Guides on Forming LLCs, Corporations, & Partnerships

July 18, 2024

In 2023, a record-breaking 5.5 million small businesses started in the U.S., mostly LLCs¹. Experts think this trend will keep going. This is because starting an LLC is now easy. LLCs offer liability protection, lower costs, and more flexibility in management and taxes. They are a great choice for many small business owners.

This guide will help you understand how to form LLCs, corporations, and partnerships. We’ll cover the main steps, benefits, and things to think about for each type of business.

Contents hide

2 Understanding Different Business Entities

2.1 Limited Liability Company (LLC)

2.2 Corporation

2.3 Partnership

3 Benefits of Forming an LLC

3.1 Limited Liability Protection

3.2 Pass-Through Taxation

4 Step-by-Step Guide to Forming an LLC

4.1 Choose a Business Name

4.2 Appoint a Registered Agent

4.3 File Articles of Organization

4.4 Create an Operating Agreement

5 guides on forming LLCs, corporations, and partnerships

5.1 Limited Liability Company (LLC) Formation

5.2 Corporation Formation

5.3 Partnership Formation

6 Incorporating a Business

6.1 Choose a Business Structure

6.2 File Articles of Incorporation

7 Forming a Partnership

7.1 General Partnership

7.2 Limited Partnership

8 Conclusion

9 FAQ

9.1 What are the primary benefits of forming an LLC?

9.2 What are the key steps to forming an LLC?

9.3 What is the difference between a corporation and a partnership?

9.4 What are the main types of partnerships?

9.5 What is the process for incorporating a business?

10 Source Links

Key Takeaways

The cost of using a service to form an LLC is $0 plus state fees with a time requirement of 5-10 minutes².
The cost of forming an LLC yourself is $0 plus state fees, with a time investment of 60 minutes or more².
The filing fee for LLC formation documents varies by state and ranges from $50 to $520².
More than 21.6 million LLCs were registered in the US in 2021, showing how popular this business structure is¹.
Getting a federal tax ID, called an Employer Identification Number (EIN), is needed for taxes and financial tasks¹.

Understanding Different Business Entities

Starting a new venture means picking the right business entity type. You can choose from sole proprietorships, partnerships, LLCs, corporations, and cooperatives³. Each type has its own benefits and features. This can help you pick the best one for your business goals.

Limited Liability Company (LLC)

An LLC is a flexible structure that protects owners’ personal assets, like a corporation³. It also offers pass-through taxation, so the business income is taxed on the owners’ personal returns³. Starting an LLC costs vary by state, like a $200 fee and a $9 biennial fee in New York³.

Corporation

A corporation is a legal entity separate from its owners, offering liability protection but with more tax and compliance needs³. C corporations treat their income as separate from the owners’, affecting taxes differently than sole proprietorships or partnerships³. They need a board of directors and more tax forms and paperwork³.

Partnership

Partnerships are for two or more people or entities sharing ownership, profits, and losses³. They need a detailed agreement and can be pricier to start than a sole proprietorship³. Successful partnerships include Google, Warner Bros., Hewlett-Packard, Microsoft, Apple, Ben & Jerry’s, and Twitter³. Limited partnerships have general partners who run the business and take on liability, and limited partners who invest with less liability⁴.

Picking the right business structure affects your taxes, liability protection, paperwork, fundraising, and the business’s future³. Think about the pros and cons of each option to make a smart choice for your business’s success⁴.

Benefits of Forming an LLC

Starting a business often leads entrepreneurs to choose the Limited Liability Company (LLC) for its advantages⁵. Key benefits include limited liability protection and a pass-through taxation structure⁵.

Limited Liability Protection

LLCs protect their members’ personal assets from business debts and liabilities⁵. This means creditors can’t go after personal assets to pay business debts⁵. This protection is a big plus over sole proprietorships and general partnerships, where owners are personally liable.

Pass-Through Taxation

LLCs benefit from a pass-through taxation structure⁵. Unlike corporations, which are taxed twice, LLCs don’t get taxed at the business level⁵. Instead, the income goes to members, who report it on their taxes⁵. This can lead to big tax savings and easier tax filing for owners.

