Limited Liability Company Lawyers for Delaware

If your single-member LLC’s S corporation election (Form 2553) is accepted and effective for the tax year, you don’t use Schedule C for that business. You file Form 1120-S for the entity, issue yourself a Schedule K-1 (Form 1120-S), and report the K-1 items on your Form 1040 (typically on Schedule E). If the election isn’t effective for the year in question (for example, it was filed late and not granted relief), you remain a disregarded entity for that year and would report on Schedule C instead. What this means for your filings this year File Form 1120-S by the 15th day of the third month after the end of your tax year (March 15 for a calendar-year S corp). Provide yourself a shareholder K-1. On your personal return, include K-1 income, deductions, and credits; don’t duplicate the same activity on Schedule C. Keep the IRS approval of your S election with your permanent records and verify the effective date before you prepare the return. Where Schedule C still applies (edge cases) If your 2553 wasn’t accepted or the effective date falls after the start of the year, the pre-election period is still disregarded-entity activity. In a mid-year effective-date situation, you’ll generally have two “periods”: a Schedule C period before the S election takes effect and an 1120-S period after. If your 2553 was late, consider Rev. Proc. 2013-30 relief so you can treat the election as timely and avoid an unintended Schedule C year. Payroll and “reasonable compensation” Once you’re taxed as an S corporation, you’re both owner and employee if you perform services. Pay yourself reasonable compensation through payroll and issue a W-2. That means registering for payroll, withholding and depositing employment taxes, filing Form 941 quarterly and Form 940 annually (where applicable), and following Publication 15 for rates and deposit rules. Non-wage distributions can be taken in addition to wages, but they come after paying reasonable compensation. Practical example Assume your 2553 was accepted effective January 1, 2025. For 2025 you run payroll to pay yourself reasonable wages, file 1120-S by March 17, 2026 (March 15, 2026 is a Sunday), and issue yourself a K-1. On your 2025 Form 1040 you include W-2 wages from your S corp and the Schedule E entry from your K-1. You do not file a Schedule C for that LLC. If the IRS letter shows an effective date of July 1, 2025, you’d generally report Jan–Jun activity on Schedule C and Jul–Dec on 1120-S unless you secure late-election relief aligning the election to January 1. State and local considerations Many states require separate S-corporation or franchise filings, estimated payments, or annual fees even if there’s no entity-level income tax. Check your state’s S-corp conformity, filing thresholds, and due dates. For payroll, also register with your state workforce and revenue agencies and follow state deposit and return schedules. Common pitfalls to avoid Don’t file 1120-S unless your S election is actually in effect; the IRS typically sends Notice CP261 confirming acceptance. Don’t skip payroll or set wages unreasonably low relative to your role. Don’t double-report the same activity on both Schedule C and your K-1. Finally, don’t overlook shareholder basis tracking; it affects loss deductibility and the taxability of distributions. Records and elections to keep on file Retain your filed Form 2553 and acceptance notice, EIN assignment letter, payroll registrations, quarterly and annual payroll returns, shareholder basis schedules, minutes/consents approving compensation, and any correspondence related to late-election relief. The Final Analysis Once your single-member LLC elects S corporation status, Form 1120-S becomes mandatory and Schedule C is no longer an option. Stay on top of payroll, compensation, and recordkeeping, and you’ll be in compliance. If you’re unsure about the details, a CPA experienced with small S corps can keep you on track and help you capture the full tax benefits.

Membership interests in an LLC are considered the personal property of the interests holders. As such, you will need to include clauses in which you specifically name beneficiaries for those membership interests upon death of the interests holders. You may additionally need to include procedures for transfer (for example through membership certificates).

The purpose statement for an LLC formation only needs to be 1-2 sentences that broadly describe the general nature of the business. Here is an example LLC purpose statement: "The purpose of this Limited Liability Company is to engage in any and all lawful business activities related to providing consulting services in the technology industry, as the members see fit."

