9. Conduct a trademark searchJust because a legal name is considered available by the state filing office, it doesn’t mean that some other company doesn’t own trademark rights to the name. Show The state filing offices don’t check state, federal, or common law trademark records when determining whether a name is distinguishable. They check their own business entity filing records. The penalties for trademark infringement are severe, so it’s important to check that your choice of business name isn’t already protected. You should also make sure other names, like assumed, fictitious, or domain names you might use won’t infringe on someone’s trademark rights. Conduct a trademark search to uncover if any names or marks already in use are identical or similar to the names that you choose. The U.S. Patent and Trademark Office has tips on how to conduct a trademark search. 10. Perform a name check with the stateYou’ll also need to conduct a name check with the state filing office to determine if your preferred legal name is available within state records. Doing a name check will prevent a state from rejecting your documents because the name isn’t available when you try to incorporate or form an LLC. But keep in mind, a name check simply tells you that the name is available at the moment you perform the check. It does not “hold” the name for you or guarantee that you’ll have it. If there will be a delay before you are ready to submit your incorporation or formation documents, consider taking advantage of a name reservation. This leads to our next point. 11. Buy time by reserving your nameIf your preferred legal name is available in a state, it remains available for anyone else, too. However, most states let you file a name reservation to protect your right to that name for a period of time. A name reservation usually lasts 60 to 120 days, but the duration varies by state. Many states allow you to renew the reservation. CT Tip: If you are not yet ready to incorporate or form your LLC, a name reservation lets you reserve your preferred name for future use. Reserving a name also comes in handy if you’ve already incorporated or formed an LLC and then you want to change your legal name. While your name reservation is in effect, other companies are prevented from forming under, qualifying under, reserving, registering, or changing their name to your reserved name with that state office. If you incorporate or form an LLC in one state and plan to do business in other states, you could file for a name reservation in the other states as well. Reserving your desired name typically requires properly filing a name reservation and paying any state fees. Once your name reservation time frame expires, the name you had reserved becomes available again in the state’s records. If you plan to expand into other states in the future, consider a name registration in those states (instead of name reservation). A name registration generally allows you to preserve your legal name in a state even if you haven’t yet qualified to do business there. However, unlike name reservations, not all states provide this option. And many that do, only provide it for corporations, not LLCs. A name registration, where available, generally lasts for a year and can be renewed indefinitely. 12. If you change your legal name, remember to meet the statutory requirements You can change your corporation’s or LLC’s legal name as many times as you want, but the new name will have to meet the same statutory requirements as the original legal name. And to make the name change effective, a filing will have to be made with the state — typically either the articles of amendment or a certificate of name change. If the corporation or LLC is qualified in any foreign states, an amendment or change of name filing will have to be made there too, to notify those states of the change. SummaryAs you can see, selecting a name for an LLC or corporation goes beyond thinking of the perfect one. There are statutory restrictions to consider — and not only in your formation state but in each state where your LLC or corporation will foreign qualify too. In any event, it’s best to check your name’s availability with a state. And if you need some time, a name reservation helps ensure your name will be there for you when you need it. Learn more about how CT Corporation can help with naming your business. Call us at 855.316.8948 or contact us. This article is about the United States of America-specific business entity form. For limited liability companies, see Limited company. For a general discussion of entities with limited liability, see Private limited company. A limited liability company (LLC) is the US-specific form of a private limited company. It is a business structure that can combine the pass-through taxation of a partnership or sole proprietorship with the limited liability of a corporation.[1] An LLC is not a corporation under state law; it is a legal form of a company that provides limited liability to its owners in many jurisdictions. LLCs are well known for the flexibility that they provide to business owners; depending on the situation, an LLC may elect to use corporate tax rules instead of being treated as a partnership,[2] and, under certain circumstances, LLCs may be organized as not-for-profit.