Self-employment tax is owed on income generated by owners of a business.  Under the Internal Revenue Code, owners of sole proprietorships and limited liability companies under the default LLC tax rules pay self employment taxes resulting from the income generated by the business.

There is a maximum amount of income for this tax so when income reaches a certain point, then self-employment taxes will not longer be owed on the excess income. So, if your business intentions are to make more than $120,000 or so a year, it may not be worth planning for self-employment taxes and just focusing on making more revenue.  Overall, the single layer of income taxation is worth paying the self employment taxes for the initial stage of income.

The above rules apply to an LLC which is being taxed pursuant to its default tax structure which is a pass through structure.  However, after forming an LLC for a business, the limited liability company has the option of electing to be taxed as an S corporation or a C corporation.

Under an S corporation tax structure, business owners can be employed by the LLC and only the salary paid to the owner will be subject to employment taxes.  Excess profits distributions are not subject to self-employment taxes.  Now, the IRS does require that a reasonable salary be paid and they are quite strict about ensuring that this rule is not abused by business owners.  For example, if you are the sole owner of an LLC and provide consulting services which are paid by the hour, it will be hard to justify that your salary should be significantly less than the income generated by your services directly.

On the other hand, if your LLC business is selli g a product and you have assets of value and/or other contractors and employees, then your salary will not be based on the actual revenue generated.

Accordingly, it is important that you seek the advice of your accountant or tax attorney to ensure that based on your business activity and situation, this kind of structure may be acceptable for reducing overall self employment taxes generated by your LLC business.

Similarly, with a C corporation tax structures, employment taxes are only paid with respect to salaries paid out to owners of a business (this applies to any employees of the business).  However, an LLC business taxed under the C corporation tax structure is subject to double taxation when it comes to income taxation so there is a possibility that any employment taxes saved may be spent on income taxes.  Again, check with your accountant or lawyer to determine what tax structure is best for your particular situation.

The state legislatures wanted to make forming and operating a limited liability company an easy and straightforward process for small business owners.  As a result, in the LLC Acts of most states, there are no legally required governance documentation requirements that are required to maintain the good standing of an LLC. There may be annual reporting or filings required to be made to the state.

However, LLC governance and LLC paperwork is practically an essential element of an LLC business.  This is because the limited liability company only exists on paper and in accordance with legal laws which are all based on written provisions.  So, in order to determine the personality of the business and, more importantly, its history and processes, such evidence must be in LLC documentation.

Having a complete set of LLC governance paperwork provides the operating history of a business and proof of authorized transactions and business decisions.  This important operational process also wards off potential misunderstandings and disputes among business owners and managers.  Recollections fade as time goes by.  So, you are protecting yourself and your business from potentially expensive he said, she said disputes later by documenting what agreements and decisions are made.

Paperwork and documentation does not have to be complicated and can be done by the business owners or managers for most all routine operational matters.  Visit the LLC Governance section of The LLC Expert for more details on meeting this important requirement for your limited liability company.

The rights and powers of each member to an LLC is defined by the provisions in the LLC Operating Agreement of the particular limited liability company business.  So, the answer to this question will vary widely based on what rules, powers and obligations the members have agreed upon to apply.

Having said that, the most common structure when it comes to LLC decisions is that each member’s voting power is based on his or her relative ownership in the business.  Accordingly, if a member owns more than 50% of the business, this majority member will control the ultimate decision.

Given this, if there are other members who own a significant interest (albeit not a majority), such members can negotiate to require that their vote is required for all major actions or certain, identified business decisions.  This becomes a negotiation between members when they are putting their business together or before a new member is admitted.

One option used is to make the limited liability company a manager managed LLC and to give all significant LLC members a manager position which cannot be taken away as long as that person is a member.  In this structure, a non-majority LLC member gets more power for every day business decisions.  Now, the majority member can reserve significant and strategic decisions for himself by requiring a member vote for these.

Despite the opportunity for negotiation and planning upfront, in most first time business scenarios, members are not aware enough to think through and plan for this and they do not get legal representation to handle this after LLC formation.  As a result, in most cases, default provisions of the LLC laws and in most standard LLC Operating Agreements grant the majority owner final say in the event of a disagreement.

Now, when a member makes a decision on behalf of the LLC, he/she does have certain fiduciary duties to hear out the other members and to make decisions that are reasonably in the best interest of the LLC business.  So, there are some laws that prevent abuse by a majority member.

Virginia is one of those states that have more strict requirements when it comes to registered agent qualification than most other states.

In Virginia, if the registered agent is an individual, he or she must be a member of a member-managed Virginia LLC or a manager of a manager managed limited liability company.  Or, the person can be a Virginia licensed lawyer.  In addition, the registered agent’s address must be a physical address locate in Virginia where service of process papers can be accepted during business hours.

There are some additional options if you have a legal entity as the registered agent of your LLC in Virginia.  Here, the entity must be formed in Virginia or properly registered in Virginia.  Same rules regarding physical address and availability apply.

Many LLC business owners choose to use a registered agent service for privacy reasons because the registered agent name and address is a matter of public record.  You can purchase LLC registered agent service for an affordable annual fee.