What is a Certificate of Organization?

All set to form a Limited Liability Company?

Have all the information regarding the documents you’ll need for forming an LLC, like the Articles of Organization and Operating Agreement?

What about the Certificate of Organization?

Some of the states in the US now require you to file a new document known as Certificate of Organization for forming an LLC. Also known as the Certificate of Formation, it contains a host of important details about the LLC.

If you’re planning to form an LLC, here are some of the most important things that you should know about the Certificate of Organization-

What is a Certificate of Organization?

The Certificate of Organization is a document needed for forming an LLC in some states like New Jersey, Iowa, Delaware, Texas, Pennsylvania, and Idaho.

In most of the states, you’re required to submit your LLC’s Articles of Organization to the Secretary of State’s office. After going through the documents and approving it, the state office then sends you the Certificate of Organization.

In some other states, you need to create the Certificate of Organization and file it with your Secretary of State’s office. The state office will then stamp and sign the certificate before sending it back to you.

What Information is Included in the Certificate of Organization?

The information included in the Certificate of Organization varies between states. However, most of the certificates do have these basic details like-

• Name of the LLC
• Date on which LLC was formed
• Registered Agent’s name and address (In case of single-member LLC, the single member is the Registered Agent and in multi-member LLCs, the members select one as a Registered Agent)
• Address of the LLC’s registered office
• Whether LLC management is handled by the members themselves or by hired managers
• Name and address of one or all the members

How to Submit Certificate of Organization?

As mentioned above, you’re either required to submit your LLC’s Articles of Organization to the state office and they’ll send you the Certificate of Organization or you need to create Certificate of Organization on your own and submit the same to the state office depending on the state where you’re registering the LLC.

If you want to create a Certificate of Organization, the State Secretary’s website generally has a fillable PDF form that you can use. After filling the certificate, you can submit it online and pay the filing fee.

However, in some of the states, you’re required to print the PDF form and then fill it manually before mailing it to the State Secretary’s office. After going through the certificate, the state office will then sign and stamp it before sending it back to you.

In case if you want to create Articles of Organization for your LLC, you can find several templates online that you can use. But if you want to create a multi-member LLC, it is better to consult an attorney for the same. Once the Articles of Organization is created, you can mail the same to the State Secretary’s office and they’ll send the Certificate of Organization after due verification.

Is the Certificate of Organization Similar to Articles of Organization?

Both, the Certificate of Organization and the Articles of Organization, do the same job of registering your LLC in a state. It is just that different states call it by different names and the information included in them can vary between states.

In some states, you’ll need the Articles of Organization and in some others, you’ll need a Certificate of Organization.

Moreover, states like Texas, Delaware, and New Jersey require ‘Certificate of Formation‘ which is another name for ‘Certificate of Organization‘.

Is the LLC Owner/Member Responsible for Filing Certificate of Organization?

It is not necessary for a particular person to file the Certification of Organization for your LLC. If you’re creating a single-member LLC, you can file it or you can hire a document filing company or attorney to do the needful.

Even in case of multi-member LLCs, any member of the LLC or a document filing company or attorney can file the certificate.

How Much Time Does It Take to File Certificate of Organization?

This again depends on the state in which you’re filing. Some states complete the filing process within 2-3 working days while in many other states, the process can be as long as several weeks. To make sure that there are no errors from your end, it is better to hire a document filing company or an attorney.

Conclusion

The Certificate of Organization is only required in a few states. If you’re planning to form an LLC, it is important to consult the State Secretary’s office to know whether or not you need the certificate in the state where you’re planning to register.

Even in states where the certificate is required, the whole process of creating and filing it is mostly easy. In case of any concerns, you can visit the State Secretary’s website or consult an attorney or document filing company.

The post What is a Certificate of Organization? appeared first on .

source https://businessentity.org/learning-center/what-is-a-certificate-of-organization/

What is an LLC? Is it Best suited for your Business?

You might already have a lot on your mind if you are planning to start a new company.

