Limited Liability Company - L.L.C.
First learn about limited liability companies and then form one
LLC FAQ's – Questions About Forming an LLC in the State of New
1. What is a Limited Liability Company (LLC)?
2. What paper
work is required to form a New Hampshire LLC?
3. Do I need
professional assistance to form a New Hampshire LLC?
4. What should
I name my LLC?
5. How many
people are needed to form an LLC?
6. How is an
7. What is the
organizational structure of an LLC?
8. How is an
9. What are the
advantages of a LLC?
10. What are
the disadvantages of an LLC?
11. What is a
registered agent and why do I need one?
12. Should I
choose an LLC or an S corporation?
13. What are
the self employment aspects of an LLC?
14. How are
Professional Limited Liability Companies (PLLC) treated?
15. How do I
get started setting up an LLC?
16. Rules for LLC formation in states other than
17. What is NH's business income tax on single member LLCs?
1.What is a Limited
Liability Company is the business form of choice for those business
1) protection from individual liability for company debts, negligence,
and breaches of contract; and
2) flow through taxation.
The Limited Liability Company is a hybrid between the corporation form
of organization and the limited partnership form. The Limited Liability
Company protects all members (owners) from individual liability for
company debts and misdeeds, much like the corporation. Please note that
there are exceptions, such as the treatment of a professional limited
liability company (PLLC). What's more, while a creditor of the
corporation can attach corporate stock and gain control of the
corporation, a creditor of a Limited Liability Company cannot become a
member and control the company, a creditor of a Limited Liability
Company can only receive an income interest in the company.
Consequently, the Limited Liability Company combines the best of
corporations and partnerships because the Limited Liability Company
offers its members protection from individual liability and, like a
limited partnership, allows others to become a member only if the other
The Limited Liability Company, by election, may be taxed like a sole
proprietorship, partnership or S Corporation. As a pass through entity,
the Limited Liability Company does not pay federal income tax, rather
income is distributed to the members according to their ownership
interests and the members report the income on their individual income
tax returns. (Please note that an election may be made on IRS Form 8832
to be taxed as a straight C corporation.) Unlike the corporation, the
Limited Liability Company is governed by its regulations, also called an
operating agreement. Company regulations are a hybrid between corporate
bylaws and a partnership agreement. Importantly, the Limited Liability
Company is further distinguished from the corporation in that it is not
required to have annual meetings. In order to maintain protection from
individual liability, the Limited Liability Company must still keep its
accounting separate from its individual owners and must have and abide
by company regulation.
The Limited Liability Company
(LLC) is not a partnership or a corporation. It is a distinct business
entity that offers an alternative to partnerships and corporations by
combining the corporate advantages of limited liability with the
partnership advantage of pass through taxation.
* CAUTION - A recent
court ruling has put LLC single member LLC business asset protection
into question. In the case of In re
2003 Bankr. lexis 291 Bank. D. Colo. April 4, 2003, the court held that
when the sole member of an LLC goes into bankruptcy, the bankruptcy
trustee then controls the LLC and can then sell its real estate and
distribute the proceeds to the bankruptcy estate. The court
further held that "...because there were no other members in the
LLC, the entire membership interest passed to the bankruptcy estate and
the trustee became a 'substituted member'." The court also stated
that, "upon the Debtor's bankruptcy filing, the trustee now controls,
directly or indirectly all governance of the entity, including decisions
regarding liquidation of the entity's assets." The court stated
that because there were no other members in the LLC, no written
unanimous approval of the transfer was necessary, as would be the case
if there were other members -- no matter how small such other membership
interest may be.
2.What paper work is
required to form a New Hampshire LLC?
To form an LLC, the
State of New Hampshire requires two forms to be filed. The first form
is LLC 1, Certificate of Formation, which must be filed in
duplicate. The second necessary form is form SRA.
The completed forms
together with a check for $85.00 made payable to the State of New
Hampshire completes the process for the State. If you wish to have a
Certificate of Existence (suitable for framing) there is an additional
charge of $5.00.
Although it is not an absolute necessity, it is strongly recommended
that an operating agreement be used even in the case of a single member
LLC. The agreement only strengthens the separation between the owner and
the entity, therefore ensuring the liability protection. Without an
operating agreement, the entity is governed in accordance with State
To review the New Hampshire RSAs
which govern LLCs (Chapter 304C, sections 1 through 85) CLICK HERE .
3.Do I need
assistance from a professional to form an LLC?
assistance is not a legal requirement. You can prepare and file the
formation paperwork yourself.
However, if you are unsure of
what entity would be most beneficial to your business, or how to
proceed with the operating agreement, we would be happy to assist you.