LLCs also offer flexible membership structures⁵, heightened credibility⁵, and reduced compliance requirements⁵ compared to other business types⁵. But, they might have higher formation and maintenance costs⁵ and more difficulty in transferring ownership⁵ than sole proprietorships or general partnerships.

Overall, the LLC’s benefits make it a great choice for many entrepreneurs starting or restructuring a business⁵. By using limited liability protection and pass-through taxation, LLCs help owners reduce personal risk and increase tax efficiency⁵.

“The LLC is a flexible business structure that combines the pass-through taxation of a partnership or sole proprietorship with the limited liability of a corporation.”⁶

Characteristic	LLC	Corporation	Partnership
Liability Protection	Limited liability for members	Limited liability for shareholders	Unlimited liability for partners
Taxation	Pass-through taxation	Double taxation	Pass-through taxation
Ownership Structure	Flexible membership	Shareholders	Partners
Compliance Requirements	Fewer than corporations	More extensive	Fewer than corporations

The table shows the main differences between LLCs, corporations, and partnerships, highlighting the LLC’s unique advantages⁶.

Step-by-Step Guide to Forming an LLC

Many entrepreneurs and small business owners choose to form a limited liability company (LLC). This process has several key steps, each with its own requirements and things to consider. Let’s look at the steps to form an LLC.

Choose a Business Name

The first step is to pick a unique and available business name that fits your state’s rules⁷. You can’t use certain words and the name must be different from others in the state⁷. Some states let you reserve a name for a fee, giving you time to finish setting up your LLC⁷.

Appoint a Registered Agent

Every LLC needs a registered agent who gets legal documents for the business⁷. What’s needed for registered agents changes by state, so check your state’s rules. Pick someone or a service to do this job⁷.

File Articles of Organization

Next, file the Articles of Organization with your state’s business office⁷. This document makes your LLC official and shares details like its purpose, members, and where it operates⁷. The cost to file an LLC varies, from $50 in Arizona to $500 in Massachusetts⁸. It usually takes 2-7 days for approval, starting your LLC officially⁸.

Create an Operating Agreement

The last step is to make a written operating agreement⁷. This sets out the rights and duties of LLC members in finance, law, and management⁷. An operating agreement isn’t needed everywhere but is a good idea to help your LLC run smoothly⁷.

Forming an LLC requires paying attention to details and following state rules. By using this guide, you can set up your LLC correctly.

guides on forming LLCs, corporations, and partnerships

Starting a business can feel overwhelming, but this guide makes it easier. It covers forming LLCs, corporations, and partnerships with clear steps and important points⁹. If you want to start an LLC, incorporate, or form a partnership, this article has the insights and resources you need¹⁰.

Limited Liability Company (LLC) Formation

Many entrepreneurs choose LLCs for their liability protection, flexible management, and tax benefits¹⁰. The process includes seven steps: picking a unique name, choosing a registered agent, filing articles of organization, and making an operating agreement¹⁰. Costs range from $0 plus state fees to $39 plus state fees for setup⁹. Registered agent services can be over a hundred dollars a year⁹. Some states also require LLCs to publish a notice in a local newspaper before filing⁹.

Corporation Formation

To incorporate a business, you pick a structure like a C-corporation or S-corporation and file articles of incorporation. This includes choosing a unique name, picking directors, and defining the company’s purpose and shares. Incorporation fees vary by state, and getting legal advice helps ensure you follow all rules.

Partnership Formation

Creating a partnership means making a legal agreement with others to run a business together. It can be a general or limited partnership, each with its own rules and legal needs. Planning well and making a detailed partnership agreement is key for success.

This guide helps whether you’re starting an LLC, incorporating, or forming a partnership. It gives you the tools and info to smoothly navigate the formation process and build a solid base for your business¹⁰.

“Starting a business is one of the most rewarding and challenging experiences an entrepreneur can have. This guide provides the essential information needed to make informed decisions and set your new venture up for success.”

Incorporating a Business

If you want to make your business official, incorporating is key. You need to pick the right structure, like a C corporation or S corporation, and file articles of incorporation with your state¹¹. These articles make your company a legal entity, listing important details like the name, agent, and business purpose.

Choose a Business Structure

It’s important to think about the pros and cons of different corporate structures when you incorporate¹¹. The type of entity you choose affects things like taxes, management, and how much you’re personally at risk. For example, C corporations get taxed twice, while S corporations don’t because profits and losses go straight to the shareholders’ taxes¹¹.

