1. Why do I need an LLC?
In this day and age of continual litigation, where frivolous law suits are filed at the drop of a hat, it is important to protect yourself, your business interests (even a small, homebased part-time business) as well as your personal assets. A Limited Liability Company is a shied between any law suit filed against your business and your personal assets.

2. Why can't I simply do business as a sole proprietor or a DBA?
You can. However, you do so without any protection against litigation from quarrelsome or aggrieved clients, customers, or people. When you operate as a DBA (Doing Business As--using a fictitious name other than your own), or as a Sole Proprietor (using your own name), all your personal assets are at risk if you are sued. The purpose of an LLC is to protect those personal assets.

3. What does an LLC consist of? What is included and necessary?
Far too many LLCs sold, especially over the Internet, are minimal in their content and, therefore, often do not protect you as completely as you might need. It is better to be safe than sorry.

4. What should be included in a complete LLC?
See the list on the Home Page of this Small Business Website--it shows both those items that can be included in the Articles of Organization and in the Operating Agreement, plus other items that are often necessary to weather an attack against your company.

5. I filed an LLC with the State. I only had to fill out two pages. Is that sufficient?
It is sufficient if your LLC is never challenged in court or during an IRS audit. Many times a simple LLC is not sufficient to stand up against attack. A State filing gives you the right to use the name you have chosen and the State has approved. With that filing, you can open bank accounts and cash checks made out to the name of the LLC. Generally, such filings include the term "you can conduct any business that it is legal for a Limited Liability Company to conduct." However, such a generality often does not stand up against a concentrated attack during litigation or audits.

6. What is the difference between Articles and an Operating Agreement?
The Articles of Organization (like Articles of Incorporation in a Corporation) list down the rules and agreements of the formation of the Company. They are listed and written up on the day the company is formed. and are submitted to the Secretary of State in the State where the company will operate. The Operating Agreement (like Bylaws in a Corporation) are the rules and agreements about how the company is to operate. This is especially important where partners are involved since they serve as the agreement by which each person is bound in the operation of the company. The Operating Agreement also provides direction for the company and authorizations for members of the company to perform their duty as well as enter into agreements, such as banking, purchases, investments and other major decisions the company may need to make from time to time. During an audit or litigation, the Operating Agreement provides the back-up for decisions made and how the company has been run.

7. Do you have to have a partner in an LLC?
No. A few years ago, the IRS approved the taxing of single member LLCs, and all States today allow one member LLCs to be formed.

8. Can a husband and wife own an LLC?
Yes. They can be equal owners, or each have a percentage of ownership that equals 100%. They are set up as partners the same as non-related partners would be set up.

9. What is a Registered Agent?
The State requires that a resident of the State in which the LLC is formed and operates be available during working hours to receive legal notifications, such as a court summons, notice of a law suit filed, and other necessary communications. The Registered Agent is merely the person the company, in the State where the company operates, is designated to receive such mail and notifications. The Registered Agent does not need to be a part of the company in any other capacity; on the other hand, a member of the company may be the Registered Agent if they live in the State where the company operates. Usually, in a small business, mom and pop enterprise, or home-based business, the Registered Agent is the person who forms and runs the company.

10. How is an LLC taxed?
An LLC is not taxed directly, as is a Corporation. Whatever earnings and expenditures are incurred by the company are listed on a federal form 1065 and a plus (earnings) or minus (loss) is shown. That figure is transferred onto a federal form K-1 for each partner for inclusion on that person's federal form 1040, along with his other personal income and deductions. This is what is called Pass-Through taxation. That is, the LLC is not taxed, only the owners of the LLC.

11. I have been told that in an LLC, it takes a lot of time to fill out all the necessary pages, minutes, and forms.
Paperwork is always a requirement in any business. A sole proprietor must keep records, as well as one doing business under a fictitious name (DBA). An LLC is no different. However, the paperwork necessary in an LLC could appear difficult if the LLC you purchase is not complete in every way. If an LLC is attacked through litigation or an audit, or a court inquiry, there are certain papers that should exist to prove you have a legitimate company. These papers are listed on the Home Page of this Small Business Offerings website. The one important paper trail that must exist in an LLC, like a corporation, is the Minutes. These do not need to be extensive, in fact can be quite minimal, but must include approvals (called Resolutions) that authorize important, unusual, and costly acts by company management. A complete LLC will include Minutes forms and examples to show how minutes need to be kept.