But two things that deserve special attention are reducing personal risk and saving taxes.

What if there was a considerably simple way of achieving these goals?

Creating an LLC is an excellent way to protect your personal assets and also experience tax benefits.

This versatile business structure keeps the corporate formalities and paperwork at a minimum while offering a host of benefits.

Irrespective of whether you are a sole owner or have other partners, you can experience many valuable benefits.

• So, what are these benefits?
• How is an LLC better than other popular business structures?
• What are the different types of LLCs?
• Is LLC the right choice for you?

Let us discuss all of these questions to help you make the right decision.

What is an LLC?

An LLC or a Limited Liability Company is one of the most popular business structures. It combines the features and benefits of Sole Proprietorship or Partnership with those of a Corporation.

An LLC can have a single owner or multiple owners. The owners are members of the LLC.

• An LLC with a sole owner is single-member LLC (SMLLC).
• Multi-member LLC (MMLLC) is one that has multiple owners.

Advantages of LLC

Some of the essential benefits of LLC are as follows:

• Asset and Liability Protection

The personal assets of the owner/s are at risk in case of a Sole Proprietorship or Partnership. Their personal assets like car, home, bank accounts, etc. can be used for clearing unpaid debts or settlement if someone sues the company.

Things are not the same in case of LLCs. They offer personal asset protection. However, there are exceptions to the protection.

You create a separate entity when you create an LLC. You are not responsible on a personal level in case of unpaid company debts or court settlements. You don’t get the same protection with Sole Proprietorship or Partnership.

• Tax Saving

IRS considers LLCs as “pass-through” tax entities. This means that all the income, gains, losses, deductions, tax credits, etc. are “passed” through the owner/s. Reporting of all of these amounts will happen through the individual return of the owner/s.

Tax payment is as per their individual tax rate of the owner/s.

Active members of the LLC can also deduct operating loss against their regular income. Moreover, you will not be paying any unemployment insurance taxes on your salary as an LLC member.

But LLC members have to pay self-employment taxes based on their profits or remuneration from the company.

• Easy Business Transfer

The company owner has to individually transfer all the business documents for transferring or selling the business in a Sole Proprietorship. Selling your interest is a very time consuming and complicated process with Partnerships too.

You can transfer LLC to your next generation or any 3rd party without disrupting the business operations in any way.

Some other advantages of creating an LLC:

• No restrictions on the number of owners
• Easier to place ownership interests for beneficiaries in a living trust
• Flexibility in terms of raising capital

LLC vs Corporation, Partnership, and Sole Proprietor

There are several nuances between how all the different business structures function. We’ve only considered some of the factors that are most important for every new business owner in this comparison.

• Ease of Starting

As compared to other business structures, Sole Proprietorship is the easiest to start. Apart from the appropriate permits and licenses that your business needs, you don’t need any other formal action.

Sole Proprietorship is closely followed by Partnership in terms of the ease of starting the business.  You need to file a number of organising documents with your state office in case of a Corporation or LLC.

But starting an LLC is generally easier as compared to a Corporation in most states.

• Maintenance and Management

A Sole Proprietorship and even a Partnership is the easiest option even in terms of maintenance and management. Unlike a Corporation, you don’t have to engage in any kind of formalities with regards to your business operation.

Ease of maintenance and management of LLC is somewhat in between Corporation and Sole Proprietorship. In most of the cases, LLCs do not require organisational or decisional formalities of a Corporation. But some state laws do ask for regular reports from LLCs too.

• Personal Liability Protection

This is the area where LLCs and Corporations are a better option. Your company is not seen as an entity separate from you if you have a Sole Proprietorship or Partnership.

This means that your personal assets are at risk with these structures in case of unpaid debt or settlement of the lawsuit.

With LLC or Corporation, you create a business entity separate from you. This keeps your personal assets protected. While LLCs and Corporation both protect your personal assets, LLCs are generally more beneficial.