File Articles of Incorporation

After picking your structure, you need to file articles of incorporation¹¹. This document makes your corporation official and must be sent to the state. Most states take four-to-six weeks to approve these documents, but some expedited services can make it faster, in just a few days or hours¹¹.

The articles of incorporation should have details like how many shares there are, their value, and info on special shares¹¹. They also need to cover what directors do and how they’re chosen, but they don’t share who the officers are or where they live¹¹.

Incorporating your business is a big step towards success. By choosing the right structure and filing the right documents, you set your business up for success¹¹¹²¹³.

Forming a Partnership

Starting a business with a partner is a common choice for many entrepreneurs. Partners share the business’s ownership, profits, and losses together. There are two main types: general and limited partnerships¹⁴.

General Partnership

In a general partnership, all partners own the business equally and are fully responsible for its debts. This means each partner is on the hook for what the others do financially. These partnerships are easy to start since they don’t need state registration. But, having a detailed partnership agreement is key to clarify everyone’s roles and finances¹⁵.

Limited Partnership

A limited partnership has general partners who run the business and take full responsibility, and limited partners who have limited liability but don’t get as involved. These partnerships must be officially registered and have a clear agreement on each partner’s role. This setup is good for investors who want to be part of the business but don’t want all the risk¹⁵.

It doesn’t matter the type of partnership, having a solid partnership agreement is crucial. This agreement should detail everyone’s rights, duties, and financial parts. It helps prevent disagreements and keeps the business running smoothly¹⁵.

Partnership Type	General Partnership	Limited Partnership
Liability	All partners have unlimited liability	General partners have unlimited liability, limited partners have limited liability
Management	All partners have equal say in management	General partners manage the business, limited partners have a more passive role
Formation	No formal registration required, but a partnership agreement is recommended	Must register with the state and have a partnership agreement

“Establishing a clear partnership agreement is essential when forming any type of partnership to outline the rights, responsibilities, and financial arrangements of the partners.”

Conclusion

Choosing the right business entity is key for new ventures¹⁶. LLCs, corporations, and partnerships each have their own pros and cons. These include liability protection, taxes, and how the business is run¹⁶. By knowing what each entity offers, entrepreneurs can make smart choices for their businesses¹⁷. The LLC is seen as a top choice for its ease and flexibility¹⁷.

Whether you pick an LLC, a corporation, or a partnership, this guide covers the basics and what to think about¹⁷. An LLC partnership agreement sets the rules for how the company runs and protects its members’ rights¹⁷.

Knowing the perks of each business type – like limited liability, tax benefits, and easy management – helps you choose the best for your business goals¹⁶. This guide has shown you how to form an LLC, corporation, or partnership step by step¹⁷. By doing things right, you can set your business up for success and growth in the competitive market.

FAQ

What are the primary benefits of forming an LLC?

Forming an LLC offers two main perks. First, it gives you limited liability protection. This means owners aren’t personally responsible for the LLC’s debts. Second, it allows for pass-through taxation. This means the business income isn’t taxed at the LLC level. Instead, it goes straight to the owners’ tax returns.

What are the key steps to forming an LLC?

To form an LLC, you need to do a few things. First, pick a unique business name that meets state rules. Then, choose a registered agent to handle legal documents for the LLC. Next, file articles of organization with the state to officially start the LLC. Finally, create a written operating agreement that details the LLC’s financial and legal aspects.

What is the difference between a corporation and a partnership?

A corporation is a legal entity separate from its owners. It offers liability protection but has more tax and compliance hurdles. Partnerships, however, are between two or more people or entities that share ownership, profits, and losses. The liability varies based on the partnership type.

What are the main types of partnerships?

There are two main partnership types: general and limited partnerships. In a general partnership, all partners share equal ownership and are fully liable for the partnership’s debts. In a limited partnership, there are general partners who manage the business and have full liability, and limited partners who have limited liability but a less active role.

What is the process for incorporating a business?

Incorporating a business starts with choosing the right structure, like a C corporation or S corporation. Then, you file articles of incorporation with the state. These articles make the corporation a legal entity, listing details like the company name, registered agent, and business purpose.