Questions to Ask a Lawyer About LLC

By Michele Vrouvas

While you may not need a lawyer’s help to complete the fill-in-the-blank forms required to set up an LLC, you can benefit from a lawyer’s advice in areas that have significant implications for running the company. Lawyers are familiar with federal tax law that determines the tax options available to certain LLCs. They can also advise you on how to comply with state business regulations so that your LLC remains in good standing.

While you may not need a lawyer’s help to complete the fill-in-the-blank forms required to set up an LLC, you can benefit from a lawyer’s advice in areas that have significant implications for running the company. Lawyers are familiar with federal tax law that determines the tax options available to certain LLCs. They can also advise you on how to comply with state business regulations so that your LLC remains in good standing.

Location

Because LLC laws vary by state, forming an LLC in certain jurisdictions might offer distinct advantages. According to attorney Richard Keyt, you should start by asking your attorney which state is the best forum for doing business. In particular, an attorney can advise you on which state provides more asset protection and whether it is worthwhile to choose a state simply because it does not tax income.

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Tax Classification

Since the federal government does not recognize LLCs as a separate class for determining federal income tax, the company’s owners, also called members, must file forms with the IRS to elect a certain business classification. A lawyer can help you understand which classification the LLC qualifies for and what the tax implications of each are. For example, some LLCs might be eligible for the more beneficial pass-through taxation that is available to partnerships. Additionally, if your state has an income tax, consult with a lawyer before setting up the business to avoid forming an entity that might be classified as a corporation for both federal and state income taxes.

Employer Responsibilities

Even a single-member LLC that pays just one individual to perform certain services for a day might qualify as an employer in some states and be required to comply with employer regulations. Ask your lawyer beforehand whether the services you have requested create an employer-employee relationship. If so, your lawyer can advise you on your rights to set the working conditions and your obligations to withhold state income tax from an employee’s wages.

Membership

Without state laws regulating the number of members needed to form an LLC, the owners are free to choose a single- or multi-member structure. Discuss the advantages and disadvantages of both with your lawyer before making any commitments. For example, being the only member might save you from disputes between members over how to run the business. However, as attorney Scott Edward Walker points out, a single-member entity might not protect you from personal liability for debts incurred by the LLC. An attorney can help you in the planning stages to establish proof that the LLC is separate from the individual who formed it.

Operating Agreement

Formal operating agreements, signed by each LLC member, that identify membership duties and procedures for governing the business can help resolve disputes without costly litigation. Consult an attorney during the drafting stages of this agreement to establish rules for admitting new members, preventing members from assigning their interest in the LLC to others, apportioning profits and entering into contracts with vendors.

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Benefits of Opening an LLC Company

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What Do I Need to Start an LLC?

Due to its flexibility in tax treatment and the limited liability it offers its members against torts committed by employees and other members, the limited liability company (LLC) has become a popular corporate form for small business. While the requirements for forming an LLC vary from state to state, commonalities exist among almost all jurisdictions.

Do You Need an Attorney to Start an LLC?

Starting an LLC does not require the services of an attorney. All states permit any business owner to file the necessary forms that brings an LLC into existence. The information needed to prepare the forms is typically very basic and step-by-step instructions are provided with the forms to facilitate the process. However, starting an LLC simply brings a legal entity into existence and does not necessarily mean that the LLC is structured to meet your needs, the needs of any other owners or the business itself. An attorney's services can help address these issues.

How to Compare an LLC to Corporations

To form a company, you must first decide what type of business structure will best fit your needs, taking into account various factors and weighing the pros and cons of each type of business entity. Many small businesses organize as limited liability companies, while others, especially large businesses, choose to form as corporations.

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