They are easier to start as compared to Corporation and also easier to maintain. Even the scope of saving money in taxes is better in LLC than Corporation.

• Tax Treatment

Sole Proprietorship or Partnership owners have to report all their business expenses and income in their personal tax return. If you form a Corporation, you have to file separate tax for your company.

The tax treatment of LLCs is unique. They have the flexibility to choose between a Sole Proprietorship or Partnership based on the number of owners, or even a Corporation. The IRS does not consider LLCs as a taxing entity.

In short, LLC is one business structure that offers that benefits of Sole Proprietorship or Partnership along with those of a Corporation.

But there are also a few drawbacks of creating an LLC.

Disadvantages of LLC

Here are few disadvantages of LLC, which you should know:

• Cost of Starting an LLC

An LLC is more expensive to start and operate as compared to Sole Proprietorship or Partnership. But it is still cheaper than starting and managing a Corporation.

• Limitations to Personal Asset Protection

The personal asset protection offered by an LLC is not absolute. There are a few limitations to it like

• Liabilities due to own wrongdoing
• Direct and personal injury to someone
• Unpaid payroll taxes
• Personally guaranteed debts

Self-employment Taxes

The owner/s has to pay self-employment taxes in LLCs that receive treatment of a Sole Proprietorship or Partnership for tax purposes. But if the LLC receives tax treatment of a Corporation, then there are no self-employment taxes.

Life of LLC

A multi-member LLC no longer exists if any of its members depart. Operating Agreement of the LLC is usually used for eliminating this problem.

Types of LLC

There are also different types of LLCs to help business owners select one that best suits their requirements. Some of the most popular ones are-

• Domestic LLC– If an LLC only operates only in the state of its creation, it can be a Domestic LLC.
• Foreign LLC- If a Domestic LLC has to register itself as a Foreign LLC if it wants to shift the operations to a different state or expand to another state.
• Professional LLC- LLCs involved in professional services like legal practices or accounting register themselves as a Professional LLC.

LLC Taxation

LLCs do not directly pay taxes to the IRS. They use the “pass-through” taxation system where all the profits, losses, tax credits, deductions, etc. are passed to the owner.

• Taxation of Single-Member LLC

The single owner of the company will pay taxes of the company on his/her Form 1040 in case if it is an SMLLC.

• Taxation of Multi-Member LLC

Each owner of the company pays taxes as per their share in the company in MMLLCs. First Form 1065 is used for filing an information return. The information return reports the gains, income, losses, credits, deductions, etc. of the LLC members.

Schedule K-1 is then filed to show the profit or loss share of every owner. Form 1040 of every owner shows the profit or loss of their LLC.

• Taxation of LLC Treated as Corporation

If the LLC can take advantage of lower tax rates, they can also elect tax treatment of a Corporation. The standard corporate tax rules will apply to each of its members in such cases.

Is LLC Right for Me?

LLC is an excellent option for the majority of small businesses. It offers a great combination of simplicity, flexibility, and personal asset protection. Unlike a Partnership or Sole Proprietorship, an LLC keeps your personal assets protected in most cases.

Unlike Corporations, LLCs are easier to create and maintain and are also protected from double taxation.

But even after knowing these benefits, you should avoid taking any quick decisions. You should first talk to an attorney with considerable Corporation and LLC experience. Next, talk to a CPA who thoroughly understands the tax differences between all the different business structures.

Based on your discussion with the attorney and CPA, you can decide whether or not you’d like to register as an LLC.

The post What is an LLC? Is it Best suited for your Business? appeared first on .

source https://businessentity.org/learning-center/llc/what-is-an-llc/

LLC Taxation: How Does It Work?

Looking for the right business structure for your new venture?

Creating an LLC can be the solution if you want to keep your personal assets protected as a business owner.

While there are some limitations to this protection, it is still one of the biggest advantages of LLC. As a matter of fact, it is the sole reason why many businesses prefer LLC over Sole Proprietorship and Partnership.