12. I understand an LLC needs members, officers, secretary, treasurer, etc., like a corporation. Is this true? And if so, how can a single member owner, or a husband and wife, or two partners fill all those positions? Do you need to have employees in an LLC to do this.
The answer to the first part of your question is yes. However, it is not complicated. The owner of a single member LLC simply becomes all of the officers and managers needed. This is accomplished in the Operating Agreement when the company is formed, and one person can wear several hats. That is, Joe Brown can be the only Member, can elect himself Manager, Treasurer and Secretary. The actions and resolutions must appear in the Minutes, but that is all there is to it. Finally, the last part of your question regarding employees--you ned not have any employees, outside people, or additional people as part of your LLC unless you want to. There is no requirement regarding size or number of people involved. It can be only one person, or any number wanted.

13. I have been told it is better to have very limited Articles of Organization for an LLC. Is that correct?
It is neither correct or incorrect. The answer lies in your own opinion. The more limited the Articles, the more possible avenues of attack litigation can take, or an audit can discredit; the more complete the Articles, the more difficult for someone to make unfounded and inaccurate claims against you.

14. What exact purpose does an LLC have in a small operation, or a mom and pop enterprise?
As indicated in another answer, it provides protection of personal assets from those of the company. The IRS has ruled and courts support the fact that personal assets cannot be attached to a law suit against an LLC.

15. I understand some people have more than one LLC. Why would you want more than one?
There are several reasons, one of which is someone who owns several pieces of property, rental buildings, houses, etc. If all properties are assets in one LLC, then if that LLC is sued, all assets are at risk; however, if each asset is in a different LLC and one LLC is sued, then only that asset in that LLC is at risk. It is a matter of additional protection. On the other hand, each LLC requires a separate tax return filed and can be cumbersome for some people. If there is a good reason, it is probably worthwhile. If not, then it would make little sense in doing it.

16. I bought an LLC over the Internet and it was 12 pages. Is that complete?
Without knowing what is included it would be difficult to say if it is complete or not. However, while the length of an LLC is not an indication of its value, the more safeguards that are included and the more necessary forms, signature pages, authorizations, explanations, etc., the more difficult for it to be attacked. As an example, our complete LLC includes some 70 to 80 pages.

17. Some formation people believe it best to limit the information in the Articles since changes to Articles must be filed and cost money each time.
Generally speaking, Articles seldom need to be rewritten, except in cases of major changes of ownership, selling of the company, changing the name, etc. But if they are changed, the change must be filed in the form of an Amendment with the State. Remember, the Articles of Organization are an official document and are registered with the State--any changes to them must also be filed. On the other hand, the Operating Agreement is not registered with the State and is a living document within the company. As a result, the Operating Agreement can be changed as often as management deems it necessary, and performed through Resolutions contained within the Minutes Book. Usually, the Articles need not be changed when changes occur as they can be contained within amending the Operating Agreement.

18. Do Articles have to be notarized before submitting?
Most States do not require notarization of Articles. However, in the case of unrelated partners, it might be a good idea to notarize signatures of not only the Articles but all important documents.

19. Who can own an LLC? Can another business own an LLC?
Any individual, or group individuals of age can own an LLC. Another LLC can own an LLC, or a Corporation can own an LLC, or a person and an entity can own an LLC. In addition, while a person is limited to the number of hand-shake Corporations he can own, any number of LLCs can be owned by the same person.

20. Is there a difference between a manager and a member? My State requires that a choice be made between the two.
Every State requires that an LLC be registered as either a Member-operated LLC or a Manager-operated LLC. That is, are the owners Members or are they Managers. There is a big difference between the two and one should look into the pros and cons of both before making a choice. Remember, a Member owning an LLC can also elect himself as a Manager, or hire an outside Manager to run the business. A Manager based LLC cannot become a Member without redesignating the company with the State. Generally speaking, Member-based LLCs have certain advantages over a Manager-based LLC, but this gets into a legal determination that would best be served by checking with an attorney.

21. Do I really need an Operating Agreement?
Each state has laws that set out basic operating rules for LLCs, called default rules, some of which will govern your business unless your operating agreement says otherwise. Many states, for example, have a default rule that requires owners to divide up LLC profits and losses equally, regardless of each member's investment in the business. Unless you and your co-owners invest equal amounts in the LLC, it's doubtful you'll want profits allocated this way. To avoid this, your operating agreement must spell out how you and your co-owners want to split profits and losses. In this same way, many state laws regarding LLCs will not be favorable to your business. It may not be wise to rely on them to structure your LLC. You will probably want to create your own rules relating to your own situation and put them in a written operating agreement