Question

Tom, Duck and Harry run a successful partnership conducting a retail business. They wish to adopt a new business structure which offers them limited liability, the ability to manage the business and they also wish to keep their business affairs private.

Explain what type of business structure should Tom, Duck and Harry adopt and the formalities that will be required.

Answer 1

Answer:-

Tom, Duck and Harry can adopt for a limited liability company.

An LLC partnership can have two or more owners, called members. Limited liability companies with multiple members are referred to as multi-member LLCs or LLC partnerships.

Under an LLC, members have a legal shield between their personal assets and the business, meaning they generally can’t be sued for the company’s actions or debts. However, they can be held liable for the actions of another member, especially if they knew the member was negligent or made management decisions that led to a lawsuit.

The benefits of forming an LLC partnership include:

• Personal liability protection: Members receive legal protection between the business’s actions and debts and their personal assets.
• Tax flexibility: LLCs can elect to change their default tax classification and be taxed as an S corp or C corp.
• Corporate members: An LLC can have a corporation as a member. Other types of partnerships can’t be owned by other businesses, only individuals.  
• Anyone can form an LLC: Some partnerships can only be formed by certain professions, like lawyers, accountants, and architects. An LLC can be formed by most types of businesses.

LLc partnership is formed by Companies whose owners want liability protection from the business while still being involved in the day-to-day management and operations. Since LLC partnerships can be formed by most types of businesses, they’re generally a good fit for most people.

Formalities required to form an LLC partnership company:-

1. Choose a Name for Your LLC

The name of your LLC must comply with your state’s rules. While these rules differ, most states require 1) that your LLC’s name end with an LLC designator, such as Limited Liability Company or Limited Company, or an abbreviation of one of these phrases; and 2) that the name not be the same as the name of another LLC or business entity already registered with your state.

Often, for a small fee, you can reserve your LLC name for a short period of time until you file your articles of organization.

2. File Articles of Organization

To create your LLC, you must file articles of organization with your state's corporate filing office, often the Secretary of State.

3. Choose a Registered Agent

LLCs are required to have a registered agent. This is an individual or company that agrees to accept legal papers on behalf of the LLC if it is sued. The registered agent must have a physical street address in the state where the LLC is registered. Most states maintain a list of private service companies (commercial registered agents) that will act as agent for service of process for a fee. An LLC member can act as registered agent for the LLC.

4. Decide on Member vs. Manager Management

Most small LLCs choose to be managed directly by their members, but LLCs can appoint one or more people (outsiders) to manage the LLC – somewhat like a board of directors oversees a corporation. Managers vote on key issues such as taking out a loan, purchasing real estate, or changing strategic plans.

5. Create an LLC Operating Agreement

Even though most states don’t require it, you should have an operating agreement for your LLC. This is an internal document that establishes how your LLC will be run, including how the LLC will be managed. In the absence of an operating agreement, state law will govern how your LLC operates.

6. Comply With Tax and Regulatory Requirements

Additional tax and regulatory requirements may apply to your LLC. These include:

EIN: If your LLC has more than one member, it must obtain its own IRS Employer Identification Number (EIN), even if it has no employees. If you form a one-member LLC, you must obtain an EIN only if the LLC will have employees or you elect to have it taxed as a corporation instead of a sole proprietorship (disregarded entity). You may obtain an EIN by completing an online EIN application on the IRS website.

Business Licenses: Depending on its type of business and where it is located, your LLC may need to obtain other local and state business licenses. Check with the appropriate state agencies to ensure you are properly registered, licensed, and permitted to do business in your state.

Sales and Employer Taxes: In some cases (for example if you will be selling goods and collecting sales tax or if you have employees), you’ll need to register with the appropriate state taxing authority.

7. File Annual Reports

Many states require LLCs to file an annual report with a filing fee.

8. Out of State LLC Registration

To do business in a state other than the state where your LLC was formed, you will need to register your LLC in that state and appoint a registered agent for service of process