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Know the ABCs of LLCs -- smart tips for burgeoning entrepreneurs

Entrepreneurs are increasingly turning their start-up businesses into limited liability corporations, known as LLCs. An LLC is easier to start than a traditional corporation, offering liability protection without some of the required paperwork and hurdles of the more formal arrangement.

But the LLC isn't one size fits all. Here are some different types of LLC plans that those in the Detroit area who are starting a business should consider:

  • Know what differentiates a single-member LLC from a multiple-member LLC.

A single-member LLC has just one owner, while the other has multiple owners. The Internal Revenue Service considers a single-member LLC the same as a sole proprietorship. The advantage is that an LLC would be taxed like a corporation.

  • If the new company becomes a multiple-member LLC, the owners must decide whether to make it a member-managed or a manager-managed LLC.

The member-managed LLC is easier to set up because each owner has the right to make decisions for the business. In the other scenario, a manager-managed LLC is best if family members or investors are part of the corporation. Non-managing members, as they are known, have no privileges as to make decisions on behalf of the company or make decisions under this structure.

  • Business owners must decide if their new companies are domestic or foreign LLCs. That doesn't mean that companies based in the U.S. are domestic and those in Canada are foreign.

Instead, it means a company is registered in one state and does business in that state. If it does, that is a domestic LLC. A foreign LLC needs to be set up when a company has its home base in one state but registers in a different state just to take advantage of tax laws more agreeable to businesses. If that is the case, a business must have some sort of physical presence in the foreign state.

The sooner a business owner decides what sort of LLC to arrange, the sooner the business can get started. Hopefully these suggestions will provide some valuable insights to establishing a new business idea or talking points for sitting down with a legal professional in order to review an existing business plan.

Source: Mashable, "LLC: Which Flavor Is Right for Your Company?," Nellie Akalp, June 20, 2012

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