Limited liability companies (“LLCs”) are a hybrid entity that offer the tax advantages of a partnership with the liability protections of a corporation. LLCs offer a barrier that allow the owner to protect his/her personal assets in the event of any litigation against the LLC.
For example, if a business is set up a sole proprietorship and is sued, the personal assets of the owner are at risk. On the contrary, if an LLC is sued, the personal assets of the owner are free from potential debt, claims, or litigation.
It’s important to note that the shield from an LLC isn’t absolute. Owners are still personally liable for tortious conduct. If there’s ever a question regarding liability, it’s important to consult with an attorney to ensure you’re protected.
How do taxes for an LLC work?
LLCs use pass-through taxation which means the business’s profits go straight to the owner without being taxed at the corporate level. Taxation occurs on the owner’s federal income tax returns. This is especially important if the business loses money, the owner can reflect this on his/her own return. It’s important to consult with an attorney who specializes in business planning and taxes to ensure the business is properly set up.
How do I set up an LLC?
First, it’s important to consult with an experienced business planning attorney to ensure that an LLC is the best fit for your business. If it’s agreed that it is, you’ll begin by picking a business name and ensuring the name is available with the Minnesota Secretary of State.
You’ll also need to file documents that spell out who owns the business and how the business will operate. For example, you’ll need to state if the business will be owned by one owner or multiple members. You’ll also need to list a registered agent, which is an individual on file the state who can accept legal papers on behalf of the LLC.
Do you file an LLC and then you’re done?
In Minnesota, you need to file Annual Renewal paperwork every year. If any changes to the business occur, such as changes in owners or members or a new principal address, you’ll need to file these changes with the Secretary of State.