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Best LLC Services Reviewed [TOP 5 FOR 2019]

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business llc formation services

Forming an LLC can be a daunting yet exciting prospect. Essentially, it is a process that you want to get right first time and go through only once. One of the simplest ways to do so is by using an online LLC formation service.

If you have done any preliminary research into this you will already know that there are large number of services available. You may also feel that choosing the most appropriate seems complicated. However, after you have finished this review guide you will have the confidence and knowledge to start the process of setting up your LLC.

Below you will find a comprehensive comparison of 5 leading LLC formation services online, along with detailed information on the various packages they provide, and the best circumstances to use them.

For our findings at a glance, just head to the table below. For our detailed reviews, plus an in depth buyer’s guide keep on reading.


Top 5 Best llc Formation Services Online

LLC SERVICENAMEOUR RATING 
IncFile
BEST FEATURES
BEST FOR PRICE
Northwest Registered Agent
BEST CUSTOMER SERVICE
CorpNet LLC Formation
Swyft Filings
MyCompanyWorks, Inc
BEST INCFILE ALTERNATIVE

Online LLC Formation Service Reviews

1. Incfile Review

This is a professional, reliable, and competent LLC formation service that is headquartered in Houston. It specializes in providing registered agent services and business formation services at competitive prices to small business owners and entrepreneurs.

In the context of this review, it specializes in the formation of LLCs, S-corporation, C-corporation, and nonprofit organizations.

Most importantly, Incfile allows one to organize an LLC in almost all the states in the US. Additionally, Incfile staff are experienced incorporation specialists with at least 6-year experience of providing formation services.

This level of experience is bound to benefit LLC members as Incfile can anticipate legal hurdles during the formation process, as well as during ledger keeping and tax filing. Furthermore, the online ordering process of LLC formation is very streamlined and transparent to allow one to monitor progress.

Incfile has the authorization to organize 10 types of LLCs.

These are as follows:
  • Domestic LLC,
  • Foreign LLC,
  • Anonymous LLC,
  • Restricted LLC,
  • Member-Managed LLC,
  • Single-Member LLC (allows for conversion of sole proprietorships into LLCs),
  • Manager-managed LLC,
  • Series LLC, and L3C (which is analogous to a B corporation).
  • Series LLC is a special type of LLC whereby a master LLC presides over separate legal entities, and this option is available in the 8 states: Delaware, Texas, Illinois, Utah, Nevada, Tennessee and Oklahoma.

There is also need to differentiate between Domestic and Foreign LLC as the designation can create some confusion. A domestic LLC is formed to operate only in the state where it has been organized, while a foreign LLC can operate in other states.

LLC formation packages are bundled into the following three types (levels of price tiers); the Silver package, the Gold package, and the Platinum package.

The silver package is the cheapest option and it only covers the basic services of LLC formation, while the most expensive option, the platinum package offers a comprehensive set of services.

The price tiers also allow for customization; for example, if one does not need all the services in the Gold Package, then (s)he can choose the Silver Package and then add some of the services included in the Gold package, and only pay for these Gold-level services alongside the silver price.

The silver package

The basic services in the Silver Package are:
  • verification of availability of company name,
  • registered agent services, online tracking of order status (normal order turnaround [completion] is 24hours),
  • lifetime company alerts,
  • lifetime customer support,
  • business website and domain name acquisition,
  • tax consultation, and drafting, preparation and filing of articles of organization; as well as opening up an LLC bank account with the Bank of America.

The premium services that can be added to the Silver Package are:

  • EIN/FTIN obtainment,
  • preparation of an operating agreement and company by-laws,
  • provision of business contract templates,
  • banking resolution, and corporation organizational meeting minutes,
  • preparation and submission of IRS Form 2553 that qualifies the special categories of organized business entity as an LLC.

All these premium services are included in the Gold Package with the exception of Business Contract Templates, which is included in the Platinum Package.

The Platinum Package

The platinum package is designed to ensure that members receive services that cover the key processes of LLC formation, especially operating agreement preparation and EIN registration, as well as ensuring that there is annual compliance with state laws and regulations.

This bundle also comes with advisory services with the initial 1-hour tax consultation being free. Registered agent services are also provided. This bundle also covers registration and operation of the LLC web domain and web hosting services.

Retainment of Incfile as a registered agent during the post-formation phase of LLC ensures that Incfile would accept to legally provide service of process, including notice of litigation, as well as record of service on behalf of the LLC.

The LLC is then promptly notified through email notification or a telephone call. Likewise, Incfile is expected to forward tax, legal and official correspondences received from state authorities to the LLC. For the first year, registered agent services are free of charge.

Incfile provides unrestricted access to LLC organization documents.

