The Limited Liability Company, or “LLC,” is the preferred entity structure for the majority of small businesses. Here are five benefits of the LLC for an Oklahoma business owner:
- An LLC is easy to create and maintain.
- Creation: An LLC is created by filing Articles of Organization with the Oklahoma Secretary of State. The Articles can be drafted, filed and processed within a few hours. The state filing fee is $100, plus a $4 charge to process your credit or debit card. Your LLC will also need an Operating Agreement to spell out the ownership and management structure of your company. Pricing to draft an Operating Agreement varies based on the complexity of your structure.
- Maintenance: The Secretary of State requires an annual certificate to be filed, with a $25 filing fee. But, unlike a corporation, state law does not require an LLC to hold annual meetings.
- An LLC can Protect Your Assets. An LLC can protect your assets in two ways:
- Owner not Liable for Company Debts. As a general rule, an LLC owner is not personally liable for the debts and obligations of the company. However, this protection has limitations. The owner of an LLC is liable for: (a) Any company loan obligations he or she personally guarantees; (b) Any damages he or she personally causes, even if acting in the name of the LLC; (c) Other liabilities of the LLC, if a court determines there is not sufficient separation between the owner and the business entity. This may arise, for example, if the owner is not using separate bank accounts for personal and business transactions.
- Charging Order Protection. The LLC can also protect the assets that are inside your LLC from any creditor who acquires a judgment against you personally. Under Oklahoma law, a judgment creditor of an LLC owner cannot force the LLC owner to liquidate the assets of the LLC to pay off the judgment. Instead, the creditor’s remedy is a charging order, which entitles the creditor to collect the owner’s share of cash distributions made by the LLC. But note that an LLC is not legally required to make distributions.
- An LLC provides multiple options for tax classification. A single-member LLC is typically treated as a disregarded entity for tax purposes, so there is no additional tax preparation burden. A multi-member LLC is typically taxed as a partnership. However, an LLC can also elect to be taxed as a subchapter S corporation, which may reduce the owners’ self-employment tax obligations.
- Anonymity. An Oklahoma LLC is not required to disclose the names of its owners or managers to the public. This protects the owners’ privacy, and allows an owner to hold real property without his or her name appearing in the county land records.
- Flexibility. The LLC provides flexibility with respect to ownership and business transactions. Some examples:
- An LLC can have any number of owners. An LLC can also have various classes of ownership. If the LLC is used as an investment vehicle, the investors can be issued “preferred” membership interests, which typically receive distributions before other members are paid.
- An LLC can be managed by its owners, by a single manager, or by a board of managers appointed by the owners. Unlike a corporation, an LLC is not required to have a board of directors.
- An LLC can be used to transfer ownership of assets without requiring the assets to be re-titled. For example, if an LLC owns a house or a fleet of vehicles, the owner of the LLC can sell his or her membership interest in the LLC instead of the selling the house (and filing a deed) or the vehicles (and having to apply for new titles to the vehicles).
Questions about your small business? Contact an Oklahoma City business law attorney at Smith Simmons to schedule a consultation.