4.What should I name
Choose the name of
your LLC carefully. It is very important that you portray the image you
want for your new company. Legally, the name you select must not be
deceptively similar to any existing LLC in your state.
For example, if an LLC named North LLC exists in your state, you
probably would not be allowed to name your business North Limited
Liability Company. It is possible that the name you select will not be
distinguishable; therefore, we suggest calling the State to check on
your name's availability. You may call the State at (603)271-3246 to see
if the name you want is available. The office hours are from 9:00 am to
12:00 noon and 1:00 pm to 3:30 pm Monday - Friday. It is very difficult
to get through, so be patient.
The name you select must show your business is a Limited Liability
Company, so it must include the words "Limited Liability Company," or
the abbreviation LLC or L.L.C..
5.How many people are
needed to form an LLC?
All 50 states now
allow single member LLCs with one of the last hold outs, Massachusetts adopting a single
member LLC statute in March 2003 allowing single member LLCs.
The IRS permits single member
LLCs and classifies them as null entities that pass through tax
treatment to the owner's personal tax return; however, taxation of
single member LLCs at the state level may be different.
6.How is an LLC taxed?
An advantage of the
LLC is its tax flexibility - the members of the LLC are allowed to
irrevocably select how the entity will be taxed.
Most LLCs elect to be taxed as a partnerships or as a disregarded
entity. This means that the LLC is treated as a pass through entity,
paying no separate entity level tax.
On the other hand, the LLC could elect to be taxed as a corporation by
completing IRS Form 8832. If this election is made, the LLC would pay a
separate entity level tax. This choice may be advantageous if the LLC
owners want to retain profits in the business and would prefer to have
these retained earnings taxed at the corporate income tax rate as
opposed to the personal rate.
7.What is the
organizational structure of an LLC?
An LLC is owned by
its members. They are analogous to partners in a partnership or
shareholders in a corporation, depending on the how the LLC is managed.
A member will more closely resemble a shareholder if the LLC utilizes
the operating concept of a manager or managers because then the members
will not participate in management. If the LLC does not utilize
managers, then the members will closely resemble partners because they
will have a direct say in the decision making of the company. A
member's ownership of an LLC is represented by their "interests," just
as partners have "interest" in a partnership and shareholders have
stock in a corporation.
8.How is an LLC
An LLC may be
managed by its members (owners) or by selected managers.
If the LLC is to be managed by
its members, it operates much like a partnership. Each member has an
equal say in the decision making process of the company or
alternatively, as you specify in the LLC's operating agreement.
If the members choose, they may elect a manager or managers to act in a
capacity similar to a corporation's board of directors. These managers
are in charge of the affairs of the corporation.
Member management is the normal
default rule of NH state law. This means that if managers are not
selected in the articles of organization the members will direct the
affairs of the LLC.
9.What are the
advantages of an LLC?
LLCs offer numerous
1. Flexibility in choosing federal taxation.
The most common selection for an
LLC is pass through taxation. This means that earnings of an LLC are
taxed only once. The earnings of an LLC are treated like the earnings
from a partnership, sole proprietorships and most S corporations.
Alternatively, the entity may be taxed as a regular C corporation.
2. Limited Liability
The LLC owner's liability is
generally limited to the amount of money which the person has invested
in the LLC. Thus, LLC members are offered the same limited liability
protection as a corporation's shareholders, provided that they do not
otherwise assume liability personally.
3. Flexible Management Structure and Flexible Ownership is Permitted
Like general partnerships, LLCs are generally free to establish any
organizational structure agreed on by its members. Thus, profit
interests may be separated from voting interests (not permitted if the S
corporation form is chosen).
10.What are the
disadvantages of an LLC?
The disadvantages of
an LLC include:
1. More paperwork than a ordinary partnership or proprietorship.
11.What is a
Registered Agent and Why Do I Need One?
State laws require
corporations and LLCs to maintain a registered agent in the state that
you form your business. The agent's name and office address are
included in the articles of incorporation to give public notice of
where to send important documents to your corporation.
The registered agent is responsible for receiving important legal and
tax documents including: service of process, franchise tax forms and
annual report forms.
If you incorporate in the state where your business is located, an
officer, director, or employee can act as your corporation's registered
12.Should I choose an
LLC or an S corporation?
While the S
corporation's special tax status eliminates double taxation, it lacks
the flexibility of an LLC in allocating income to the owners.
An LLC may offer several classes of membership interests while an S
corporation may only have one class of stock.
Any number of individuals or entities may own interests in an LLC.
