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Why forming an LLC could be your best option

On Behalf of | Jul 7, 2020 | Business & Commercial |

Whether you seek to form a new business entity or currently operate your existing business as a sole proprietorship or partnership, setting it up as a Limited Liability Company, aka LLC, can provide you with significant advantages.

As its name implies, an LLC limits the liability its owner or owners face for its debts and other liabilities such as liens, court judgments, etc. In other words, your LLC’s creditors, lien holders and judgment holders cannot invade your personal assets for payment.

Another major advantage of an LLC is that it allows you to avoid the double taxation that you face with a corporation. Your LLC pays no income tax; nor does it file an income tax return. Instead, all its profits and losses pass through to you and any other owners in proportion to your respective ownership interests. Each of you then pays your resulting income tax yourself by attaching a Schedule C to your personal tax return and putting all your business calculations there.

LLC set-up steps

You form your LLC by following these five steps:

  1. Choose your LLC’s business name.
  2. Designate your LLC’s registered agent.
  3. File your LLC’s Certificate of Formation with your local probate court and pay the necessary filing fee.
  4. Draft your LLC’s operating agreement.
  5. Obtain your LLC’s Employment Identification Number, aka EIN, from the Internal Revenue Service.

Company name restrictions

You must obtain, complete and file a Name Reservation Request Form for Domestic Entities with the Alabama Secretary of State’s Office. The following rules apply to your LLC’s business name:

  • It must include LLC, L.L.C. or Limited Liability Company.
  • It must not include any words that make it sound like a government agency or entity.
  • It must not include restricted words like “bank,” “attorney,” “physician,” etc. unless it is, in fact, a bank, law firm, physician group, etc.
  • It must not be so similar to another Alabama business name as to cause confusion between the two.

In addition to all of the above, you would do well to make sure the LLC name you want is available as a domain name for the website you undoubtedly will want to create.