Upon first glance, this question may sound strange to most people. How can a limited liability company entity also be a corporation?

But the answer to this is actually YES. You see, an “S corporation” designation is not a legal entity choice. Rather, it is a tax designation under the Internal Revenue Code. Before the existence of the LLC entity, the IRS created the S corporation as a way for a corporation that is a small business to avoid the double taxation of the corporate tax structure.

The S corporation rules require that the legal entity meet a laundry list of requirements that are designed to ensure that it truly is a small business as defined by the tax laws. These restrictions related to the number of owners, the type of owners, and a required simplicity of capital structure.

They named it the S corporation election because at the time, only the corporate legal entity qualified to elect S corporation status. However, in 1997, there were regulations passes that enabled the LLC (limited liability company) to also elect S corporation tax status if the LLC also met the laundry list of small business IRS requirements.

So, an LLC can be formed as a limited liability company under state law and gain all the state law benefits but also qualify to be taxed as an S corporation under federal tax laws. This is just one of the many advantages the LLC has over other entities. It offers the most tax choices.

Now, the LLC by default already qualifies for a single layer of taxation and there are no requirements to qualify for this. Accordingly, it does not have the same concern of double taxation as the corporation. Both the LLC default tax structure and the S corporation tax structure offer the same pass through taxation (single level) benefits.

However, there are some differences between the two tax structures that may or may not benefit your particular business. If this is an issue you want to explore, you should seek the advice of a tax attorney or a tax accountant who has ample experience in the differing tax structures.

The LLC laws of every state have a specific liability limitation provision which basically states that a member or manager shall not be personally liable for business debts, obligations or liabilities merely because he is the owner.

This is a very advantageous benefit because without protection, an individual running a business is completely liable for all business related obligations. However, this law is not a license to be able to unlawful things and hide behind a veil of protection.

So, an individual cannot break the law, commit a fraud or do something unlawful and then claim that he or she was only acting on behalf of a limited liability company.

Another important factor that has caused members of an LLC to be liable is when a member conducts business but never lets the other party know that it is a legal entity and not him personally that is engaging in business activity. It is important to always let the world know that it is an LLC operating the business. You are an agent working on behalf of the LLC business.

This is one example of where members may be held personally liable if actually sued. There are a string of other situations where the protection veil of a limited liability company can be pierced. If you would like to learn more about these other situations and what you can do to avoid them, you should read The Six Step LLC Formula to LLC Protection- an eBook offered by The LLC Expert, LLC.

Many ask whether an operating agreement for LLC is necessary for a limited liability company. In my opinion, it would be disastrous not to have one. Think of a country without any laws or rules. . . or a school run without any limitations on what administration, students and teachers can do.

A business has a goal of making a profit and in order to do so, the different stakeholders, whether they be owners, managers, employees, partners or even suppliers, need to know how the LLC business operates and what it is authorized to do. Owners need to have separate evidence of what exactly it owns and what rights and obligations they have to the business.

The Operating Agreement for LLC addresses these matters and once adopted, it is the official governing document and user manual for the entire operations.

One other important point is that one of the largest benefits of a limited liability company is its protection shield for owners. Owners are not personally liable for the business obligations of the LLC as long as it is the LLC and not the owners in their personal capacity running the business.

The best way to provide evidence that it is the LLC running the business is via the operating agreement. This gives the legal entity a personality and a set of governing rules. This establishes the separation. And, this is what will allow you to ensure you are protected if your personal liability were ever challenged in court.

In summary, an operating agreement for LLC provides governance for the entity, clarity and guidance for all stakeholders and protection for owners.

CLICK HERE to Learn More About the LLC Operating Agreement.

Almost 70,000 Limited Liability Companies were created in Texas during 2007. This kind of business entity is the most popular legal entity in the state.

A Texas Limited Liability Company can provide tax benefits and legal protection for the owners of the LLC. The most common Texas LLC is formed by small businesses, but Texas law allows four LLC types: domestic, professional, non-profit, and foreign.

CREATING A DOMESTIC TEXAS LLC

A Domestic Limited Liability Company is used by small businesses and joint ventures. Provided the LLC is formed for a legal purpose, it has very few legal restrictions on what the business must be. This flexibility makes it the most popular LLS in Texas.

LLCs can outlast their founders and be used for many purposes. The documents that form the LLC must be carefully written to comply with all of the Texas requirements and to ensure that the LLC will do what the creators intended it to do for as long as it lasts.

CREATING A PROFESSIONAL TEXAS LLC

Licensed professionals, such as physicians, lawyers, and architects can create a Professional Limited Liability Company to be the business entity under which they provide their licensed services. Like the domestic LLC, there are tax and legal advantages to creating the LLC. However, a professional LLC is limited to only providing those services for which the owners have professional licenses.

CREATING A NON-PROFIT TEXAS LLC

If a Texas charity or other non-profit organization wishes, it can create a non-profit Texas limited liability company. A non-profit LLC has many of the same advantages of a non-profit corporation, but it is easier to create.