Apart from this protection, another important reason for selecting LLC is the taxes. A lot of new businesses prefer LLC over Corporation mostly due to this taxation benefit.

If you’re all set to create an LLC, understanding how LLC taxation works is important too.

So, how do LLCs pay taxes? Let us have a detailed look.

How Does IRS Treat LLC Taxation?

An LLC is not a taxing entity as per the IRS. If the LLC has multiple owners (known as members), IRS taxes it as a Corporation or Partnership. Its taxation will be similar to Sole Proprietorship if there is only a single owner or member.

IRS treats single owner LLCs as disregarded entities. A disregarded entity is separate from the owner for all the purposes except taxation. This means that their taxation is done through the personal tax returns of the owner.

In simple words, the taxation of LLCs depends on the number of owners or members an LLC.

How Do Single Member LLCs Pay Income Tax?

The taxation of single-member LLC is done just like a Sole Proprietorship. LLC itself will not pay taxes or file returns. The single owner of the LLC has to report all the profits or losses on Schedule C. The same is then submitted with the form 1040 or other tax return form.

A lot of LLCs also leave some profits in their bank account at the end of the year. This is usually for covering expenses, business expansion, etc. Income tax is payable on this profit as well.

How Do Multiple-Member LLCs Pay Income Tax?

When it comes to LLCs with multiple owners or members, their taxation is generally done just like a Partnership. Individual partners need to pay taxes as per their ownership share in a Partnership. The Partnership entity itself does not directly pay taxes to the IRS. The same rule applies to LLCs that are Partnerships.

Form 1065 is used by a Partnership as well as an LLC treated as a Partnership for tax purposes to file an information return. This is followed by preparing Schedule K-1 for every partner. It shows the total profit or loss share of every partner during the financial year.

Then this K-1 filing is done with that of the individual return of every partner. The Form 1040 of individual partners show the profit or loss of their partnership. Each partner will also attach Schedule E with the return form.

Example
For instance, if there is an LLC with four owners who equally share the business.

Let us assume that the LLC made $100,000 in profits in the financial year. So, the profit share of every owner will be $25,000.

This $25,000 is the amount on which each owner will have to pay income tax of their LLC.

What About LLCs Classified as S Corporation or Corporation?

LLCs are also allowed to be classified as S Corporation or Corporation for tax purposes. The LLC generally selects these options if it enables them to reduce the tax burden.

As an S Corporation or Corporation, the LLC will pay income tax as per the new 2018 tax status. The new tax designation changes the way how the individual members of the LLC pay taxes.

However, the LLC continues to function as an LLC as per the company’s operating agreement.

LLCs Paying Estimated Taxes

All the owners or members of an LLC are considered to be self-employed. As a result, they are not subject to any tax withholding. This means that the members have to pay self-employment and estimated taxes to their state tax office and IRS. This needs to be done on a quarterly basis.

However, multi-member Partnerships can also have inactive members. These are the members who have invested money in the business but do not participate in the everyday functioning of the company.

They do not offer any kind of service to the business nor take any management decisions. Such inactive members can be exempt from paying self-employment tax.

LLCs and State Income Tax

LLC classification for state income tax purposes is different in every state. Most states use the IRS classification but have made changes in the applicable tax rate.

For instance, LLCs in Florida that are classified as Partnerships have to pay Partnership taxes. In case of a Corporation, Corporate taxes are applicable. LLCs which are Sole Proprietors are not required to pay a separate business tax. It uses federal taxable income and has made changes to it.

On the other hand, in California, LLCs that are disregarded entity or Partnership pay $800 as state income tax. They have to file a particular return. But the LLCs that are classified as Corporations file a different return and pay appropriate taxes.

Taxation of LLCs in Case of Losses

LLC taxation is mostly beneficial if the LLC is making profits. But the same is not true in case of losses. As your personal liability in your company is limited, you’re not allowed to deduct all the losses. Some of the states charge additional fees and taxes on LLCs.

