How It Works
Investors can decide to set up any type of legal business structure they like. However, if they want to protect themselves from additional liability beyond their own investment, a LLC is a likely choice. It offers the benefit of being treated by the IRS like a partnership. Some of the other major attributes of this type of business entity also include more flexibile management style and fewer formalities required by state law.
Most states require the LLC to submit one document; the Articles of Organization which is to be filed with the Secretary of State. Owners of a LLC are referred to as members. Once members decide on a LLC, they should file an operating agreement with the state that delineates how the LLC will be run, how members are obligated financially, and how the profits and losses are to be allocated. In the absence of this agreement, the state courts would then decide how to allocate profits and losses.
