A limited liability company (LLC) is a business organization that provides legal and financial protections to its owners and managers. Owners of an LLC are called “members” and the organization is called a “company.” As the name implies, each member of the LLC has limited liability.
The structure of an LLC makes it more flexible than the other types of legal business entities. The level of involvement by the members, as well as the share of profits and losses, can be determined in any manner agreed upon by the members and included in the LLC operating agreement. The LLC operating agreement is the written document that provides the rules for how the LLC will conduct its corporate business, including governance, rights and obligations of members, how meetings of members are conducted, the members’ capital contributions, allocation of profits and losses among the members, how membership is transferred or terminated, how the LLC is dissolved and terminated, and other miscellaneous provisions. The LLC operating agreement is not typically required to be filed with the Secretary of State.
Companies formed as LLCs are “pass-through” entities, where profits are passed on to owners and taxed as personal income instead of corporate income. This avoids the double taxation that occurs with a corporation’s profits. To best understand the tax implications of your specific business, I encourage you to seek advice from a certified public accountant (CPA).
For tax purposes, an LLC has a Federal Employer Identification Number (EIN) also known as a Federal Tax Identification Number issued by the IRS. Even if you don’t have employees, an LLC must have an EIN. You can apply for an EIN for free from the IRS. Beware of websites that offer to assist you with obtaining your EIN but charge a fee. There is no fee to apply for an EIN when completing the application online from the IRS website (www.irs.gov).
BONUS:
A lesser-known “trick” to remove the “Limited Liability Company,” “L.L.C.”, “LLC,” “Corporation,” “Company,” “Incorporated,” or “Limited” identifier from your business name that you use daily is to file an “Assumed Name” or “Doing Business As” registration with your state. If you do not do this, you must include the LLC or corporate identifiers after your name on everything you do as a business, including signs, business cards, letterhead, and advertising. Filing an assumed name cleans up your business's name and makes it easier to brand. For example, “Legal Advocacy Headquarters, LLC” becomes “Legal Advocacy Headquarters.”
You can have multiple companies under one umbrella LLC or corporation by using assumed names. For example, “Legal Advocacy Headquarters, LLC” could do business under the assumed names, “Legal Advocacy Headquarters,” “Legal Advocacy HQ,” and “Paisley Productions.”
In Illinois, an LLC Assumed Name adoption is good for five years and costs $150, or an initially reduced amount depending on what year you register in the five-year cycle. A Corporate Assumed Name adoption costs $150 to register. This can also be done online through the Secretary of State’s website.