Pros of the Incfile llc formation service
  • Professional and legal provider of registered agent services.
  • Order processing time is 24hours.
  • Experienced provider of LLC formation services.
  • Legally authorized to organize these 10 types of LLCs: Domestic LLC, Foreign LLC, Anonymous LLC, Restricted LLC, Member-Managed LLC, Single-Member LLC, Manager-managed LLC, Series LLC, and L3C.
  • Initial 12months of registered agent services are free of charge.
  • Initial hour of tax consultation is free.
  • Allows for seamless formation of LLC whose subsequent operation prioritizes compliance with state laws.
The Cons
  • Platinum package, which is the most recommended price tier, is relatively expensive.

Bottom-line

Incfile is a professional and dependable LLC formation service that is headquartered in Houston, and specializes in providing registered agent services and business formation services at a competent price to small business owners and entrepreneurs.

It allows one to organize an LLC in almost all states in the US through its provision of Domestic LLC and Foreign LLC options. It can organize 8 other types of LLCs, and the standard order processing time is 24hours.

The feature-rich packages that have been organized into tiered price levels – so as to ensure affordability and customization of LLC formation services, as well as excellent customer support services make Incfile, in our opinion the best LLC formation service in this review.


2. Northwest Registered Agent LLC Formation Review

northwest-registered-Agent LOGO

This is a professional and reliable LLC formation service that specializes in providing registered agent services and business formation services at excellent rates to small business owners and entrepreneurs.

It is headquartered in Spokane, Washington; and is registered as an LLC, which means that it can help business entities to not only organize an LLC, but it can also provide up-to-date advice, as well as guidance on how to run the LLC with priority given to legal compliance.

Its LLC formation services comes bundled with data security, corporate guides, and privacy protection services. This makes it the ideal service provider for LLCs that are organized to operate exclusively online.

It also provides excellent formation services for brick-and-mortar LLCs, and LLCs that operate both online and offline.

Moreover, it is authorized to allow non-US residents to register LLCs in Florida, Nevada, Wyoming, Washington, and Delaware.

It is important to note that non-residents in this context covers both US citizens living outside the US, and non-US citizens who want to own a business in the US.

Northwest Registered Agent allows one to organize an LLC in 50 U.S states, with Washington DC and Puerto Rico also treated as legal states.

northwest-llc-services

This service provider is staffed by experienced, talented, and professional incorporation specialists who are dedicated to providing excellent formation services.

The staff and customer service representatives can help a business entity to anticipate legal hurdles during the formation process, as well as during ledger keeping and tax filing.

Additionally, the formation process is quite streamlined and transparent to allow one to monitor progress and appraise for legal conformity.

The order processing time can take anywhere from 3 days to 5 days. It also has authorization to organize PLLCs.

The customer support services provided by Northwest Registered Agent are quite impressive, and they ensure that queries and requests of customers are attended to promptly. This makes its customer service the best in this review.

LLC formation packages are bundled into three price tiers: the basic-tier, middle-tier, and top-tier.

The basic tier is the cheapest option and it only covers the basic services of LLC formation while the most expensive option, the top tier offers a comprehensive set of services. The price tiers also allow for customization of LLC formation services.

Basic Tier Services

The key services in the basic tier are:

  • verification of availability of company name,
  • registered agent services,
  • online tracking of order status,
  • company alerts,
  • lifetime customer support, and consultation on annual compliance,
  • drafting, preparation and filing of articles of organization.

It does not provide business website and domain name acquisition, tax consultation, and opening up of an LLC bank account, which come bundled with the Silver package of Incfile.

Middle-Tier Package

The middle-tier package adds EIN registration and operating agreement drafting, compilation, and processing.

Top-Tier Package

The top-tier package is designed to ensure that members receive comprehensive services that cover key processes of LLC formation with the exception of website domain acquisition and data storage services.

Northwest registered Agent does not also include advisory services in this package, unlike Incfile which provides these services in its Gold Package.

Nonetheless, Northwest Registered Agent offers registered agent services for free for the first 12 months.

Retainment of registered agent services during the operational phase of LLC allows Northwest Registered Agent to legally accept to provide service of process and record of service on behalf of the LLC. The LLC is notified when these services are provided.

Pros of the Northwest Registered Agent Formation Services
  • Professional and legal provider of registered agent services.
  • Experienced provider of LLC formation services.
  • Includes data security, corporate guides, and privacy protection services to its LLC formations service packages.
  • Allows non-US residents to register LLC.
  • Legally authorized to organize these PLLCs, Domestic LLC, Foreign LLC, Member-Managed LLC, Single-Member LLC, and Manager-managed LLC.
  • Initial 12months of registered agent services are free of charge.
  • Allows for seamless formation of LLC whose subsequent operation prioritizes compliance with state laws.
  • Its top-tier package is cheaper than the Platinum package of Incfile.
The Cons
  • Does not offer advisory services, nor provides web domains and data storage services in its packages.
  • Order processing time ranges from 72 – 120hours.
  • Its packages are not as feature-rich as those offered by Incfile.

Bottom-line

Northwest Registered Agent is a professional and dependable LLC formation service that specializes in providing registered agent services and business formation services at excellent rates to small business owners and entrepreneurs.

Its LLC formation services comes bundled with data security, corporate guides, and privacy protection services. This makes it the ideal service provider for LLCs that are organized to operate exclusively online.