Social groups such as business associations also qualify to create a non-profit LLC. However, the LLC will not be a tax-exempt entity unless it also meets other Texas requirements. A specialist in creating Texas LLCs can guide you to making the tax elections, the choices that get you the proper tax status.

CREATING A FOREIGN LLC IN TEXAS

The most complex LLC creation is the “Foreign LLC. This allows an LLC that was created in any of the other 49 states to expand their business to Texas. The foreign LLC must begin by filing for a certificate of authority with the Texas Secretary of State, then follow the appropriate Texas LLC laws.

Creating a foreign LLC in Texas does not change the terms and conditions of the LLC. It remains subject to the laws of the state where the original LLC was created. The foreign LLC must also obey the Texas laws that apply to it.

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For small business, the domestic LLC is the right choice of Texas limited liability company entities.

CLICK HERE Now for a FREE Texas LLC Guide summarizing the Benefits to Business Owners or for a FREE Texas LLC Name Search: http://www.TexasBusinessFormation.com

If you need to register a foreign LLC in Texas, click here for information about a service to handle that for you:  Foreign LLC Registration

The best approach to take when starting a business is to form an LLC from inception and to conduct all business activity through the limited liability company.

However, many business owners start their businesses as sole proprietorship.  We get questions from sole proprietors who have been operating without legal liability protection for over 20 years who now want to organize an LLC for protection and other benefits.

An LLC does not exist until the state of its formation processes a compliant filing and issues an official certificate of existence for that business entity.  Any business conducted prior to its existence is not protected by the LLC lawyer of protection.

What this means is <!– /* Font Definitions */ @font-face {font-family:”Cambria Math”; panose-1:2 4 5 3 5 4 6 3 2 4; mso-font-charset:0; mso-generic-font-family:roman; mso-font-pitch:variable; mso-font-signature:-1610611985 1107304683 0 0 159 0;} @font-face {font-family:Calibri; panose-1:2 15 5 2 2 2 4 3 2 4; mso-font-charset:0; mso-generic-font-family:swiss; mso-font-pitch:variable; mso-font-signature:-1610611985 1073750139 0 0 159 0;} @font-face {font-family:Consolas; panose-1:2 11 6 9 2 2 4 3 2 4; mso-font-charset:0; mso-generic-font-family:modern; mso-font-pitch:fixed; mso-font-signature:-1610611985 1073750091 0 0 159 0;} /* Style Definitions */ p.MsoNormal, li.MsoNormal, div.MsoNormal {mso-style-unhide:no; mso-style-qformat:yes; mso-style-parent:”"; margin:0in; margin-bottom:.0001pt; mso-pagination:widow-orphan; font-size:11.0pt; font-family:”Calibri”,”sans-serif”; mso-fareast-font-family:”Times New Roman”; mso-bidi-font-family:”Times New Roman”;} p.MsoPlainText, li.MsoPlainText, div.MsoPlainText {mso-style-noshow:yes; mso-style-priority:99; mso-style-link:”Plain Text Char”; margin:0in; margin-bottom:.0001pt; mso-pagination:widow-orphan; font-size:10.5pt; font-family:Consolas; mso-fareast-font-family:”Times New Roman”; mso-bidi-font-family:”Times New Roman”;} span.EmailStyle15 {mso-style-type:personal; mso-style-noshow:yes; mso-style-unhide:no; font-family:”Times New Roman”,”serif”; mso-bidi-font-family:”Times New Roman”;} span.PlainTextChar {mso-style-name:”Plain Text Char”; mso-style-noshow:yes; mso-style-priority:99; mso-style-unhide:no; mso-style-locked:yes; mso-style-link:”Plain Text”; mso-ansi-font-size:10.5pt; mso-bidi-font-size:10.5pt; font-family:Consolas; mso-ascii-font-family:Consolas; mso-hansi-font-family:Consolas; mso-bidi-font-family:”Times New Roman”;} .MsoChpDefault {mso-style-type:export-only; mso-default-props:yes; font-family:”Calibri”,”sans-serif”; mso-ascii-font-family:Calibri; mso-hansi-font-family:Calibri; mso-bidi-font-family:Calibri;} .MsoPapDefault {mso-style-type:export-only;} @page Section1 {size:8.5in 11.0in; margin:1.0in 1.0in 1.0in 1.0in; mso-header-margin:.5in; mso-footer-margin:.5in; mso-paper-source:0;} div.Section1 {page:Section1;} –> that an LLC does not protect an owner from any existing personal liability he is subject to prior to the existence of the LLC. Those obligations remain personal.

An LLC does not cover prior existing business debt entered into by an owner in his personal capacity (operating as a sole proprietor) and, even after an LLC is formed, if an owner agrees to guarantee or otherwise be personally liable for a business debt, that personal agreement is not changed by he fact that there is an LLC.

It is still recommended that any sole proprietor form an LLC and transition his or her business to it as this will stop the potential liability with respect to future business activity. First form an LLC and then transfer business assets and contracts to the LLC.

Also, after you form your LLC, there may be a way for you to terminate your existing debt and contract arrangements and have them re-entered into by your LLC. This of course depends on the other party’s willingness to do this. You should seek the advice of an attorney to advise you on the details for how to do this.