You can check how your state treats LLC tax implications to know more. In most cases, this additional fee is a flat annual tax.

For instance, in California, there are two different fees for state-registered LLCs that make $250,000+. Keep a close eye on the tax developments on the state as well as federal level to know all the key changes.

Conclusion

While this might look like a lot of information to digest at once, you will surely get better with time. Try to know at least the basics of how LLCs pay taxes if you are new to owning a business and are planning to create an LLC.

This will make it easier for you to understand tax discussions with your legal advisors.

Try to keep learning about tax laws for LLCs as this can protect you from legal troubles. Moreover, with a bit of experience, it can also help you save a lot of money.

The post LLC Taxation: How Does It Work? appeared first on .

source https://businessentity.org/learning-center/llc-taxation-how-does-it-work/

How Can an LLC protect Your Personal Assets?

Want to run a business?

Thinking about what will happen to your personal assets in case things don’t go as planned?

The modern world of entrepreneurship is so competitive that it is challenging to find a footing without moving fast and thinking big.

New entrepreneurs and agility go hand-in-hand. However, the problem arises when entrepreneurs start overlooking things that are critical to the existence of business and themselves. Many of these things could result in severe legal and financial mistakes.

And one of the most common beginner’s mistake is not to set up a legal entity.

The Outcome of Not Creating a Legal Entity

Without a legal entity, the law treats your business as a Sole Proprietorship or a Partnership. Both these business structures do not protect your personal assets like the bank account, home, car, etc. If you have unpaid debt or an entity/individual files a suit against you, these assets can be used for the settlement.

And if you know anything about the modern world of business, the days when only the bad guys were dragged to the court are long gone. If you are transacting business even with the general public, you expose yourself to several potential lawsuits that can end up consuming your personal assets.

So, What is the Solution?

As you might have already understood, the solution is to create a legal entity. But what kind of legal entity? Preferably an LLC.

Let us have a look at how LLC can protect your personal assets.

LLC: Advantages of Partnership/Sole Proprietorship and Corporation in One Business Structure

In simple words, LLC creates a type of buffer between the business liabilities and your assets. While setting up an LLC is more complicated than a sole proprietorship or partnership, once established, it is significantly easier than a corporation to run.

However, the protection or the buffer is in no way absolute. Understanding the limited liability protection and exceptions would make it easier for you to make the right decision.

How Does the Limited Liability Protection of LLC Works?

Once created, LLC helps you form a business entity which is separate from the owners, legally. This separation is the buffer of personal asset protection. However, it is limited in nature.

With this limited liability protection, the creditors are only allowed to use the bank account and other assets of the LLC for settling debts or liabilities. This means that the personal assets of the owners, like their bank accounts, homes, and cars etc. remain safe.

In other words, if you’re an owner of an LLC, at the most, you’ll lose the money you’ve invested in your business.

Let us now have a look at the exceptions to this limited liability.

Limited Liability Exceptions

Just as every other thing in life, the limited liability of LLC also has exceptions. The same limitations along with others also apply to corporations. Some of them are as follows-

• Personally guaranteed debts
• Unpaid payroll taxes
• Liability due to own wrongdoing
• Direct and personal injury to someone
• Mixing LLC with Personal Assets

While there are a few exceptions in limited liability, it is still one of the biggest advantages of creating an LLC. Moreover, there are a few ways in which you can keep yourself protected.

Tips for Protecting Your Assets as Owner/Co-Owner of an LLC

• Keep your personal business and LLC separate
• Adequately fund your LLC
• Act legally and fairly
• Try to take credit in the name of your LLC
• Obtain an LLC insurance

To Conclude

Creating a legal entity in the form of an LLC is a wise decision if you are planning to launch a new business. Even with the exceptions and certain limitations, it offers excellent protection to your private assets which sole proprietorship or partnership do not provide. Moreover, it is also easier to run an LLC as compared to a corporation.

