Is an LLC Incorporated?

By Jeff Franco J.D./M.A./M.B.A.

The process of incorporating is applicable only to businesses that choose to organize using a corporate structure. Limited liability companies do not undergo a process of incorporation; however, the requirements to legally form an LLC are similar. Each jurisdiction in the country has separate bodies of law that govern the creation of a corporation or an LLC.

Incorporation

If you choose to use a corporate entity to structure your business, you must adhere to the relevant statutes in the state you want to create the entity in. Most jurisdictions require you to file articles of incorporation as the first step to corporate formation. This document must include the name and initial address of the business, the purpose of the corporation, the powers it has, the name and address of each individual involved in incorporating and the number of shares and the type of stock the corporation will issue.

LLC Formation

The authority to create an LLC rests with each state and the District of Columbia. However, most jurisdictions have similar requirements to form an LLC. You or an LLC organizer must prepare a certificate of organization and deliver it to the relevant state office. At a minimum, the certificate must include the business name, office address and the name and address of the agent you authorize to accept legal service of process for the LLC. Most states will not file the certificate until at least one member joins the LLC. If you deliver the certificate at a time when no member yet exists, the state provides you with 90 days to deliver written notification of when the first member joins. After the 90 days, the certificate lapses and is void.

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Members

Most jurisdictions do not impose restrictions on who may become a member of an LLC. The current members of the LLC are free to draft an operating agreement and tailor membership requirements as they see fit. However, in the absence of an operating agreement, most states require the unanimous consent of all current members to admit a new member. Once you obtain admission to the LLC, you have the right to actively participate in management activities and have a legal claim on a portion of LLC earnings and assets. In contrast, prospective owners of a corporation generally do not need unanimous approval of all other shareholders before purchasing stock.

Tax Rules

A business that uses the LLC structure need not incorporate to be taxed as a corporation. The Internal Revenue Service allows all LLCs to elect corporate tax treatment by filing IRS Form 8832. Once an election is made, the LLC and its members must adhere to all corporate tax rules for at least 60 months before a subsequent election can be made. Corporations are solely responsible for all tax filings and payments. Failure to comply with tax regulations has no effect on shareholder liability. If you do not elect corporate tax treatment, the federal tax law automatically designates single-member LLCs as sole proprietorships and multi-member LLCs as partnerships.

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Can You Fill Out a 2553 Before the Articles of Incorporation?
 

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The Steps in Starting an S-Corp

An S corporation is simply an ordinary corporation that has elected to be taxed under Subchapter S of the Internal Revenue Code. To start an S corporation, you must form a corporation that qualifies under IRS rules and then apply for S corporation status with the IRS. The IRS routinely approves applications from qualified entities. Limited liability companies may also elect to be taxed as S corporations if they qualify.

What Do You Have to File to Become a C Corporation?

A corporation is an independent legal entity that is formed as a means to operate as a business. As a legal entity distinct from its owners, the corporation is responsible for all of its own liabilities and obligations. Generally, this means that the owners are not personally responsible for paying off those debts. As a result, corporations can be a very attractive type of business organization to form. A C Corporation is a type of corporation that is taxed a certain way under the tax code. All corporations that do not apply for special status are C-Corps. A corporation is formed under state law, so there are several documents you would need to file at the state and federal levels to successfully form the corporation.

How to Cancel an Incorporation

When a business incorporates, it becomes a distinct legal entity. The corporation’s liabilities are its own; its shareholders are generally not personally responsible for those obligations. The incorporation is also required to file its own tax returns. Due to its legal independence, cancelling corporate status requires filing documents with a number of organizations. Businesses incorporate under state law, so the specific steps for dissolving the organization will vary. Check the laws of the state where the business is incorporated for the exact process your corporation will have to follow.

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