What is a Corporation?

The corporation is a more complex business structure as compared to LLCs. Unlike LLCs, the profits and losses of the corporation do not pass through the business owner. A corporation is a separate legal entity, and its taxation is separate from the owner.

For creating a corporation, you have to file organization forms and assign shareholders. To oversee the operations of your business, you will also require the Board of Directors. Just like LLCs, the corporation also offers limited personal asset protection.

LLC as a Corporation

A Single Member LLC gets the option to select between a disregarded entity or a corporation for tax purposes. In case if you choose disregarded entity, your LLCs tax treatment will be similar to that of a sole proprietorship. Similarly, a Multi-Member LLC can be a partnership or a corporation for tax purposes.

So, it is possible for an LLC to be considered a corporation. But for this, the owner/s of the LLC have to elect the corporation structure for tax purposes.

When Do LLCs Elect to Be Treated as a Corporation?

Corporations are subject to double taxation. It means that the business dividends are taxable and the owner/s is also required to pay personal income tax. It is a significant reason why LLC owners prefer to be treated as disregarded entities.

However, the corporate structure proves to be more beneficial to some LLC owners in case they have high taxable income. But only switch to corporate tax structure if the tax savings will be higher even after considering double taxation.

There are also some other reasons why an LLC can consider the corporate tax structure. Some common reasons are-

• Owners are looking for venture capital
• Owners have plans to sell the business in future
• Owners want more flexible profit sharing
• Companies want to offer employee benefits and health insurance to the employees
• Owners want to grow the business further through the profit the business generates
• Owners wish to have a more organized management structure
• Owners want to offer the stock option to the employees

S Corporation and C Corporation

LLCs that want to be a corporation for tax purposes again have two choices- S corporation and C corporation. When an LLC applies to incorporate, C corporation is the default formation. However, if all the shareholders of the corporation agree to file as S corporation, the C corporation can become an S corporation.

A lot of LLCs go with the S corporation tax status to make the business income pass through their personal tax returns. This means that S corporation tax structure can be used for avoiding double taxation.

All the business income will pass through the individual tax returns of the owners, eliminating the requirement for filing a corporate tax return.

Conclusion

Most LLCs generally stick to the LLC structure due to the benefits it offers. But in some cases, the corporate structure can prove more beneficial for some LLCs.

So, yes, an LLC can be a corporation for tax purposes. However, LLCs do not get the corporate tax structure by default. They need to elect the structure after considering the benefits and drawbacks with respect to their business.

Even with the corporate structure, an LLC has to select between S corp and C corp after thoroughly understanding the structures. As this decision is a complex one, LLCs wanting to switch to the corporate tax structure, generally rely on professional legal help.

The post Is LLC a Corporation (INC) | Difference Between LLC and Corporation appeared first on .

source https://businessentity.org/learning-center/llc/is-llc-a-corporation-inc-difference-between-llc-and-corporation/

A lot of sole proprietors wanting to grow their business prefer the LLC business structure.

But search about LLCs, and you will come across terms such as “single member LLC” and “multi-member LLCs” very commonly.

What is a single-member LLC or SMLLC? How is it different from other business structures?

This post will answer all of these questions to help you understand LLCs better.

What is a Single-Member LLC (SMLLC)?

As the name suggests, a single-member LLC or Limited Liability Company is a business entity with a single owner (known as a member). The SMLLC functions as a legal entity of its own which is separate from its owner.

As it is an LLC, it offers some level of personal liability protection which the LLC business structure is well-known for.

Taxation of SMLLC

Single-member LLCs get the option to select the taxation structure of a disregarded entity or a corporation. If it chooses the former, its taxation will be similar to a sole proprietorship. With this tax structure, the SMLLC will report all the business income through the personal income tax of the owner.

SMLLC taxation as a corporation is generally an option for owners who have very high taxable income, including the net income of their LLC. In such cases, taxation as a corporation can help yield lower taxes.

But with the corporation tax structure, the owner will also be subject to double taxation. So, select the corporate structure only if the tax savings are significant. Most SMLLCs generally prefer the disregarded entity structure.

Other Differences Between SMLLC and Corporation

There are some significant differences between the activities of an SMLLC owner and corporation owner. Two of the biggest differences are as follows-

• The SMLLC owner is not an employee and does not receive a salary from the SMLLC. Instead, he/she can take money from the business at any time. The same is not true for corporation owners.
  
• Similarly, the SMLLC owner can put his/her money in the business at any time. The personal funds of the owner can be used for the same. Corporation owners cannot do this.