Remember the tips discussed above to tackle the exceptions of limited liability protection and avoid risking your private assets as a business owner.

Apart from these tips, there are also other strategies to keep your assets protected. These strategies would depend on the state where you conduct your business. Consult your legal advisor for the same.

The post How Can an LLC protect Your Personal Assets? appeared first on .

source https://businessentity.org/learning-center/how-can-an-llc-protect-your-personal-assets/

Sole Proprietorship vs LLC vs Corporation

Planning to start a new business?

Do you know which business structure would be the right choice for you?

As a new business owner, you might already have a lot on your plate with regards to your liability, taxes, and more. Selecting the right structure plays a crucial role in all of these decisions.

For most small businesses not wanting to form a partnership, the three common options are Sole Proprietorship, Limited Liability Company (LLC), and Corporation.

Each of these structures has their own benefits and drawbacks, making it very important for a businesses owner to understand their differences.

While it is not wrong to rely on your legal team to make the right decision, as a business owner you too should know at least the basics of these different types of business structures.

If you’ve already tried understanding the differences but all the legal mumbo-jumbo have only resulted in more confusion, this post can definitely help.

It attempts to help you understand these common business structures in the easiest possible manner.

So, what are you waiting for?

Let us begin.

1. Sole Proprietorship

As compared to a corporation or LLC, a sole proprietorship is the easiest way to start a new business. Apart from obtaining the required business permits and licenses as per the state and country laws, a sole proprietorship does not require any legal action. It primarily operates as an extension of yourself, and you and your newly formed business have no legal distinctions.

As a matter of fact, even the profit and loss statement of your business flows directly through your tax returns. In simple words, all the profits you earn is reported as your individual income and taxed accordingly. 

The major demerit of this business structure is that the owner is responsible for all the liabilities. This means in the event when the business fails and is sued by someone, the court  may attach personal assets of the owner to recover the damages.

The majority of the small businesses, as well as home-based businesses, thus prefer sole proprietorship as it is the least complicated structure.

2. Limited Liability Company (LLC)

A Limited Liability Company (LLC) is a preferred option for new businesses looking for legal protection. Unlike sole proprietorship where the business owner is responsible for all the financials and legalities, the business owner, as well as the directors of the company, remain legally protected in case of an LLC.

However, if you’re the sole owner of the business but still form an LLC, the IRS would generally continue to treat your business as a sole proprietorship. In such cases, your tax returns and business income are treated just like sole proprietorships.

To form an LLC, you’re required first to file the appropriate documents which vary across the states. Generally, you’ll be required to select the business name, select the registered agent, file article of organization and draft an operating agreement.

While home-based businesses prefer sole proprietorship, if you know you’ll be dealing with a lot of money, clients, and customers in future, it is better to form an LLC as it’ll provide legal protection.

Many of the businesses start as a sole proprietorship and then switch to LLC.

3. Corporation

A single or multiple stockholders own a corporation. The stockholders elect the board of directors for the company. The board can also have a single director.

It is the responsibility of the director’s, to appoint the officers who’ll handle the business operations. Just like LLC, the directors, officers, as well as the stockholders of the company are legally protected against company liabilities in the case of corporations.

Unlike sole proprietorships, corporations are separate entities whose taxes are separately filed. The federal income tax for corporates are not within the graduated tax brackets, and in a lot of states, they’re also required to pay franchise tax.

To start a corporation, you’d at least have to file the articles of incorporation and create bylaws. Apart from this, the other requirements generally vary between states. Corporations that have a lot of stockholders are also required to register themselves with SEC for issuing shares. However, smaller corporations that only have a few stockholders are allowed to apply for an exemption of filing.

A corporation is generally a preferred option for new business if there are multiple business owners who are investing a lot of money in it. If you also plan to raise more funds by selling company shares, you’ll have to form a corporation.

Conclusion

While a large number of small businesses generally prefer sole proprietorship, but LLC is generally the best option to go for. The primary reason being the limited liability protection and the taxation flexibility.

