Limited Liability Companies For Dummies

Introduction 1 About This Book 1 Foolish Assumptions 2 Icons Used in This Book 3 Beyond the Book 4 Where to Go from Here 4 Part 1: The ABCs of LLCs 7 Chapter 1: What is an LLC, Really? 9 Understanding How LLCs Work 10 Owners: You gotta have 'em 11 Contributions: Where the money comes from 12 Allocations and distributions: Getting what you're due 13 Management: Some folks are just better at it 14 Creating Your Own LLC: Your First Step Toward Success 15 Educating yourself 16 Divvying up the ownership 16 Deciding who manages 17 Choosing your registered agent 18 Bringing your LLC into existence 19 Operating Your LLC 19 Creating your operating agreement 20 Keeping books and records 20 Paying taxes 21 Chapter 2: LLCs: More Handy Than Duct Tape! 23 Understanding Why LLCs are Awesome 24 Protecting your personal assets 24 Taking charge of charging order protection 26 Enjoying the flexibility of management and ownership rules 28 Choosing your own tax status 30 Distributing profits at your whim 31 Taking a Look at a Few Wrinkles 32 Membership can be a bit tricky 32 Rules governing LLCs vary among states 33 Discovering the LLC's Many Variations 34 The professional LLC 34 The series LLC 38 The family LLC 42 The low-profit LLC 42 The single-member LLC 44 Chapter 3: Determining Whether an LLC is Right for You 45 Knowing Your Options: Other Business Structures 46 Going it alone: Sole proprietorships 46 Adding a partner: General partnerships 49 Throwing in a little legal protection: Limited partnerships 50 Meeting the black sheep of the partnership family: LLPs and LLLPs 51 Separating yourself from your business: Corporations 52 Easing the tax burden: S corporations 55 Getting Personal: Using an LLC to Achieve Your Goals 56 Running a small business 57 Raising capital for your business 61 Maximizing real estate investments 63 Planning your estate 65 Protecting your personal assets 67 Part 2: Your First Steps: Forming Your LLC 69 Chapter 4: Playing - and Winning - the Name Game 71 Establishing the Best Name for Your LLC 71 Considering naming guidelines 72 Letting the ideas fly 73 Following naming law 74 Determining the Availability of a Name 75 Checking names in your state 75 Getting the name you want with a DBA 76 Conducting a trademark search 77 Going global 78 Protecting Your Name 78 Registering your domain 79 Reserving your name 79 Getting a trademark for your name 80 Completing Your Identity with a Logo 84 Changing Your Name 85 Chapter 5: Choosing the Best State for Your LLC 87 Your State or Not Your State, That is the Question 88 Considering another state for your LLC 88 Forming your LLC in your home state 89 Looking for LLCs out of state 91 Exploring Tax and Privacy Havens 91 Nevada: Clinging to its heyday 92 Wyoming: The birthplace of LLCs 92 South Dakota: Getting serious 93 Delaware: The heavy hitter with the chancery court 93 Working with a State-Required Registered Agent 94 Why you need a registered agent 94 What your agent should do for you 95 How to find an agent 97 Chapter 6: Creating and Filing Your Articles of Organization 99 Making a Few Big Decisions 100 Choosing the initial members 101 Deciding how you want your company to be managed 102 Preparing Your Articles 105 Meeting your state's requirements 106 Putting it all together 110 Choosing who signs 110 Filing Your Articles 111 Dotting your i's and crossing your t's 112 Sending it off 112 Dealing with a rejected filing 114 Considering Formation Companies 115 Chapter 7: Converting Your Current Business into an LLC 117 Considering Conversion to an LLC 118 Navigating the Tax Minefield 119 Converting from a sole proprietorship 120 Converting from a general or limited partnership 121 Converting from a corporation 123 Executing the Conversion 125 If your state allows statutory conversions 126 If your state doesn't allow statutory conversions 129 Tying Up Loose Ends After the Conversion 130 Getting around the contractual stuff 131 Transferring your assets 132 Dissolving your old entity 132 Part 3: Structuring Your LLC 135 Chapter 8: Tell Uncle Sam How It is! Choosing How You Want to Be Taxed 137 Getting to Know the Tax Types 138 Partnership taxation 138 Disregarded entity taxation 142 Corporation taxation 143 S corporation taxation 145 Notifying the IRS of Your Election 147 Applying for your tax identification number 147 Making the tax election: Filing Form 8832 148 Chapter 9: Make It Official! Getting Started on Your Operating Agreement 151 What is an Operating Agreement? 152 What the operating agreement governs 152 Why you need an operating agreement 154 Establishing Your Framework 156 Achieving A+ form and structure 156 Building your outline 157 Drafting Basic Provisions 158 Laying out organizational matters 159 Giving specifics on company records and reporting 161 Getting the boilerplate provisions out of the way 163 Addressing the other stuff 166 Chapter 10: Structuring Your Partnership 167 Understanding the Terminology: Members, Interests, and Certificates 168 Locating and Recruiting Key Partners 168 Finding the yin to your yang 169 Easy tiger! Don't let excitement cloud your judgment 169 Getting the good ones on board 170 Issuing the Membership 171 Naming the initial members and their contributions 173 Understanding some complexities of member contributions 174 Determining profit and loss distributions 175 Establishing membership classes 178 Deciding on how the members decide 180 Making Folks Earn Their Share: Membership Vesting 182 Deciding on a fair vesting schedule 183 Understanding membership cliffs 183 Avoiding common