[3] In certain U.S. states (for example, Texas), businesses that provide professional services requiring a state professional license, such as legal or medical services, may not be allowed to form an LLC but may be required to form a similar entity called a professional limited liability company (PLLC).[4] An LLC is a hybrid legal entity having certain characteristics of both a corporation and a partnership or sole proprietorship (depending on how many owners there are). An LLC is a type of unincorporated association distinct from a corporation. The primary characteristic an LLC shares with a corporation is limited liability, and the primary characteristic it shares with a partnership is the availability of pass-through income taxation.[5] As a business entity, an LLC is often more flexible than a corporation and may be well-suited for companies with a single owner.[6] Although LLCs and corporations both possess some analogous features, the basic terminology commonly associated with each type of legal entity, at least within the United States, is sometimes different. When an LLC is formed, it is said to be "organized", not "incorporated" or "chartered", and its founding document is likewise known as its "articles of organization," instead of its "articles of incorporation" or its "corporate charter". Internal operations of an LLC are further governed by its "operating agreement," a "member," rather than a "shareholder.”[7] Additionally, ownership in an LLC is represented by a "membership interest" or an "LLC interest" (sometimes measured in "membership units" or just "units" and at other times simply stated only as percentages), rather than represented by "shares of stock" or just "shares" (with ownership measured by the number of shares held by each shareholder). Similarly, when issued in physical rather than electronic form, a document evidencing ownership rights in an LLC is called a "membership certificate" rather than a "stock certificate".[8] In the absence of express statutory guidance, most American courts have held that LLC members are subject to the same common law alter ego piercing theories as corporate shareholders.[9] However, it is more difficult to pierce the LLC veil because LLCs do not have many formalities to maintain. As long as the LLC and the members do not commingle funds, it is difficult to pierce the LLC veil.[10][11] Membership interests in LLCs and partnership interests are also afforded a significant level of protection through the charging order mechanism. The charging order limits the creditor of a debtor-partner or a debtor-member to the debtor's share of distributions, without conferring on the creditor any voting or management rights.[12] Limited liability company members may, in certain circumstances, also incur a personal liability in cases where distributions to members render the LLC insolvent.[13] History[edit]The first state to enact a law authorizing the creation of limited liability companies was Wyoming in 1977.[14] The law was a project of the Hamilton Brothers Oil Company, which sought to organize its business in the United States with liability and tax advantages similar to those it had obtained in Panama.[15] From 1960 to 1997, the classification of unincorporated business associations for the purpose of U.S. federal income tax law was governed by the "Kintner regulations," which were named after the prevailing taxpayer[16] in the 1954 legal precedent of that name.[17] As promulgated by the Internal Revenue Service (IRS) in 1960, the Kintner regulations set forth a complex six-factor test for determining whether such business associations would be taxed as corporations or partnerships.[17] Some of these factors had equal significance, so that the presence of only half of them would result in classification as a partnership. Accordingly, the Wyoming Legislature tailored its statute to grant LLCs particular corporate features without exceeding this threshold.[14] For several years, other states were slow to adopt the LLC form because it was unclear how the IRS and courts would apply the Kintner regulations to it. After the IRS finally decided in 1988 in Revenue Ruling 88-76 that Wyoming LLCs were taxable as partnerships,[17] other states began to take the LLC seriously and enacted their own LLC statutes.[14] By 1996, all 50 states had LLC statutes.[18] In 1995, the IRS came to the conclusion that the widespread enactment of LLC statutes had undermined the Kintner regulations, and in 1996 it promulgated new regulations establishing a so-called "check the box" (CTB) entity classification election system that went into effect throughout the United States on January 1, 1997.[17] Flexibility and default rules[edit]LLCs are subject to fewer regulations than traditional corporations, and thus may allow members to create a more flexible management structure than is possible with other corporate forms. As long as the LLC remains within the confines of state law, the operating agreement is responsible for the flexibility the members of the LLC have in deciding how their LLC will be governed.