Now that you understand the differences, you can now sit with your legal team to discuss the advantages and disadvantages of these structure options and make the best decision for your new business.

The post Sole Proprietorship vs LLC vs Corporation appeared first on .

source https://businessentity.org/learning-center/sole-proprietorship-vs-llc-vs-corporation/

Member-Managed LLC vs. Manager-Managed LLC

Starting a new business can be confusing. After all, there are so many formalities one needs to take care of during the entrepreneurial journey.

Once you have decided to form an LLC, the next big decision you’ll have to make is – figuring out the right management style for your company.

This is one decision that you don’t want to take in a hurry. After all, the management style plays a major impact on the success of your business.

Speaking of LLC Management types, you have two options before you – to go in for a Member-Managed LLC or a Manager-Managed LLC. So, what do these terms mean? And, coming to the more important question – which one is the right fit for your business?

Spend some time in getting your head around seemingly-complex business jargon, and it will make the process of doing business, a breeze.

Who is a member in an LLC?

In LLC terminology, people who own the business are referred to as “members.” An LLC can be owned by a single person or more than one person. When the LLC has a sole owner, it can have only one member. On the other hand, when there are multiple owners, the LLC automatically has multiple members.

First things first,

What’s the Primary Difference between Member-Managed LLC and a Manager-Managed LLC?

In a member-managed LLC, the daily operations of the business and the overall decisions are done by the members (aka owners) of the LLC.

On the other hand, in a manager-managed LLC, the operations and decisions are done by an appointed manager. This manager can either be a member of the LLC or a third-person.

When to Choose the LLC’s Management Style?

You’ll have to make this important decision before you begin operations of your LLC. The operating agreement you submit needs all details about your LLC – including who will manage it. Don’t wait until later to decide on the management style, as it could lead to legal difficulties.

Can you Change the LLC’s Management Style Later on?

Yes. You can change your choice later on (even years down the line), by amending the Operating Agreement. This change needs the approval of the LLC’s members.

Member-Managed LLC – When it Works and when it Doesn’t!

In a member-managed LLC, all members are involved in the decision making processes as well as operations. This is a good method to proceed when the members are a tight-knit team and want to be actively involved in the growth of the business and share the same vision.

• Pros:
  All members have an equal say and share equal responsibilities. There’s no finger-pointing if something goes wrong.
• Cons:
  When everyone gets a say in the decision making, disagreements crop up often, and it becomes difficult to arrive at a unanimous decision. This makes it difficult to take the business to the next level.

Manager-Managed LLC – When it Works and when it Doesn’t!

In a manager-managed LLC, the business appoints managers (an individual or a team) to oversee the day-to-day operations, as well as, to take responsibility for all decisions. This method is usually preferred, when the LLC has several members, and it would become difficult for business operations for all of them to get involved.

The manager can either be a member or a non-member (chosen for his managerial skills).

• Pros:
  The manager is someone who has either experience managing the business or has the required management skills. This streamlines operations and takes the business on the right trajectory.Additionally, if you have angel investors in your LLC, then you can opt for this model. This way, your investors remain, passive members, while you get to manage the business on your terms.
• Cons:
  Some members (even though they agreed to this management sty

Here’s an example for when the manager-managed LLC is the right option.

Say, a business is co-founded by three friends, two of whom were involved in the product manufacture, while the third person, was responsible for meeting investors and funding. Then, it makes sense to appoint the third co-founder as the manager, and the rest two focus on optimizing the product lineup.le) may feel left out or powerless when they feel that the business isn’t heading the way, they wanted.

How to Choose the Management Style of the LLC?

Generally, businesses opt for a member-managed LLC, if it’s not feasible for all members to be involved in the operations, or when a few members want to remain just as investors in the firm.

However, No one answer fits all. All businesses are unique. Here are a few questions to ask to figure out the right answer.

