Limited Liability Company

A limited liability company (LLC) is a versatile business form many Iowans use to structure their companies. Data collected by the IRS for ten years shows a 66% increase in the formation of domestic LLCs.

If you are self-employed, an LLC might be the best solution. An LLC is an advantageous business structure for sole proprietorships, partnerships, and other types of small enterprises.

Perhaps the most significant advantage of forming an LLC is that it offers protection from personal liability. Your Arenson Law Group, PC business attorney can help you choose the structure that fits the needs of your business enterprise.

Selecting the Right Business Structure

Choosing a business ownership structure is a critical decision. This choice will influence the daily operations of your business. It will also affect how much of your personal assets are at risk. Additionally, it will affect how your business profits are taxed.

You should choose a business structure that appropriately balances benefits and legal safeguards. At Arenson Law Group, PC, our attorneys help you identify the goals and needs of your business so you can make well-informed decisions about any relevant legal issues. We can explain the pros and cons of each type of business structure so you can make the best choice.

How Do You Form An LLC

One or more persons may form an LLC by signing and delivering a certificate of organization to the Iowa Secretary of State. Your limited liability company officially exists when the Iowa Secretary of State files this certificate.

You can delay the creation of your LLC by stating in the certificate that your LLC’s formation is effective at a future date. The filing of the certificate of organization by the Iowa Secretary of State is conclusive proof that you satisfied all conditions related to the formation of a limited liability company.

Advantages of Forming an LLC

Limited liability companies are popular because they can operate with the protections of a traditional corporation but function like a conventional partnership.

The two primary reasons that LLCs attract many people forming new businesses are pass-through tax treatment and, as the name implies, their limited liability.

Pass-through taxation allows an LLC’s income and expenses to “pass through” to the members’ personal tax returns. LLC members pay personal income tax on this income as they would on any other form of income. While members of LLCs are typically taxed once, the law taxes shareholders in C corporations on distributions at the corporate and individual levels.

Another significant advantage of LLCs is they insulate members’ personal assets from liability. The LLC’s creditors can generally only reach the assets of the LLC, not the owners’, to satisfy a debt or obligation of the LLC.  If a member or employee acting on behalf of the LLC causes an accident, the law protects the personal assets of LLC members in a lawsuit against the LLC. The injured party is limited to the assets of the LLC to satisfy any compensation award.

Although corporations offer the same personal liability shield as LLCs, corporations have more strings attached to receiving the benefits of a corporation. Iowa corporations must hold annual shareholder meetings, make biennial reports, and pay annual fees. Corporations file a biennial report every two years with the Iowa Secretary of State. In contrast, state law does not require LLCs to hold annual meetings. Iowa also does not impose similar record-keeping requirements on LLCs and their members.

Unlike S corporations, which have ownership restrictions that limit the number of shareholders, LLCs have no restrictions on the number of members. Corporations also have a fixed management structure where a board of directors and corporate officers run the corporation through established, detailed procedures. However, LLCs are not required to use this formal framework. As a result, LLC members have considerably more flexibility in daily business operations and decision-making.

Disadvantages of Forming an LLC

While LLCs offer benefits as a business form, there are some disadvantages. Unlike a corporation, an LLC cannot exist beyond the life of its owner. Upon the death of a member, an LLC must dissolve and cease business operations as an LLC.

As a result, LLC members must plan for the future of their business. An experienced Iowa business attorney can provide guidance to help you form a business plan and structure that allows you to achieve your long-term organizational goals.

Also, liability protection is not absolute. An attorney can explain potential liability pitfalls in detail. It is essential to keep your business transactions separate from your personal transactions.

Another disadvantage of an LLC is the corresponding difficulty in transferring ownership of LLC interests. In most cases, a corporation can change ownership when shareholders sell their stock. However, LLCs typically require that all owners approve new membership or changes to LLC members’ ownership interests.

How Arenson Law Group Can Help You Form Your LLC

The Arenson Law Group, PC uses our extensive knowledge of Iowa business law to educate our clients in making the right choices about their new business enterprises.

Our familiarity with all areas of Iowa business law allows us to facilitate the success of our business clients and their new companies. We care about your goals and understand the necessity of working within your available resources.

Whether you select a limited liability company, corporation, partnership, or sole proprietorship, we can advise you on the advantages and disadvantages of each type of business formation.

Contact a Business Formation Attorney in Cedar Rapids to Help You Form an LLC

Choosing the structure of your business sets the stage for how your business will operate. It is one of the most critical steps in forming a new business. A knowledgeable and experienced business attorney from Arenson Law Group, PC can provide advice to help you choose the best type of structure for your new enterprise.

Call the Arenson Law Group, PC at (319) 363-8199 to learn how we can help you navigate the legal considerations of forming a business. The business attorneys at the Arenson Law Group, PC can provide the knowledge and support you need to make the decisions that will benefit your company today and into the future!

Written by James H. Arenson