Difference Between SMLLC and Sole Proprietorship

A sole proprietorship and SMLLC are both sole entities. However, SMLLC business structure is known to offer some significant benefits over a sole proprietorship. For instance-

• SMLLC or LLC for that matter is a business structure separate from the owner. It is not identified or attached to the owner for liability or taxes.
• SMLLC offers personal liability protection which sole proprietorship does not.
• SMLLCs are legitimate business entities which need “LLC” in their business name.
• As SMLLCs are legitimate business entities, they are generally more credible than sole proprietorships. This makes them a better option for clients and investors.

Disadvantages of SMLLC

While SMLLCs offer some great benefits over sole proprietorship and corporation, there are some drawbacks too.

For instance, the personal liability protection offered by SMLLC has its limitations. There are several cases in which the personal assets of the owner can still be at risk if someone files a lawsuit against the SMLLC.

Also, there is a lot of additional paperwork with LLCs or SMLLCs as you will have to file annual reports. Paperwork is considerably lower with a sole proprietorship. However, it is not as complex as a corporation.

Unlike a corporation, there is no need for an SMLLC to have shareholders and board of directors. This makes them less formal and affects their business credibility too. As a result, a lot of SMLLCs struggle when it comes to raising equity capital or applying for credit.

Forming an SMLLC

If you are planning to establish an SMLLC, you should contact the business division of your department of state. While the requirements generally vary between states, most states will require you to-

• Select an SMLLC name
• File Articles of Organization by paying a filing fee
• Create Operating Agreement
• Publish public notice
• Apply for permits and licenses

Conclusion

As you can see, a single-member LLC offers some great benefits in comparison with other business structures like a corporation or sole proprietorship. While there are some drawbacks too, the benefits are considerably more valuable.

If you want to take your business a step forward or wish to register a new company, now you can decide whether SMLLC is the right choice for you. You can also look for professional help to make the right business decision.

The post What is a Single-Member LLC (SMLLC)? appeared first on .

source https://businessentity.org/learning-center/what-is-a-single-member-llc-smllc/

Do You Need EIN Number for Your LLC?

LLC or Limited Liability Company is one of the most popular business structures. Sole proprietors looking to grow their business prefer going the LLC way. It is also a common choice for people registering their business for the first time.

People often refer to this business structure as a hybrid structure. That is because it combines the benefits and characteristics of a corporation and a sole proprietorship or partnership.

But while most business owners know that partnerships and corporations need EIN, there is still a lot of confusion about whether an LLC needs one.

As you might know, EIN or Employee Identification Number is a nine-digit IRS assigned unique number used for tax purposes.

But does your LLC need an EIN? Let us try to find an answer to this question.

LLC Classification

To understand whether or not you need an EIN for your LLC, you first need to understand the classification of LLCs.

LLCs are state statute created entities. The IRS can treat them as a partnership, corporation, or a disregarded entity as per the number of members of an LLCs and the elections made by them.

Generally, an LLC is classified as a partnership for tax purposes if it has at least two members and has not filed Form 8832 to elect its treatment as a corporation. If an LLC has a single member, its treatment is similar to a disregarded entity which is separate from the owner with regards to income tax purposes.

Single-Member LLCs and EIN

If a single-member LLCs treatment is not like a corporation, it functions as a disregarded entity. All the activities of the LLC are reflected on the federal tax return of the owner. Reporting of all the profits and losses of the LLC is along with the personal income tax statement of the owner.

So, the owner can use his/her Social Security Number (SSN) for the tax returns and might not need an EIN. But if a single-member LLC has employees, you will need to get an EIN. Also, if you pay the excise tax, tobacco, firearm, or alcohol tax, you will require an EIN as a single-member LLC as well.

Others Reasons Why Single-Member LLCs Might Require EIN

Apart from the reasons listed above, there are some other reasons why a single-member LLC might require an EIN. Some of the reasons are-

• Your business has a Keogh plan
• You want to open a business account
• You want to obtain business licenses
• You want to obtain a credit line
• Protection against identity theft
• Filing bankruptcy

Multi-Member LLCs and EIN

Apart from single-member LLCs in some cases, all the other types of LLCs should have an EIN. Multi-member LLCs function as partnerships by default for tax purposes unless they do not elect to function as a corporation.

But as it is compulsory for partnerships and corporations to obtain an EIN, every multi-member LLC requires an EIN as well.

Applying for an EIN

Now that you know whether or not you require an EIN, the next step is to understand how to apply for it. Fortunately, applying for an EIN is very easy and can be done online. Visit the IRS website and look for EIN Assistant. To apply for EIN, you will have to submit form SS4 and provide identification and business details for the same.