• Do all co-founders want to be involved in the business? Or do some members want to remain just investors?
• Do all owners of the business have the skills to manage it? Remember that different people bring different skills to the table. Some may be good at the design table, while others are better at people-facing tasks and so on.
• Do all members share the same goals and visions for the business, or is there a potential for frequent disagreements?
• Will disagreements lead to confrontations and deadlocks? Or will they be able to resolve issues smoothly? What’s the dynamic quotient among the owners?
• Do you have angel investors?

Deciding the right style of management plays a crucial role in the success of your business. So, get all the members together, discuss the pros and cons to find the right solution that is the perfect match for your specific business requirements.

Still undecided?

If you’re still not sure, “which is the right option for your business?”, reach out to professionals who can run the pros and cons of each management style with you, and help you take the right decision.

Last Updated: 15/10/2018

The post Member-Managed LLC vs. Manager-Managed LLC appeared first on .

source https://businessentity.org/learning-center/member-managed-llc-vs-manager-managed-llc/

Delaware Business Name Reservation

If you are thinking to register a business in Delaware, you may consider reserving the business name first.

As the formation of business can take some time. There is a lot to think about like the type of business to form, discussing between the partner(s) about the equity and getting filing documents ready. From my experience, the whole process can extend quite a bit.

So, by paying a  fee of $70, you can protect the business name you have chosen from being registered by someone else till you are ready for filing. The business name can be reserved for the period of 120 days which can be further renewed and transferred.

Delaware Business Name Requirement

Delaware Secretary of State has mandated certain requirements which you must keep in mind while selecting a business name.

The business name must be unique and distinguishable from any existing business entity name registered with Secretary of State. Also any difference in grammar, similarly sounding business name, or using stop words does not make the business name unique and it will lead to the name being rejected.

For example following names are not distinguishable:

• Justin Plumber LLC vs The Justin Plumber LLC
• Mango Farm LLC vs Mango Farms LLC
• Jake & Mary Corporation vs Jake and Mary Corporation

Required suffix in the business name:

• For Corporations:
  Must contain either “Association”, “Company”, “Corporation”, “Club”, “Foundation”, “Fund”, “Incorporated”, “Institute”, “Society”, “Union”, “Syndicate” or “Limited” or an abbreviation of one of such words.
• For LLC
  Must end with either “Limited Liability Company”, “L.L.C.”, “LLC”, “Association”, “Company”, “Club”, “Foundation”, “Fund”, “Institute”, “Society”, “Union”, “Syndicate”, “Limited” or “Trust”.

Prohibited words:

• Language stating or implying the entity is formed for an impermissible purpose.
• Certain words such as college, bank, insurance etc are restricted to use without approval from the concerned board.

Check for Business Name Availability

Now that you are aware of the rules and regulations to be followed while naming the business, you can now proceed to the actual name selection.

Delaware SOS provides an online tool to check the availability of any business name. You can use this tool to find and research name for your business. We have written an in-depth tutorial on how to conduct the business name search here.

How to Reserve Business Name

Business name reservation can be filed by mail or online. We recommend filing it online as the process is instant.

By Online:

1. Open Delaware name reservation page – Link.
2. Select the entity type and enter the business name you would like to reserve.
3. Click on ‘Search‘ button.
4. On the next page, you can view if the name is available for registration or not.
5. Proceed with the payment of $75.

By Mail:

Download Form	LLC Corporation Partnership
Fees	$75
Address	Delaware Division of Corporations 401 Federal Street – Suite 4 Dover, DE 19901
Processing Time	Around 3 days after the receipt

1. Download the name reservation form – Link.
2. Fill the form with the requested details.
3. Include the money order/check drawn in favor of “Delaware Secretary of State“.
4. Send the filled form to
   Delaware Division of Corporations
   401 Federal Street – Suite 4
   Dover, DE 19901

Contact

For any queries, you can contact the SOS at (302)-739-3073 during business hours.

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Reference:

• http://delcode.delaware.gov/title6/c018/index.shtml

Last Updated: 25/09/2018

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