It is also authorized to allow non-US residents to register LLCs in Florida, Nevada, Wyoming, Washington, and Delaware. Its customer support services are impressive, and totally responsive to the needs of customers; and this makes its customer service the best in this review.


3. CorpNet LLC Formation services Review

corpnet review logo

This is a professional LLC formation service that specializes in providing registered agent services and business formation services at varying price points to small business owners and entrepreneurs.

It allows one to organize an LLC in almost all states in the US. It was established in 1997 by a married couple, and is currently headquartered in Westlake Village in Los Angeles, California.

Currently, it prioritizes on providing document filing services, and this legally bars it from proving financial, tax, and legal advice in its document filing packages.

Expectedly, this makes its LLC formation service packages to closely resemble those offered by the Northwest Registered Agent with the exclusion of advisory services.

CorpNet is staffed by experienced, talented, and professional incorporation specialists who are dedicated to providing excellent formation services.

This allows it to help its clients to anticipate possible hurdles during the formation process, and during ledger keeping and tax filing; as well as conceive a workable contingency plan.

Furthermore, the online ordering process of LLC formation is quite streamlined and transparent to allow one to monitor progress.

Even so, there is need to note that CorpNet does charge a mandatory shipping fee as it ships the documents through USPS Priority Mail. Therefore, the more frequent the documents are sent, the more shipping fees one is expected to pay.

CorpNet is authorized to organize Domestic LLC, Foreign LLC, Member-Managed LLC, and Manager-managed LLC.  Its LLC formation packages are bundled into the following three levels; the Basic package, Deluxe package, and the Complete package.

The Basic Package

The cheapest option is the Basic package which covers the basic services of LLC formation including the following:

  • verification of availability of company name,
  • registered agent services,
  • online tracking of order status,
  • company alerts,
  • customer support, and drafting, preparation and filing of articles of organization.

There is an extra fee if one needs the order completed within 24hours.

Registered Agent services are provided for free for the first 60days. The 24-hour document preparation fee is only omitted in the Complete Package, while the Registered Agent services are provided for free for 12months in both the Deluxe and Complete Packages. As expected, the use of price tiers allows for customization of LLC formation services.

The Deluxe Package

The Deluxe package includes EIN registration and operating agreement drafting, compilation, and processing.

The Complete package is designed to ensure that members receive comprehensive services that cover key processes of LLC formation with the exception of website domain acquisition and data storage services.

However, advisory services are not provided with this package, unlike Incfile which provides these services in its Gold Package.

CorpNet also provides business contract templates which can be tailored to the needs of the client, as well as preparation and submission of IRS Form 2553 for business entities which need their LLC organizations to be analogous to S-corporations.

Pros of theCorpNet LLC Formation services Review
  • Professional and legal provider of registered agent services.
  • Experienced provider of LLC formation services.
  • Specializes in document filing services which is reflected in the packaging of its LLC formations service bundles.
  • Legally authorized to organize Domestic LLC, Foreign LLC, Member-Managed LLC, and Manager-managed LLC.
  • Initial 12months of registered agent services are free of charge.
  • Allows for seamless formation of LLC whose subsequent operation prioritizes compliance with state laws.
The Cons
  • Its packages are pricier compared to similar packages offered by Incfile and Northwest Registered Agent.
  • Does not offer advisory services, nor provides web domains and data storage services in its packages.
  • Order processing time ranges from 72 – 120hours.
  • Its packages are not as feature-rich as those offered by Incfile.

Bottom-line

CorpNet is a professional LLC formation service that specializes in providing registered agent services and business formation services at varying price points to small business owners and entrepreneurs across the US.

It allows one to organize an LLC in almost all states in the US. Currently, it prioritizes on providing document filing services, and this legally bars it from proving financial, tax, and legal advice in its document filing packages.

Nonetheless, its packages are pricier than similar packages offered by Incfile and Northwest Registered Agent.


4. Swyft Filings LLC Formation Service Review

swyftfilings review logo

This is a specialist document filing service provider that also provides core LLC formation services at a fair cost to entrepreneurs, small business owners, and startup businesses.

Alongside LLCs, it is also authorized to provide core formation services for S-corporation, C-corporation, and nonprofit organizations. It also allows one to organize an LLC in almost all states in the US.

Nonetheless, as a document filing services, it is legally barred from providing financial, tax, and legal advice in its document filing packages.

Expectedly, its LLC formation service packages are quite similar in scope to those offered by CorpNet, but with the addition of a free website domain.

Its staff are experienced incorporation specialists who can provide, and help one benefit from the full spectrum of, LLC formation services. Likewise, it can help its clients to anticipate, as well as conceive a workable contingency plan for, hurdles during the formation process, as well as during ledger keeping and tax filing.

Its online ordering process for LLC formation is quite streamlined and transparent to allow for progress monitoring, in addition to allowing one to check how well the process conforms to legal stipulations.

