Forming a limited liability company (LLC) has many advantages. An LLC is not a partnership or a corporation but rather an entity that displays features common to both business types.

It contains a deeper level of personal asset protection than the sole proprietorship and provides for simplified tax accounting. An LLC's owners are referred to as "members." The membership may consist of just one person, multiple people, or a combination of people and entities.

The IRS treats single-member LLCs as sole proprietorships by default. Single-member LLCs are not typically required to have an employer identification number (EIN) unless they have employees or are required by the state to file an excise tax. Note that they may still request an EIN if desired for tax reasons. When there are multiple members, the LLC is required to have an EIN. Keep in mind that LLCs also have the option to be taxed as a corporation.

Single-member LLCs must apply for an EIN when adding a new member. If the company already has an EIN because there are multiple owners or because the owner has taken the steps needed to obtain an EIN, then Form 8832 must be filed with the Internal Revenue Service (IRS). This is to ensure that the IRS has an accurate record of the owners.

Formation
To form an LLC, complete and file your articles of organization (sometimes called a certificate of formation).

Governance
Although you do not need to file an LLC operating agreement, this is a core document that defines who owns the LLC, how it will be managed, how the membership will handle profits, and more.

Ownership
Although many LLCs are formed with a single member or a small number of members, it is still advisable to have a member certificate documenting the ownership stake held by each member.

LLC owners are referred to as “members.” The operating agreement typically lays out the responsibilities of the members. While other corporate structures may limit the number of shareholders or place other restrictions on the owners, LLCs have no such limitations. LLC owners may be individuals, but need not be residents of the United States. Members may also be other business entities, such as partnerships, other LLCs, or corporations.

Similar to a partnership agreement or shareholders' agreement, the LLC operating agreement defines the rights and duties of the LLC members and outlines how the LLC will be owned and operated. It is an essential document that all LLCs need to create and keep updated. It normally includes the following information:

• Initial capital contributions of the members
• Additional capital contribution requirements
• Liability of the members
• Rules on admission of new members
• Division of profits and losses
• A list of matters that require consent of the members
• Meeting formalities
• Transfer and termination of membership interests