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What benefits does registering as an LLC offer small companies?

If you’re currently operating a sole proprietorship or have decided to start a small business, you’ve undoubtedly noticed that many entrepreneurs are setting up as limited liability companies, or LLCs. The reason is that LLCs offer many of the benefits of an S corporation without the burdensome administrative formalities corporations are required to follow.

Some of the primary benefits include:

  • Protection from personal liability for business debts and claims against the company
  • Tax provisions beneficial to small companies
  • Unlimited number of shareholder-members, who have full participatory control of business operations

Generally, LLCs are popular among small businesses established by one to three people who don’t expect enormous growth or a great deal of cash on hand. If that changes, however, you can convert the business to a corporation later.

In Utah, LLCs are authorized through the Utah Revised Limited Liability Company Act, and setting up an LLC is easy and relatively inexpensive. The Utah Department of Commerce Division of Corporations and Commercial Code provides forms online, but the agency strongly recommends working with an attorney.

To set one up, you will need to register with the state by filing simple articles of organization. The basic requirements are for valid articles of organization include:

  • A unique business name that includes one of the terms “limited liability company,” “limited company,” “L.L.C.,” or “L.C.”
  • A statement of the purpose of the business
  • A street address of the company or its registered agent
  • The names and addresses of any non-member organizers
  • The names and addresses of any managers, whether members or third parties
  • The signature of at least one member, organizer or manager

The articles of organization can be filed online, by fax, by mail or in person. You can set up an LLC for any lawful purpose except banking, insurance or certain licensed professional services, although professionals can organize as a professional limited liability company. In Utah, an LLC only requires one member, but some federal tax benefits may require it to have two members. You will have to file annual reports and periodically renew the organization.

Limited liability companies are easy, but they aren’t ideal for everyone. You should discuss your business plan, management style, tolerance for risk and other factors with a business law attorney before selecting and forming a business entity.

Source: Entrepreneur magazine, "LLC Basics," May 31, 2005

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