This company is authorized to organize Domestic LLC, Foreign LLC, Single-Member LLC, Member-Managed LLC, and Manager-managed LLC. It can also help a client to form an L3C upon request.

Its LLC formation packages are bundled into the following three levels; the Basic package, the Standard package, and the Premium package.

The Basic package

The cheapest option is the Basic package which covers the basic services of LLC formation including the following:

  • verification of availability of company name,
  • online tracking of order status,
  • company alerts,
  • 30-minute consultation on tax compliance,
  • customer support, and drafting, preparation and filing of articles of organization.

Even so, Registered Agent services are not explicitly offered as can be verified from the items listed in its packages. Expectedly, the use of price tiers allows for customization of LLC formation services.

The Premium Services

The premium services that can be added to this Basic Package are:

  • EIN/FTIN obtainment,
  • preparation of an operating agreement and company by-laws,
  • provision of business contract templates,
  • banking resolution, and corporation organizational meeting minutes;
  • as well as preparation and submission of IRS Form 2553.

These services come bundled with the Standard package, and in the Premium package, the client benefits from free web hosting.

Evidently, the Premium package is designed to ensure that members receive comprehensive services that cover the principal processes of LLC formation including website domain acquisition and hosting services.

Pros of the Swyft Filings LLC Formation Service
  • Professional and legal provider of registered agent services.
  • Experienced provider of LLC formation services.
  • Specializes in document filing services which is reflected in the packaging of its LLC formations service packages.
  • Legally authorized to organize these Domestic LLC, Foreign LLC, Member-Managed LLC, and Manager-managed LLC.
  • Provides free web domain in the Basic package and free web hosting in the Premium package.
  • Allows for seamless formation of LLC whose subsequent operation prioritizes compliance with state laws.
  • Its packages are priced at lower price points than equivalent packages offered by CorpNet.
The Cons
  • Does not offer advisory services.
  • Long order processing time.
  • Its packages are not as feature-rich as those offered by Incfile.

Bottom-line

Swyft Filings LLC is a specialist document filing service provider that is authorized to provide core LLC formation services at a fair cost to entrepreneurs, small business owners, and startup businesses.

It also allows one to organize an LLC in almost all states in the US. Nonetheless, it is legally barred from proving financial, tax, and legal advice in its document filing packages.

Even so, it provides free registration of website domain, in addition to providing free web hosting in its Premium package.


5. MyCompanyWorks, Inc LLC Formation Review

mycompanyworks review logo

This is a professional, reliable, and competent LLC formation service that specializes in providing registered agent services and business formation services at competitive prices to small business owners and entrepreneurs.

Its packages come bundled with a compliance alert system for organized LLCs. It was established in 2001, and was previously known as MyNewCompany; and up-to date, it has successfully completed 50,000 business formations with the LLC segment accounting for a significant portion of these formations.

As a fully-fledged business formation service with authorization to provide document filing services, the spectrum of LLC formation services provided by MyCompanyWorks are closer in scope to those provided by Incfile, with the main difference being that its Entrepreneur and Complete packages are priced a bit higher than the Gold and Platinum packages of Incfile.

MyCompanyWoks allows one to organize an LLC in almost all states in the US. Its staff are experienced incorporation specialists who can provide excellent LLC formation services, while keeping out an eye for errors in paper work, as well as using previous experience to anticipate or predict possible legal hurdles during the formation process, ledger keeping and tax filing phases.

Relatedly, its online ordering process for LLC formation is quite streamlined and transparent; and can be accessed at any time with the right credentials.

This company has the authorization to organize the most common types of LLCs including the Domestic LLC, Foreign LLC, Member-Managed LLC, Single-Member LLC, and Manager-managed LLC.

Its LLC formation packages are bundled into the following three-tiered packages; the Basic package, the Entrepreneur package, and the Complete package. The price tiers also allow for customization.

The Basic Package

The Basic package covers the basic services of LLC formation which includes the following:

  • verification of availability of company name,
  • online tracking of order status (normal order turnaround is 24hours),
  • lifetime company alerts,
  • lifetime customer support, and drafting, preparation and filing of articles of organization.

The following services are optional in the Basic package;

  • business website and domain name acquisition,
  • tax consultation, and opening up an LLC bank account with the Bank of America.

Even so, Registered Agent service is offered at a fee, and is included as one of the premium services that can be added to the Basic Package, along with EIN/FTIN obtainment and Business License Compliance.

The Entrepreneur Package

The Entrepreneur package includes the aforementioned premium services with the exception for Registered Agent which one must pay for separately.

The Complete Package

Registered Agent services are bundled together with premium services in the Complete package. Therefore, the Complete package offers the following extras above the pevious two options:

  • preparation of an operating agreement and company by-laws,
  • provision of business contract templates,
  • banking resolution, and corporation organizational meeting minutes;
  • as well as preparation and submission of IRS Form 2553.
Pros of the MyCompanyWorks, Inc Formation Services
  • Professional and legal provider of registered agent services.
  • Order processing time is 24hours.
  • Experienced provider of LLC formation services.
  • Legally authorized to organize most types of LLCs.
  • Allows for seamless formation of LLC whose subsequent operation prioritizes compliance with state laws.
The Cons
  • Unlike Incfile which offers Registered Agent services for free for the initial 12months, MyCompanyWorks charges a recurring annual fee for these services in the Basic and Entrepreneur packages.
  • Entrepreneur and Complete are priced a bit higher than the Gold and Platinum packages of Incfile.