Once the form submission is successful, the IRS will go through your application. If everything is fine, you will receive your EIN within 1-2 working days. Apart from the online application, you can also apply for EIN through email, fax, and phone. But applying online is the fastest and most convenient.

Apply here: https://www.irs.gov/businesses/small-businesses-self-employed/apply-for-an-employer-identification-number-ein-online/

Conclusion

So, if you are a single-member LLC with no employees, it is possible that you might not require an EIN. Just your SSN would do. But if you elect corporation business structure, have employees, or fulfill any of the other requirements listed in this post, an EIN is a must.

A lot of single-member LLCs that do not need EIN still apply for one due to many reasons. Apart from single-member LLCs in some cases, all the other types of LLCs should have an EIN.

As compared to the past, applying for the EIN is now easier and faster due to the online application process. While you can still go the traditional way and apply for EIN through email, fax or phone, most businesses generally prefer the online method.

The post Do You Need EIN Number for Your LLC? appeared first on .

source https://businessentity.org/learning-center/do-you-need-ein-number-for-your-llc/

Does Sole Proprietorship Need an EIN Number?

A sole proprietorship is the simplest and most common forms of business.

But while this business structure is easier to form, you still need to comply with the licensing, zoning, and local requirements and regulations of your state.

While searching for the prerequisites of forming a sole proprietorship, you might often come across something known as EIN.

This EIN or Employee Identification Number is a nine-digit unique number assigned by the IRS to businesses for tax purposes. Just as individuals have SSN (Social Security Number), enterprises have EIN.

But will your sole proprietorship need an EIN too? Maybe or maybe not!

Let us have a look at when a sole proprietorship does and does not require an EIN.

Does a Sole Proprietorship Need an EIN?

In a sole proprietorship, a single proprietor owns and manages the businesses and all of its transactions. The single business owner pays business income tax along with his/her personal income tax payments.

So, the sole proprietor or owner of the business can just use his/her SSN for all the business tax purposes. This means that it is not legally compulsory for a sole proprietorship to have an EIN.

However, there are a few cases in which a sole proprietorship might need an EIN. Even if you do not relate to such cases defined by the IRS, a sole proprietorship can still get an EIN for the benefits it offers.

Cases in Which a Sole Proprietorship Needs an EIN

As per IRS, a sole proprietorship needs an EIN if-

• You want to hire employees
• You are buying an existing business
• You have 401(k) or Keogh
• You are inheriting a business
• You want to form a partnership, LLC or incorporate
• You want to file for bankruptcy
• You want to obtain a credit line

Moreover, many banks require almost every type of business to have an EIN for opening a business bank account. Also, as a business entity, you can obtain certain local business licenses if you have an EIN.

Even if you do not belong to any of the categories listed above, you can still apply for an EIN for the benefits it offers.

Benefits of EIN For Sole Proprietor

Following are two of the most important benefits of having an EIN as a sole proprietor-

• Protection Against Identity Theft- Without an EIN, you will have to use your SSN at many places. Identity thieves might access your SSN and then use the same for filing fraudulent tax returns.
• Business Credibility- Having an EIN is an easy way to improve the impression that people have of your sole proprietorship. An EIN  establishes the fact explicitly that you are an independent owner and contractor and not an employee.

Applying for EIN

Applying for an EIN is easy and free. You can visit the IRS website and file Form SS-4 to apply for an EIN. Once the IRS validates your submission, you will receive your EIN within 1-2 working days. Apart from the online application, you can also apply for EIN through email, fax, and phone.

There are no restrictions by the IRS on the number of businesses you can own. But you will need a different EIN for each of your companies. Within 24 hours, you can only get up to 5 EINs.

This is irrespective of whether you are applying them for a sole proprietorship, LLC, corporation or partnership.

Conclusion

So, the decision about having or not having an EIN for your sole proprietorship is in your hands. While there are many benefits with EIN, you might also skip it entirely if you are starting a business. Just get the state or local permits or licenses that you need for your business, and you are good to go.

But ultimately, as your business will grow, you might need an EIN. Also, do consider the benefits of having an EIN even if you are not legally required to have it. EIN can make your business safer and more credible.

And with the availability of the online application, the whole process of applying and receiving an EIN is easy and quick. Moreover, it is completely free too. So, if you ever need the EIN in the future, just visit the IRS website to find all the help you need.

The post Does Sole Proprietorship Need an EIN Number? appeared first on .

source https://businessentity.org/learning-center/does-sole-proprietorship-need-an-ein-number/

What is an EIN Number? How to Apply For One

Starting a new business can be an overwhelming experience.

But now that your business is finally registered as an LLC, corporation or partnership, the next important step is to get an EIN.