[19] State statutes typically provide automatic or "default" rules for how an LLC will be governed unless the operating agreement provides otherwise, as permitted by statute in the state where the LLC was organized. The limited liability company ("LLC") has grown to become one of the most prevalent business forms in the United States. Even the use of a single member LLC affords greater protection for the assets of the member, as compared to operating as an unincorporated entity.[20] Effective August 1, 2013, the Delaware Limited Liability Company Act provides that the managers and controlling members of a Delaware-domiciled limited liability company owe fiduciary duties of care and loyalty to the limited liability company and its members. Under the amendment (prompted by the Delaware Supreme Court's decision in Gatz Properties, LLC v. Auriga Capital Corp),[21] parties to an LLC remain free to expand, restrict, or eliminate fiduciary duties in their LLC agreements (subject to the implied covenant of good faith and fair dealing).[22] Under 6 Del. C. Section 18-101(7), a Delaware LLC operating agreement can be written, oral or implied. It sets forth member capital contributions, ownership percentages, and management structure. Like a prenuptial agreement, an operating agreement can avoid future disputes between members by addressing buy-out rights, valuation formulas, and transfer restrictions. The written LLC operating agreement should be signed by all of its members.[23] Like a corporation, LLCs are required to register in the states they are "conducting (or transacting) business". Each state has different standards and rules defining what "transacting business" means, and as a consequence, navigating what is required can be quite confusing for small business owners. Simply forming a LLC in any state may not be enough to meet legal requirements, and specifically, if a LLC is formed in one state, but the owner (or owners) are located in another state (or states), or an employee is located in another state, or the LLC's base of operations is located in another state, the LLC may need to register as a foreign LLC in the other states it is "transacting business."[24] Income tax[edit]For U.S. federal income tax purposes, an LLC is treated by default as a pass-through entity.[25] If there is only one member in the company, the LLC is treated as a "disregarded entity" for tax purposes (unless another tax status is elected), and an individual owner would report the LLC's income or loss on Schedule C of his or her individual tax return. Thus, income from the LLC is taxed at the individual tax rates. The default tax status for LLCs with multiple members is as a partnership, which is required to report income and loss on IRS Form 1065. Under partnership tax treatment, each member of the LLC, as is the case for all partners of a partnership, annually receives a Form K-1 reporting the member's distributive share of the LLC's income or loss that is then reported on the member's individual income tax return.[26] On the other hand, income from corporations is taxed twice: once at the corporate entity level and again when distributed to shareholders. Thus, more tax savings often result if a business formed as an LLC rather than a corporation.[27] An LLC with either single or multiple members may elect to be taxed as a corporation through the filing of IRS Form 8832.[28] After electing corporate tax status, an LLC may further elect to be treated as a regular C corporation (taxation of the entity's income prior to any dividends or distributions to the members and then taxation of the dividends or distributions once received as income by the members) or as an S corporation (entity level income and loss passes through to the members). Some commentators have recommended an LLC taxed as a S-corporation as the best possible small business structure. It combines the simplicity and flexibility of an LLC with the tax benefits of an S-corporation (self-employment tax savings).[29] Some legal scholars argue that corporate income taxes are intended to limit the power of corporations and to offset the legal benefits corporations enjoy, such as limited liability for their investors.[30] There is concern that LLCs, by combining limited liability with no entity-level taxation, could contribute to excessive risk-taking and harm to third parties.[31][32][33] Advantages[edit]
Disadvantages[edit]Although there is no statutory requirement for an operating agreement in most jurisdictions, members of a multiple member LLC who operate without one may encounter problems. Unlike state laws regarding stock corporations, which are very well developed and provide for a variety of governance and protective provisions for the corporation and its shareholders, most states do not dictate detailed governance and protective provisions for the members of a limited liability company. In the absence of such statutory provisions, members of an LLC must establish governance and protective provisions pursuant to an operating agreement or similar governing document.
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