Bottom-line

MyCompanyWorks, Inc is a professional, reliable, and competent LLC formation service that specializes in providing registered agent services and business formation services at competitive prices to small business owners and entrepreneurs.

The packages come bundled with a compliance alert system for organized LLCs. It allows one to organize an LLC in almost all states in the US through its provision of Domestic LLC and Foreign LLC options.

Its standard order processing time is 24hours. The feature-rich packages that have been organized into tiered price levels to ensure affordability and customization of LLC formation services.


LLC Formation – A Vault50 Overview

business registration

Formal Business Registration

The process of business registration can be confusing for new entrants, especially budding (or newbie) entrepreneurs who are unfamiliar with (business) registration processes, trading laws, tax regimes, and legal protections afforded to different types of businesses.

Established businesses can also be overwhelmed by the intricacies of business registration, as well as the compendium of laws and statutes that they must observe during both the registration and post-registration phase of business operations.

Relatedly, failure to adhere to laid-down business registration processes can result in tax penalties, legal fines, and even closure of business; and in extreme cases, the business owners can serve jail terms.

Additionally, the operations of such non-compliant businesses would be restricted and unsuitable to their positioning in the marketing channel.

Non-compliance also negatively impacts how a business relates to its customers and the public in general, and this leads to wastage of resources and failure to thrive if the businesses are unable to sell their products to anchor customers, for instance, due to improper paperwork.

For example, a non-compliant wholesaler cannot trade with government bodies, or even request for tenders from local authorities.

Business Formation Service

business-formation

There are a group of registered specialty (or specialized) service providers who have dedicated themselves to helping entrepreneurs and businesspeople navigate the maze of processes that allow an abstract business idea to enter the marketplace as a registered businesses entity.

These services also ensure that there is legal continuity of business operation during the post-registration phase by ensuring that the registered business adheres to tax rules and benefits from tax reprieves.

The services provided by these providers are bundled together into a collective designation – business formation service. The focus of this review is on a specialty formation service called the LLC formation service.

Limited Liability Company as a Hybrid Business Structure

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Prior to setting up a business, the entrepreneur must choose the best business structure that allows him/her to undertake a business venture in a particular locality.

In a strict sense, a business structure describes how the business is organized to operate, and this organization must be legally certified under state jurisdiction.

The process of choosing the right business structure allows the entrepreneur to consider the ease of setting and operating the business, tax advantages and disadvantages of different business structures, attendant legal liabilities, ease of liquidation, and what can happen to the business should (s)he be unable to run it in the event of debilitating disease or even death.

The choice of business structure is heavily influenced by the position of the firm in the marketing channel as this determines the best way to raise capital, in addition to determining the operational flexibility that the business has.

Other considerations are legal regulations, record keeping, and continuity of business in case the entrepreneur is unable to run the business.

There are 4 main types of business structures; sole proprietorship, partnership, corporation, and a limited liability company (LLC).

Sole proprietorship

Sole proprietorship is the easiest to set up and run because it is owned by a single entrepreneur who can easily liquidate the business.

Sole proprietorship comes with unlimited legal liabilities and the business ceases to exist once the owner dies. This is unlike a partnership where the partnership agreement can cater for business continuity in the event of demise of one of the partners.

Partnerships

There are two types of partnerships: general partnerships where all the partners share the unlimited liabilities, losses, profits, and contribute to the management of the business; and limited partnership where some of the partners have limited liability and are excluded from management.

These business partners can also decide to create an artificial person – unrelated to them – to own and run the business. In this case, the partners become shareholders and the artificial person created is called a corporation which becomes the sole proprietor of the business.

Corporation

A corporation is a complex entity owned by shareholders who elect a board of directors to set corporate policies, and elect corporate officers responsible for daily operation of the corporation.

Expectedly, the corporation is the most complex business structure to set up, operate, and liquidate and its profits may be subjected to double taxation.

There are four types of corporations;

  • the standard C corporation that enjoys limited liability and can be subjected to double taxation,
  • the B (benefits) corporation that combines a social mission with corporate responsibility,
  • the S corporation which does not pay income taxes,
  • and the professional corporation for registered professionals, such as architects, health-care providers, and engineers.

The tax rates of corporation are the highest of all the four business structures, with the internal revenue authority (IRS) subjecting a taxable income of USD50,000 to 15 percent tax, which increases to 35 percent if the taxable income exceeds USD18,333,333.

Moreover, corporations are subjected to very strict business regulations and their liquidation processes can be protracted and complicated by legal battles as exemplified by the case of Theranos, a closed corporation that was valued at USD9 billion in 2014 before fraud charges forced its liquidation, which also saw the net worth of its founder, Elizabeth Holmes, reduce from USD4.5billion in 2016 to almost nothing in 2018.