Employee Identification Number or EIN is a nine-digit number which the Internal Revenue Service (IRS) assigns to your business.

In this post, I’ll be covering everything you need to know about EIN and answering questions like:

• But why do you need EIN?
• Does every business need to apply for an EIN?
• How to apply?
• Do they expire?

Continue reading to know everything about EIN.

What is an EIN?

As mentioned above, EIN or Employee Identification Number is a unique nine-digit number assigned to a business by the IRS for tax purposes.

The number is in XX-XXXXXXX format.

Think of this EIN as the Social Security Number which individuals have. Most of the businesses need an EIN but some might not.

Once your business registration receives approval, you can then apply for an EIN. Apart from the tax purposes, you also require EIN to

• Apply for business licenses
• Get a credit line
• Open a business bank account

Does Every Business Need an EIN?

As per IRS, a business needs EIN if:

• The business has employees
• The business taxation is as an LLC, partnership, or C corporation
• The business files excise taxes, employment taxes, tobacco, firearm, or alcohol tax returns
• The business has a Keogh plan
• The company withholds taxes on the income which it pays to non-resident aliens
• The business works with trusts, non-profit organizations, employee plans, real estate mortgage investment conduits, estates, or farmers’ cooperatives

Companies that do not belong to any of the categories listed above might still need an EIN to open a business account, apply for business licenses, or get a credit line.

What About Sole Proprietor? Do They Need EIN As Well?

If you do not have any employees in your sole proprietorship, you might not need an EIN. As you will file the income taxes of your business along with your personal taxes, you can use the Social Security Number as business taxpayer ID for tax purposes.  

But if you want to form a partnership or LLC or incorporate, you will need an EIN. The same is true if you’re going to file for bankruptcy as well. While a lot of Sole Proprietors are not legally required to have an EIN, they still have one for many reasons.

For instance, many of the independent contractors that function as sole proprietors do have an EIN to protect themselves against identity theft.

When Do You NOT Need a New EIN?

As per IRS, you should not apply for a new EIN if-

• Your corporation or partnership declares bankruptcy
• The business name is changed
• The corporation wants S corporation tax structure
• Business location is changed, or new location/s is added (Use Form 8822 for Address Change)
• Business wants to make changes to its taxation structure

Do EINs Expire?

No, EINs do not expire. The IRS will never assign the same nine numbers to any other business even if the original business shuts down. But while the number does not expire, you will have to apply for a new EIN if you want to change your business structure.

For instance, if you have an EIN as a sole proprietor and want to form an LLC, you need to apply for a new EIN.

How to Apply for EIN?

Applying for EIN is easy and completely free. You can apply online, or by email, fax, or phone. Most businesses prefer applying online. Visit the IRS website where you can find an EIN Assistant which you can use to apply for an EIN.

To apply for EIN, you will have to file an SS-4 form. You will also need your Individual Taxpayer Identification Number (ITIN) or Social Security Number (SSN) to file this form. Moreover, you will also have to provide details about the type of business you are operating or are about to register.

Once your documents are validated, you will receive your EIN within 1-2 working days.

Responsible Party for EIN

When you apply for an EIN, you need to name a ‘Responsible Party’. Irrespective of how many owners or members a business has, there can only be a single Responsible Party. The Responsible Party will be the point of contact between the IRS and your business.

You will need to provide the personal information of the Responsible Party while applying for the EIN online.

What If the EIN is Lost or I Forget the EIN?

Do not panic if you lose or forget your EIN. It is very easy to get it back. Firstly, try to find the IRS notice which businesses receive when they first get their EIN. If you are not able to find it, go through the employee payroll records and bank account information.

Businesses also use EIN in their state account application. You can go through those records as well. You can also check the small business tax returns for your EIN.

The last option is to get in touch with the IRS through their Business and Specialty Tax Line at 1-800-829-4933. TTY/TDD: 1-800-829-4059.

To get your EIN, you will have to provide identifying information when you call the IRS.

For security reasons, the IRS will only provide the EIN to authorized persons.  This includes a corporate officer, sole proprietor, member of LLC, a partner in a partnership, or similar roles.

Conclusion

Almost all the registered businesses are legally required to have an EIN. Even a lot of companies that do not need EIN generally apply for one to either open a business bank account or to get local business licenses.

Now that you know what EIN is and whether you need it, you are one step closer to running a business of your own. If you do require the EIN, apply for it as soon as possible to check off another important step from your to-do list as a new business owner. If not, it is still advisable to remember the information or bookmark this post as you might need EIN in the future as your business grows.

The post What is an EIN Number? How to Apply For One appeared first on .

source https://businessentity.org/learning-center/what-is-an-ein-number-how-to-apply/