Global startups should consider these factors in 2021

The LLC is a popular choice for business as this structure does not need a lot of continual maintenance. It is easy to add new partners or sell interest to someone else. With fewer restrictions on many administrative items when compared to other business structures, entrepreneurs need to ask themselves these 5 questions if they consider forming an LLC.

Which state should I form my LLC in?

Different states treat LLC formation in slightly varying ways. Some states, like Florida, offer added incentive due to user-friendly online services that allows the filing of and access to corporate documents online. States like Delaware in contrast do not offer online filing services and disclose limited company information on the internet. The treatment each state has of the LLC will bring its own benefits and drawbacks which should be investigated closely before deciding in which state your LLC will be founded in. 

What is a registered agent?

The best incorporation services will ensure that you never miss important official mail or important filing dates. The registered agent is vital for LLC’s and is required by law. The registered agent is a person or business who acts as the official point of contact for LLCs, corporations and nonprofits. These agents are responsible for accepting correspondence like service of process, tax documents, compliance notes and helps with the timely filing of annual reports.  

Do I have investors?

Investors can add complexity to the LLC in many ways. If there is only one investor that person may want to be fully repaid before the members receive distributions on their membership interests. Multiple investors would likely want the LLC to repay them on identical timelines with repayments being proportional to their respective membership interests. It could also happen that investors agree that they do not need to be repaid until the LLC is liquidated or sold, in which case no other member can be paid until the investors have been repaid in full. In the LLC Operating Agreement the rights of investors are included as it pertains to the control of company management, selling of the company, the transfer of membership interests and other matters. In the absence of an LLC Operating Agreement the LLC will fall under state default operating conditions.

Who will own and manage the LLC? 

Initially, ownership of the company could be based on capital, talent and other assets that people bring to the business. Membership interests in a company is considered its most valued asset from a managerial and profit perspective. Typically founders want to relinquish as little ownership interest as possible. Instead of giving away membership interests alternative compensation can be offered, although it is standard for investors to be members due to the investment and bearing of the financial risk. Management of the LLC can take many forms, especially if multiple members are investors as well. The LLC with multiple investors where all members agree to manage the company together, may form a board of managers which can be likened to the board of directors of bigger corporations. The LLC with multiple members, possibly including an investor, could appoint a manager, however this manager needs consent from the members before certain actions outside the ordinary course of business can be performed. Actions like borrowing money, selling the company and declaring bankruptcy typically requires consent from members.

So What is a Corporation?

Do I have a tax lawyer?

An attractive feature of the LLC is the potential pass-through treatment of tax. A tax attorney or an accountant can help you take maximum advantage of this benefit. The tax adviser can advise on what can be written off as business expenses for tax purposes as well as how receipts should be retained for internal financial records. Periodic cash distributions to members, if applicable, can be made under the guidance of the tax advisor. 

The answers to these questions can have a long-term impact when forming a limited liability company and should be considered carefully. Many startups choose the LLC structure as it can protect personal assets against lawsuits directed at the company, however in some cases this protection is nullified. The LLC can often morph and grow into an S Corp or C Corp as it offers limited functionality when it comes to mergers and acquisitions.