Entrepreneurs from all over the world are often seduced by the idea of opening a business in the most profitable commercial environment in the world, the United States. Accordingly, the country offers many corporate structures for business to organize their operations. One of the most important structures is the Limited Liability Company or LLC. A very popular option amongst both national and foreign business founders. Now, let’s see what is an LLC and how opening one can benefit your new venture.
You can open an LLC in the United States from anywhere in the world. You don’t need to come to the country or even step out of your home. The whole process is online with Globalfy. You can start an LLC as a foreigner and manage your business from abroad. Keep reading and see what LLCs are and how they work.
What is an LLC
Contrary to Corporations, Limited Liability Companies are very flexible corporate structures that allow their owners to establish some key management aspects autonomously.
LLC owners are called members and they become so by investing capital and/or acquiring equity.
LLCs are not capable of issuing stocks or shares, for which the only way for external parties to invest in the company is through partial acquisition. Profits are distributed whenever and however the members establish. LLCs are not obligated to designate directors or managers, but can very well establish their own org charts and role differences through an Operating Agreement.
How do LLCs work
One of the most important features of Limited Liability Companies is that they separate their members’ assets from those of the company. This way, if an LLC incurs legal liabilities or any kind of failure, the members’ assets will not have to be seized.
An LLC can be managed in three different ways:
- By all the members, with voting power or voting rights determined by company ownership percentage.
- By a hired, non-member manager.
- By a board of directors, made up of members. They can either be chosen by vote or determined by ownership percentage.
In most states, the minimum number of owners to open and run an LLC is one (single-member LLC). In the same manner, there is no limit on the maximum number of members either.
For members to be able to transfer ownership or equity, the process must be either contemplated in the Operating Agreement or in concordance with the state law. Most management, transferability, and financial protocols can be established in the Agreement. The document can also be amended following the procedures established by its original version.
How are LLCs taxed
An LLC is treated by federal and state tax law as a pass-through entity. This means that all profits generated by the LLC can pass directly to the members without being taxed on a corporate level. This is one of the main differences between LLCs and Corporations. A C Corp’s income is taxed on a corporate level before the dividends reach its owners (shareholders or stockholders, in this case).
LLC members may collect their profit distribution and then pay taxes on an individual basis. This is known as pass-through taxation or double taxation avoidance and is one of the reasons entrepreneurs opt to open LLCs.
Avoiding double taxation is one of the most attractive characteristics of LLCs for foreign entrepreneurs who don’t reside in the US. In places such as Wyoming or Delaware, LLC members don’t even have to pay individual state income taxes if they don’t live in the state.
How to file taxes for an LLC
At a federal level, single-member LLC taxes must be filed the same way as for sole proprietorships. The single LLC member must fill out and submit Form 1040, Schedule C to the IRS and pay for the company’s income on an individual level. In case the LLC yields losses during a fiscal year, those losses may be deducted from the individual’s income tax or carried forward to the next year.
When it comes to multiple-member LLCs, the company must file a 1065 U.S. Return of Partnership Income form to the IRS. There is no tax payment for the LLC since it’s just an informative return. The LLC will also provide a Schedule K-1 to each member, so they can fill out and submit their individual income tax returns and pay taxes on their share of the profits.
Usually, at state and local levels there are no filing requirements for LLCs but the regulations vary between states.
What are the benefits of opening an LLC?
Let’s sum up all of the aspects and see how opening an LLC can benefit your business.
- You won’t have to pay corporate taxes. You’ll only need to pay federal and state individual income taxes.
- You’re protected from personal liability. Your assets are protected in case of debts or claims made to your company.
- You can structure your organization however you want. Roles and responsibilities can be established by LLC members themselves through the Operating Agreement.
- You don’t need partners. You can start a single-member LLC and run your business as a sole proprietorship. You can also add more owners later by selling equity/ownership percentages.
- You can create an LLC from abroad, 100% online. You can start your own LLC with Globalfy, no need for US residency, social security number, or ITIN.
Differences between an LLC and a C Corporation
C Corporations and LLCs are the two most prominent corporate structures for foreign entrepreneurs in the US. Let’s check what are the main differences between the two.
- A C Corp’s income is taxed twice. In most states, Corps pay federal and state corporate income tax and then stockholders (owners) are taxed on an individual basis as well.
- LLCs are more flexible than Corps. C Corporations are required to have a board of directors and a staff of managers. LLCs, on the other hand, can define and change their management structure according to the business needs.
- Corporations can issue stocks, whilst the only way for LLCs to attract external capital is by offering equity or debt.
How to set up an LLC
Each state has its own timeframe for LLC registration, but the processes are almost the exact same everywhere in the US.
- Choose the name of your LLC. In some states such as California, you need to pay a fee to reserve the name of your business and cannot operate under a DBA registered by another company.
- Get a Registered Agent. This is the person or entity that, sanctioned by state authorities, is responsible for informing you about the legal and fiscal obligations of your LLC.
- Secure an address. For you to submit the formation documentation to the state, you’ll need to have a US address for your business. In case you don’t have it you can obtain a Virtual Address with Globalfy (Mailroom and warehouse included).
- Submit Articles of Organization and Operating Agreement. Present these documents to the state and wait for your LLC to be approved.
- Obtain your EIN. Request the IRS your Employer Identification Number for you to be able to pay taxes and hire personnel in the US. Non-US residents don’t need a social security number or ITIN to complete the process.
- Open a US business bank account. With Globalfy you can get a US bank account to manage your business finance. A US business bank account is also necessary for bookkeeping and tax purposes.
More on how to set up an LLC
After understanding what is an LLC and the advantages it has for your business, you can go ahead and start your own business in the United States.
Now, thanks to Globalfy, the process of opening your LLC can be reduced to filling out an online form in less than 5 minutes. Just input some personal and business information and get all the benefits of the American economic environment without leaving home. We take care of the heavy lifting and the paperwork.
Globalfy’s all-in-one business plan only costs US$599 for the first year (plus the state fee) and includes exclusive benefits that no other platform can offer:
- Online LLC formation in foreign-friendly and low-taxing states.
- 1 year of Virtual Address in Orlando, Florida.
- 1 year of Registered Agent to keep you updated and informed about your federal and state requirements.
- US business bank account. No maintenance or domestic transfer fees.
- More than US$200,000 in benefits, rewards, and discounts from third-party platforms such as Google Ads, Stripe, Hubspot, and more.
Do not waste this unique opportunity and open your LLC in the United States now.