tax pitfalls 184 Setting Up a Single-Member LLC 185 Keeping your SLLC's liability protection 185 Creating an operating agreement for an SLLC 186 Setting Up Rules for Managers 187 Outlining the Basics 187 Electing the Managers 188 Delegation of Powers 189 Compensation 190 Chapter 11: Using Your LLC to Attract Investors 191 Structuring Your LLC to Attract Investors 192 Appeasing the SEC with an LLC 193 Seeing how the laws apply to you 194 Exploring securities registration exemptions 196 Flying through State Securities Laws (Blue Sky Laws) 200 Chapter 12: Doing the Membership Shuffle 203 Investigating Intricacies of LLC Membership Interests 204 Determining the value of the membership interest 204 Transferring membership 205 Using transfer restrictions to your advantage 206 Preparing Now for an Easy Transition Later 207 Parting on peaceful terms 208 Removing a member 208 Dealing with the death of a member 210 Creating individual buy-sell agreements 211 Executing the Transition 213 Making room for new members 213 Giving old and new members their fair share 214 Wrapping Up the Operating Agreement 215 Signing and Ratifying 215 Sharing the copies and storing the original 216 Amending the operating agreement 216 Part 4: Running Your Brand-New LLC 217 Chapter 13: Maintaining Your Records (And Your Sanity) 219 Filing Your Initial Report 220 Getting to know your state requirements 220 Keeping your company current 221 Paying to Play: Business Licenses 222 Acquiring state, city, and possibly county business licenses 222 Applying for a sales and use tax permit 223 Following special licensing requirements 224 Meeting Other Pertinent Requirements 228 Federal tax identification number 228 Workers' compensation insurance 228 (Record) Keeping Your Liability Protection 228 Documenting your decisions with resolutions 230 Creating a company kit 231 Creating and maintaining a membership roll 232 Tracking tax filings and financial information 232 Chapter 14: Making Cents of Taxes 233 Reviewing the Tax Types 234 Disregarded entity taxation 234 Partnership taxation 234 Corporation taxation 234 S corporation taxation 235 Filing Your Federal Returns 235 Sucking it up with sole-proprietorship status 236 Ponying up with partnership taxation 236 Coughing up cash with corporation tax status 239 Shelling it out with S corporation tax status 240 Avoiding LLC Tax Traps 241 Transferring assets into your LLC 241 Dealing with phantom income 241 Minimizing self-employment taxes 243 Chapter 15: Expanding Your Empire: Going National! 245 Registering Your LLC in Multiple States 246 Defining "doing business" 246 Foreign-filing to do business in multiple states 248 Maintaining Your Multi-State LLC 250 Working with a formation company to track your filings 250 Submitting initial reports 251 Obtaining business licenses 251 Paying taxes 252 Withdrawing from a state 253 Changing your home state 253 Chapter 16: Dissolutions: Every Beginning Has an End 255 Getting Clear on the Context 256 It's Melting! Examining the Reasons Your LLC May Dissolve 256 Voluntary dissolutions: Even the mighty fall 257 Administrative dissolution: The state giveth and the state taketh away 258 Judicial dissolutions: When the gavel strikes 258 Tax terminations: 'Cause the IRS says so 260 Fictional dissolution: A bureaucratic hassle 261 Considering the Future Before Calling It Quits 263 Keeping your LLC on life support 264 All in favor? Taking the vote 264 Planning for the future 265 Undergoing the Dissolution Process 266 Settling your debts: Paying creditors 267 Giving each his due: Paying members 269 Wrapping up the government affairs 270 Making it official: Filing the dissolution 271 Dealing with the tax consequences 272 Following the dissolution checklist 272 Part 5: LLCs On Steroids: Advanced Strategies 275 Chapter 17: Using LLCs to Cover Your Assets 277 Knowing the Dangers: What Can Happen without LLC Protection 278 Lawyers and creditors come calling 279 The IRS stakes a claim 280 Liens are lurking 280 Getting the Best Asset Protection with LLCs 281 Setting up a Fort Knox for your personal assets 282 Taking charge of charging order protection 283 Remembering that even charging order protection comes with rules 286 Exploring Strategies for Increased Security 288 Electing a nominee to protect yourself with privacy 289 Setting up multiple LLCs: The more, the merrier! 290 Following the dual-entity strategy 291 Protecting your family with the family LLC 292 Chapter 18: Protecting Real Estate with LLCs 295 Comparing LLCs to Other Possible Real Estate Entities 296 Holding real estate in corporations: The worst choice 297 Falling short with land trusts 298 Looking at LLC Property Logistics 301 Deciding which state to form in 301 Getting lenders to loan to an LLC 303 Transferring the title 304 Part 6: The Part of Tens 305 Chapter 19: Ten Good Reasons to Form an LLC 307 To Customize Your Small Business 308 To Protect Real Estate Assets 308 To Shield Intellectual Property 309 To Raise Seed Capital for Your Business 310 To Plan Your Estate 311 To Do a Short-Term Project 312 To Segregate Assets 312 To Minimize Your Tax Burden 313 To Change the Profit Distributions 314 To Protect Your Personal Assets 314 Chapter 20: Ten Ways to Keep Your Liability Protection Intact 317 File the LLC Properly 318 Find a Partner 318 Create an Operating Agreement 319 Capitalize the Company 320 File Your Annual Reports 321 Hold Member Meetings Regularly 321 Obtain Your Licenses and Permits 322 Avoid Commingling Funds and Assets 323 Sign Your Documents Correctly 324 Give Up Some Control 324 Glossary 325 Index 331