The limited liability company (LLC)

So, what can entrepreneurs do if they want to benefit from the main advantages offered by sole proprietorship, partnerships, and corporations while minimizing the demerits associated with each of these 3 business structures? The answer is to form a limited liability company (LLC).

An LLC is a business entity created by State Laws as a private limited company that combines pass-through taxation of sole proprietorships and partnerships with the limited liability of corporations.

This means that it is a US-specific form of an artificial person that is recognized as a legal entity that can elect to use one of three tax regimes; corporate regimes, partnership regimes, and sole proprietorship tax rules.

It can also be recognized as a non-profit entity with a business structure similar to a B corporation.

Moreover, a specialized form of LLC called the professional LLC (PLLC) allows a business to provide professional services, such as medical and legal services, which require licensure from state licensing bodies; and its business structure corresponds that that of a professional corporation, only that the PLLC is an unincorporated association unlike the professional corporation.

Operationally, the LLC is a cross between corporations and partnerships, with most of its features borrowed from partnerships.

Even so, it has its own unique features and unique terminology which are mentioned hereafter. To begin with, LLC formation is legally described as the entity being organized with the owners of beneficial rights being described as members, and its founding legal document is known as the articles of organization, while its internal operations are guided/governed by stipulations laid out in the operating agreement.

Likewise, the share of each member is represented as LLC interest or membership interest; and each member is issued with a membership certificate to confirm the same. Moreover, an LLC can have anywhere from a single member to a maximum of 99 members. This makes LLC a viable alternative to both sole proprietorship and general partnership.

Currently, LLCs are the most prevalent form of business structure in the market, and this is due to the unique advantages it offers, especially in relation to liability and taxation.


Liability and Pass-through Taxation

The aforementioned description of LLC and business structures introduces two critical concepts; liability and pass-through taxation, which are explained hereafter.

A liability is simply an obligation to pay a debt owed to a creditor. There are two types of liabilities; limited liability and unlimited liability.

Unlimited liability

Unlimited liability can be explained by the following example. Before starting a business, the entrepreneur owned personal assets including liquid cash, some of which were used as capital for the business.

Now, assuming that the business defaults on its loans, the creditors can attach both the business assets as well as his/her personal assets in order to recover the loan.

This can be quite calamitous to the financial and social life of the entrepreneur, especially since the chances of recovery are greatly reduced as new assets acquired will replenish some (or most) of his/her personal assets, instead of being injected into a business venture.

Limited liability

In a limited liability, only the business assets can be attached to recover the loan; and the personal assets of the business owner are left intact.

This is because the business exists as a legally-recognized artificial person who is totally unrelated to the members, partners, or shareholders who formed this artificial person.

It is also for this reason that sole proprietorship cannot have a limited liability as the law does not allow the business owner to create an artificial person to own the business and be responsible for its liabilities, and thus the business owner is wholly liable to debts the business owes to creditors.

In a limited liability partnership, liability of each partner is usually the proportion of their contribution to the capital (investment) of the business. The same also applies in an LLC where liability for each member is limited to their proportionate contribution to the capital and assets of the LLC.

The limited liability status not only protects the personal assets of members, but it also allows the members to convert some profits accrued by the business into personal assets, which results in personal success in tandem with business success. Even so, the degree of personal success depends on how much of the profit is taxed.

Taxation of LLC income

Taxation of LLC income can be done using one of two mutually-exclusive methods; double taxation and pass-through taxation. It should be noted that income denotes the financial gains on capital (especially sales) that the LLC has accrued within a specified period; and this includes earnings and profits.

In double taxation, the declared income is subjected to a direct tax (usually a corporate tax); and after taxation, the corporate profits are then distributed to the shareholders or members as dividends, and each dividend is then taxed, and this tax is called the dividend tax. Therefore, in double taxation, the direct tax precedes the dividend tax.

In pass-through taxation, the income is first distributed to all the members according to stipulations of the operating agreement, and once each member receives his/her share, (s)he is expected to pay a tax on it.

For this reason, this tax mode is also called flow-through taxation, and the LLC is recognized by the tax authorities as a flow-through entity, fiscally-transparent entity, or a pass-through entity. In most states, each member makes his/her income declaration in a statement of allocated income, also called Schedule K-1 or Form K-1.

Statutory Limits

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Laws governing formation and operation of LLCs are state-specific and this means that an LLC can be registered in only one state, though it can operate in other states.

Moreover, these laws lack detailed protective provisions and governance statutes, and this non-comprehensive statutory provision shifts the burden of creating protective and governance provisions to members, and their legal team, during the formulation of an operating agreement.

A professional LLC formation service can be quite helpful at this stage, as it can help members to create legally sound operating agreement that features multiple layers of protective provisions to shield the members from catastrophic loss should the LLC make unrecoverable losses, or lose business viability.

