How to Operate an LLC: Everything You Need to Know
Understanding how to operate an LLC isn't that difficult. In most cases, you will hire a team of managers to handle your company's day-to-day operations.3 min read
Understanding how to operate an LLC isn't that difficult. In most cases, you will hire a team of managers to handle your company's day-to-day operations. If you want, members of your company can take on management responsibilities. The option you choose will usually depend on the size and complexity of your organization.
LLC Operation Steps
The most common reason to form a limited liability company (LLC) is to provide company members with the same limited liability protections enjoyed by corporate shareholders. With these protections in place, LLC creditors cannot pursue the personal assets of members. If you want to keep these protections in place, however, you must be sure that you're running your company as a separate entity from its owners. In particular, you should refrain from mingling LLC assets and member assets.
Appointing managers is the most effective method of operating your LLC. Your LLC can be member-managed, and in some states, you're allowed to hire an outside manager to run your company.
Drafting an operating agreement is another important step of operating your LLC. All members should consent to and sign the operating agreement, and this document should include the following information:
- Capital contributions of members.
- Member voting rights.
- Method of profit distribution.
- LLC management option.
- How dissolution can occur.
In some states, you'll need to file this document with the state. By filing your operating agreement with the state, resolving future disputes will be much easier.
Taxes and Annual Filings
After you've completed the basic steps of operating your LLC, you need to choose your company's tax classification and file the correct paperwork. The Internal Revenue Service (IRS) will automatically tax your LLC as a partnership if you have multiple members and as a sole proprietorship if there is only one member.
If you want, you may have your company taxed as a C corporation or as an S corporation, assuming your business meets the qualifications. Filing Form 8832 will result in C corp taxation, and filing Form 2553 means you'll enjoy S corp tax treatment.