Thinking of starting a business with a partner? Forming a multi-member LLC might be one of the smartest legal moves you make. It offers liability protection, tax flexibility, and control over how the company operates, without the rigid structure of a corporation. But getting it right means understanding both the benefits and the setup process. The main draw is protection. An LLC creates a legal barrier between your personal assets and the business. So if your company is sued or defaults on a loan, your house and savings are usually off-limits. Just know that this protection isn’t automatic. If you mix personal and business funds, fail to properly fund the business, or commit fraud, a court could still hold you personally liable. From a tax perspective, the setup is appealing. Multi-member LLCs are generally taxed as partnerships. That means the business itself doesn’t pay federal income tax. Instead, it files Form 1065 and issues each member a Schedule K-1 that shows their share of the profits or losses. You include that on your personal return. This approach helps you avoid the double taxation that corporations face. If the business generates strong profits, you can also consider electing S corporation status. That may help reduce self-employment taxes, though it comes with added responsibilities. Management is another area where LLCs shine. You can run the business yourselves through a member-managed structure or designate someone else to handle daily operations in a manager-managed model. For example, a small professional practice may work better with member control. In contrast, a real estate investment business with passive owners might benefit from a designated manager who handles everything day to day. You also won’t have to jump through the usual corporate hoops. LLCs aren’t required to hold annual shareholder meetings or maintain formal bylaws. Most states only ask for a simple annual or biennial report and a filing fee. Then there’s credibility. Including “LLC” in your business name shows clients, lenders, and partners that you’ve formed a recognized legal entity. Banks will usually require it to open a business account or approve financing. To form your LLC, you’ll start by filing Articles of Organization with your Secretary of State. This document covers basic information such as the business name, address, registered agent, and sometimes member or manager details. Fees vary widely but typically range from $50 to $500 depending on your state. You’ll also need an operating agreement. Some states like New York require one, but even where it’s optional, it’s strongly recommended. Many banks won’t open an account without it. More importantly, the agreement defines how your business works. It should cover ownership shares, capital contributions, how profits and losses are divided, voting rights, member roles, and what happens if someone leaves or wants to sell their share. Without it, state law will control these issues by default, which may not align with your goals. Every LLC must name a registered agent. This is the person or service that receives legal and government documents for the business. If you have a physical address in the state, you can serve as your own agent. Otherwise, hiring a registered agent service is a simple solution. You’ll also need an EIN from the IRS. Even if you don’t have employees, the IRS requires a Federal Tax ID for multi-member LLCs. You’ll use it for filing taxes, issuing K-1s, and opening financial accounts. A few important things can catch new business owners off guard. Certain states have unique requirements. New York and Arizona, for example, require you to publish a notice of formation in local newspapers. California charges an annual franchise tax of at least $800, no matter how much income your business makes. Delaware and Nevada are popular for their business-friendly laws, but they often come with higher annual fees. Checking your state’s rules ahead of time is essential. Taxes can also surprise people. Members usually pay self-employment tax on their share of the LLC’s income. That includes both the employer and employee portions of Medicare and Social Security. If your business is profitable, this can add up fast. In that case, an S corp election may reduce your tax burden. Just be aware that it requires payroll and a reasonable salary for each active owner. Finally, to keep your liability protection intact, treat the LLC as a separate entity at all times. That means using a business bank account, signing contracts in the company’s name, and documenting major decisions. If you treat the company like an extension of your personal finances, courts may too. Setting up an LLC isn’t difficult, but the details matter. The operating agreement and tax setup in particular deserve professional input. An attorney can create a customized agreement that fits your situation, and an accountant can help you choose the right tax path. Doing it right on the front end can save you from problems down the road. The business attorneys at Contracts Counsel are here to guide you through the entire LLC process so you can focus on growing your business with confidence.

In florida you would want to have an operating agreement to specify the relationship between the members.