The aforementioned statutory limits affect the ability of an LLC to raise financial capital as compared to corporations as investors are more comfortable dealing with corporations which have better protective provisions than LLC; and corporations can also be listed in the stock exchange unlike LLCs which are legally prohibited from listing.

As mentioned earlier, LLC laws vary from state to state, and although all states allow LLCs to be formed, 7 key states charge a capital levy (tax) or franchise tax on LLCs for operation as limited liability entities.

These states are California, New York, Texas, Alabama, Pennsylvania, Tennessee and Kentucky. Moreover, LLCs are required by law to pay annual renewal fees, which are usually higher than similar renewal fees paid by stock corporations.

Another notable statutory limit regards cross-national operations of LLCs. This is because an LLC is recognized as such only inside the United States, and this means that if it operates outside the US tax jurisdictions, then foreign nations would rarely recognize the firm as an LLC, chiefly because these nations do not legally recognize an LLC as a legal business structure.

This is partly due to the non-standardization of titles in LLCs, with their principals allowed to identify themselves as a manager, chief executive officer, managing member, president, managing director, or simply a member; and this create confusion in determining which LLC member has authority (and legal powers) to enter (or sign) into a contract on behalf of the LLC.


How to Form an LLC

As mentioned earlier, an LLC is a hybrid unincorporated entity that mainly combines the characteristics of a partnership with attributes of a corporation.

As such, they require more formalities during formation as compared to partnerships, and this makes the process of setting up and operating an LLC moderately difficult as compared to setting up a partnership, but still easier as compared to setting up a corporation.

The same also applies to the ease of liquidation. It is therefore important that one understands the key steps of LLC formation so that (s)he can know what to expect from an LLC formation service, as well as predict possible hurdles during setup and operation.

LLCs are formed, operated, and dissolved according to LLC codes of the state, and as mentioned earlier, these codes differ from state to state.

In fact, it is for this reason that one is advised to seek the services of a professional LLC formation service in a state where (s)he intends to establish the LLC as such a service provider can help one better understand the state LLC codes, as well as receive assistance on how to form the LLC and thereafter appropriately file tax returns.

Still, there is need to recognize that state LLC codes are based on a model act called the Uniform Limited Liability Company Act (ULLA) which provides the most comprehensive and uniform (or standardized) set of laws for forming and operating LLCs. If possible, one can familiarize himself/herself with the ULLA.

The Key Steps in the Formation of an LLC

1. State Selection

USA states map

The initial step involves choosing the state where the LLC is to be organized. This is because different states have different LLC codes, and members need to choose the most appropriate state where they can headquarter their LLC.

If one wants to base the LLC in a state that has the best developed LLC codes, then the choice is Delaware. The LLC can also be registered in different states.

2. LLC Naming

The next step is choosing a unique name for the LLC to be organized. This name must end with LLC (or any other legally acceptable abbreviation for LLC).

3. Filing Articles of Organization

filing LLC

This is a simple, easy-to-understand statement that legitimizes the existence of the LLC by describing its purpose, and type of LLC; as well as lists the names of members, the business name and its address.

This article of organization needs to be submitted to the Secretary of State, and included within it is the official designation of the registered agent who is authorized to receive legal documents, such as service of process, complaints, and subpoenas, on behalf of the LLC.

It is recommended that one uses an LLC formation service as the registered agent as this declutters the formation process (by streamlining the paperwork as only one service provider handles the entire process).

Allowing the LLC to benefit from continuity of legal expertise from formation to operation as the registered agent not only helps the LLC to handles the legal documents, but also helps it to file its taxes appropriately.

There is also an obligatory filing fee that is paid to the state. Moreover, the type of LLC is specified based on duration as either an At-Will LLC whose existence is not time bound, and Time LLC which exists for a specified duration.

4. Preparation of an LLC Operating Agreement

This is an internal agreement among members that governs the operations and affairs of the LLC, as well as describes how the members should relate among themselves, and to managers.

This agreement delineates capital contribution formula and attached penalties should members fail to contribute their required share, sharing of earnings (profits or losses), how mangers are chosen, member voting rights, and procedures for member meetings, and LLC dissolution.

It also states whether the LLC is a member-managed LLC or a manager-managed LLC which impacts the process of authorization of contracts.

Additionally, it describes the fiduciary duties which are broadly categorized into Duty of Care and Duty of Loyalty. As expected, amendment of any stipulation in the operating agreement requires approval of members.

5. Capital

us dollars

Armed with an operating agreement, members can seek capital from venture capitalists, angel investors, friends, and family members; or just raise the capital from their personal savings.

Even so, if investors are sought, they must be issued with LLC units (a unit is an LLC interest, or more accurately, the percentage share that a member has in the LLC).

This requires the LLC to invoke a specific provision of securities law – the private placement exemption which ensures that investors are accredited to the risks of the LLC, as well as given member rights as set out in the Operating Agreement.

6. Obtain Employer Identification Number (EIN)

Because the LLC needs to employ a manager and other staff (including officers), it needs to become a legal employer and this entails acquisition of an EIN from the IRS.

