Often it is, but it depends on the business and location. The Limited Liability Company (LLC) quickly became one of the most popular business structures for U.S. businesses since its creation in 1977 by legislation in the U.S. State of Wyoming. LLCs now are found in all 50 U.S. States.
LLCs are widely regarded as one of the most advantageous business structures because of their combination of
Often referred to as “the best of both worlds,” (referring to partnerships and corporations) an LLC is almost a default choice of many businesses.
However, the benefits and burdens of an LLC to your business can vary as much as the unique area of activity your company engages in. Careful assessment of your business is needed to determine if this really is the best legal structure to use.
There are generally very few requirements for an LLC beyond registration with the Secretary of State where you set up your business, but this varies from state to state in the U.S. Typically, an Employment Identification number and LLC bank account are required. While not always required by each state’s laws, a Partnership or Operating Agreement and Articles of Organization should set out how business decisions of the LLC will be made, and how duties, authority and profits are divided between the members.
While owners and managers of an LLC usually will get personal liability protection from the law without extensive filing requirements (as when registering as a corporation), German businesses will usually need to show an Operating Agreement for the LLC to support their visa applications with U.S. Customs.
Keep in mind not every business can operate as an LLC. For example, banks and insurance companies are typically prohibited from operating as LLCs. Many states also prohibit licensed professionals such as accountants, architects, attorneys, or physicians from forming an LLC. In such cases these professionals may be allowed to form a Limited Liability Partnership (LLP), or a Professional Limited Liability Company (PLLC) if allowed by the state laws it operates under.
The advantages of an LLC include:
The disadvantages of an LLC include:
Initial legal costs for establishing an LLC in the U.S. are usually between $50 to $200 (not including annual fees due each year, which vary from state to state). For example, a Delaware LLC costs approximately $90 for an initial fee to the Secretary of State, but a Texas LLC costs about $300; though Texas has much lower annual costs than Delaware.
The registration costs do not include fees for obtaining the necessary licenses and permits to conduct business in the U.S. state, a tax identification number (EIN or ITIN) for the IRS, or any supporting documents necessary for your LLC. It is important to note that a registered LLC alone will often be insufficient to carry out your activities legally and lucratively in the US market.
An LLC must have basic underlying documents to ensure its smooth operation and legal compliance. This includes having Articles of Organization for the state government (a requirement in some states), an Operating Agreement between all your LLC managers and staff, a tax strategy with necessary registrations, the required licenses and permits to perform your LLC’s business activities, and protection of your intellectual property (including registration of patents, trademarks, and copywrites in the U.S. market).
You will also need the contracts to operate your business while protecting your interests, whether in sales, joint ventures, collaborations, investment contracts, franchise agreements, employment contracts, and non-disclosure and privacy agreements. WINHELLER will handle all these components to establishing your LLC, and by knowing all aspects and needs of your business they will be done correctly to handle any commercial and regulatory needs your LLC will encounter.
As a general rule of thumb, an LLC should expect to pay annual fees between $500 - $1,000 in the U.S. state where it conducts business. State business licenses are usually required for an LLC to legally operate, and the price often depends on what type of business activity the LLC engages in; but a “general business license” fee is typically between $20 to $100 annually.
Almost all states require annual or biannual LLC reports to be filed with the Secretary of State to keep your LLC in good standing, sometimes costing between $20 to $100. Some states also require a special minimum annual tax (often called a franchise fee). States that implement these fees usually charge between $100 to $400, regardless of how much your LLC earns- for example, Delaware has a $300 flat annual LLC tax in addition to the personal or corporate income tax rate on profits. Other states such as Nevada and Wyoming have a 0% tax rate with no fee, whereas California charges $800 per year.
Many LLCs also require a registered agent to receive and forward mail or legal actions if they do not have any managers physically within the U.S. state. Many private companies provide this service for $100 to $300 annually depending on the complexity of the service they require.
Is it better to be taxed as an LLC or partnership?
Because and LLC can choose to be taxed as either partnership or an S Corporation, this is a decision that we will have to determine by evaluating all activities, goals, and the business plan to find the best strategy. An S Corporation status may be the best structure for your business, but you do not want the costs to outweigh the benefits.
The benefits of an S Corporation Tax status include:
The disadvantages of an S Corporation tax status include:
A Professional Limited Liability Company (PLLC) is almost identical to an LLC, but specifically for professionals that are forbidden to form an LLC, and usually exist in states that do not recognize an LLP.
PLLCs are subject to additional regulatory compliance requirements because of the nature of their professions, where limited liability can be a concern for clients and consumers. In U.S. states that have PLLCs (e.g., Texas does allow this, but California does not, and uses the LLP structure), the members of the PLLC must belong to a profession that requires a state license, which typically includes Certified Public Accountants (CPA), attorneys and law firms, medical providers, chiropractors, and architects (among others). In addition, they must only offer services specific to their profession. While Articles of Organization (like Articles of Incorporation for corporations) are sometimes required for an LLC, they are almost always required for a PLLC. Establishing a PLLC requires approval from the applicable state licensing board for the profession.
As a full-service business law firm with U.S., German and other European counsel, we will evaluate your business needs based on its activities, size, and complexity to establish the right foundation for your U.S. market entry. Our services include:
If you have a sincere interest to expand your business and enter the U.S. market, whether to establish an LLC or invest in the U.S., our team is ready to support you. We explain all requirements establishing a Limited Liability Company and support you on all steps ahead. Your attorneys for U.S. legal matters are:
We can provide you with a consultation and ongoing legal services in German and English. Get in touch! The easiest way to reach us is by email (firstname.lastname@example.org) or by phone (+49 (0)69 / 76 75 77 80). Tell us more about your U.S. business and we will offer a service package tailored to your particular needs.