This EIN is also called the Federal Tax Identification Number (FTIN), and is obtained by filling out Form SS-4 provided by the IRS, or by requesting an online LLC formation service to obtain the FTIN through IRS online portal.

The EIN is also important because banks need it when opening an account for the LLC.

7. Obtain Business Licenses

Depending on the business type, and its positioning in the market channel, the LLC needs to obtain the necessary business licenses as stated in Federal and State laws.

A good LLC formation service can advice an LLC to choose a business type and categorization that minimizes the cost of business licenses, especially considering that some licenses are renewed annually at a prohibitive fee.

8. Open Bank Account

It is important that the LLC account is separate from personal accounts of members, and this necessitates the opening of a dedicated LLC account.

9. Announce LLC to Public

Some states, including New York, require a newly-formed LLC to announce itself through a public notice that is published in newspapers circulating in that state.

10. Maintain Membership Ledger

ledger and calculator

This LLC ledger is analogous to the stock ledger of corporations; and it shows the names, addresses, and numbers and types of units held by members.

It also records unit transfers and the date of these transactions. Unit transfers necessitate the LLC to keep its membership ledger updated.

11. Be Current with Filings

State laws require LLC to submit annual report filings, and there are penalties attached to failure or lateness in submission. A competent LLC formation service can handle filing tasks, and protect the LLC from undue penalties.

The Benefits of using an online LLC Formation Service

online llc formation

Currently, the easiest and most hassle-free process of registering an LLC within a particular state is to use the services of professional LLC formation service companies.

There are two types of these services providers; Oflline brick-and-mortar providers and online providers.

Offline providers lack a web portal and require one to visit their physical office to submit a request to form an LLC and then travel to the office most of the time during the various phases on LLC formation, either to clarify details, provide new business information, or to simply follow up and check on progress.

On the other hand, online services have web portals that can be accessed at any time, and they can provide immediate assistance through their customer support service.

Online services are also more reliable as one can check their rating, as well as cross-refence their approbation.

So, after one has settled on an online LLC formation service, what are the things (s)he needs to look out for in the service provider to ensure that they are reliable, qualified, and competent to have his/her LLC registered and gain legal operation status in a specific jurisdiction?

What to Look for in Online LLC Formation Services

online llc formation service research

A competent LLC formation service allows entrepreneurs to form a legal artificial person (the LLC) that can own assets, transfer assets, sue and/or be sued, enter into and/or enforce binding contracts, borrow money and assets, and issue bonds and notes, as well as be legally liable to violations of both civil and criminal laws.

The first thing to look for is whether the LLC formation service allows you to organize your LLC in the state you have selected. Next you need to check whether it can obtain the LLC EIN on your behalf.

It is also important for you to find out if the online LLC formation services can provide the services described hereafter.

The service provider must confirm that the LLC name has not been used before, and that it is easily distinguishable from other LLCs. Likewise, the name cannot contain prohibited terms such as bank, insurance company, or trustee; nor contain words such as corporation or incorporated which allude to the business entity being a corporation, which an LLC cannot be.

Another important service provided is the filing of a fictitious business name (FBN) statement or doing business as (DBA) statement when you do not want to publicly use your formal (legal) LLC name.

The service provider can also help you choose a name and an internet (web name) business domain that can be easily remembered by your customers.

During the process of filing the articles of organization, the LLC formation service can assist the LLC to carefully word the document, state its (LLC) purpose in legal jargon, pay the filing fee on behalf of the LLC, and indicate when necessary if the LLC is to be managed by one or more managers.

Relatedly, a competent LLC formation service can help an LLC come up with a practical and coherent operating agreement that includes provisions for whether members can acquire preferences in LLC securities so that they enjoy preferences in earning distributions and influence during LLC dissolution proceedings.

Basically, this introduces the concept of preferred stock of corporations into LLCs. Additional provisions can include indemnification protections for LLC managers, and restrictions on transfer of units. Most online LLC formation services have a standard operating agreement that can be tailored to the needs of your LLC.

An online LLC formation service can also allow you to convert an existing sole proprietorship, partnership, or any other business into an LLC.

This allows you to enjoy the benefits of pass-through taxation and be shielded by limited liability from catastrophic losses of personal assets. You only need to follow the standard LLC formation process, but with an additional introductory process – the formulation of Agreement of Conversion which sets out the terms of conversion.

With regards to tax filing, the LLC formation service can aid the LLC to choose the most appropriate LLC business structure.

There are 3 types of LLC business structures; single member LLC which requires the LLC to file Schedule C and Form 1040, partners in LLC which requires it to file Form 1065, and LLC as a corporation needs you to file Form 1120. The formation service provider must also handle the filing process on behalf of the LLC.

As expected, online LLC formation services can be rated based on their ability to perform the aforementioned functions, as well as advice LLC members on how to create a cost-effective LLC.

This allows for the top formation services to be identified, and the following review focuses on 5 of the best LLC formation services currently in operation.

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