However, ownership interest in an S corporation is limited to no more
than 75 shareholders. Also, S corporations cannot be owned by C
corporations, certain trusts, LLCs, partnerships or nonresident aliens.
LLCs are allowed to have
subsidiaries without restriction.
13.What are the self
employment aspects of an LLC?
As a self employed
individual, that is a single member LLC electing to be disregarded as a
separate entity, your income and expenses from the LLC will be reported
on Schedule C of your personal tax return (Form 1040). What this will
mean is that the net income (gross income less allowable deductions)
will be subject to self employment tax. The self employment tax is
currently calculated by multiplying your net profit by .9235, if that
amount is less than $72,600 then multiply the resulting number by .153
(see example 1). All income up to $72,600 is subject to Social Security
and Medicare tax. Income above $72,600 is subject only to Medicare tax.
So if your profit is higher than $72,600 you would need to multiply the
resulting number by .029 (instead of the .153) and add $9,002.40 to the
resulting number (see example 2).
Example 1: If your net profit was
$10,000 the self employment tax would be calculated as follows:
$10,000 x .9235 = $9,235.00
$9,235.00 x .153 = $1,412.96 This
would be the resulting self employment tax.
Example 2: If your net profit was
$100,000 the self employment tax would be calculated as follows:
$100,000 x .9235 = $92,350.00
$92,350.00 x .029 = $2,678.15
$2,678.15 + $9,002.40 =
$11,680.55 This would be the resulting self employment tax.
The net profit less one half of
the self employment tax is then subject to tax at your tax rate, based
on your income from all sources.
Professional Limited Liability Companies (PLLC) treated?
limited liability company means a limited liability company for profit
organized for the purpose of rendering professional services.
Professional services mean any service which may lawfully be rendered
only by certified public accountants, public accountants, architects,
attorneys, podiatrists, chiropractors, dentists, pharmacists,
professional engineers, land surveyors, registered professional nurses,
optometrists, physicians and surgeons, psychologists, veterinarians,
and all other professionals licensed, registered, certified, or
otherwise authorized and permitted to practice independently under the
provisions of RSA 309-A, 310-A, 311, 315, 316-A, 317-A, 318, 326-B,
327, 329, 330-A, or 332-B.
The LLC must end with either the
words professional limited liability company or P.L.L.C.
Unlike the traditional LLC, under
TITLE 28, Partnerships, CHAPTER 304D, Professional Limited Liability
Companies, SECTION 304-D:9
II. Every individual who renders professional services as a member,
manager, or employee of a professional limited liability company shall
be liable for any negligent or wrongful act or omission in which he
personally participates to the same extent as if he rendered the
services as a sole practitioner. A member, manager, or employee of a
professional limited liability company shall not be liable for the
conduct of other members, managers, or employees unless he is at fault
in appointing, supervising, or cooperating with them.
This type of entity does not provide limited liability protection.
We have provided
instructions and fill-in forms for IRS forms SS-4 and 8832 which allow
you to enter information while the form is displayed by an Adobe
Acrobat 3.0 (or later) product. You will then need to print the
completed form out. Fill-in forms give you a cleaner crisper printout
for your records and for filing with the IRS.
Caution: The Acrobat Reader does not allow you to save your fill-in
form to disk, accordingly, it's best to print them out and manually fill
in the information..
The linked files require adobe
reader to view if you do not have it download it here.
The remaining necessary
State of New Hampshire forms LLC 1 and SRA also must be viewed in
adobe, They are also interactive and the same instructions should be
followed as for the IRS forms above. Remember to print and
complete form LLC 1 (in duplicate).
There are many different types of business entities and the tax
consequences vary a great deal within each business type and from state
to state. With that said, if you already know which business structure
is right for you, you can begin the administrative process of filing
You will need to have a name
picked out and know who will be the registered agent for the LLC.
After you decide to form an LLC,
articles of organization (LLC formation paperwork) must be filed with
the State of New Hampshire and initial filing fees must be paid.
The articles of organization include forms LLC 1 (in duplicate ) and
form SRA. Click here to go to the instructions and the
forms. The filing fees are $85.00 and an additional $5.00 if you
would like a Certificate of Existence (this is not required).
You have the option of either mailing the forms to the State and
waiting for the confirmation of the formation. The State is currently
12-14 weeks behind in the processing of the confirmations. According to
the State, there is only a one day turn around for the mailing of the
Certificate of Existence, if one is requested. The second option is that
you may actually hand deliver the documents and wait while they are
processed. There is an additional processing fee of $30.00 for the
expedited service that the second option provides. This option
will get you a Certificate of Existence.
After your Articles are filed,
your LLC should have an organizational meeting where an operating
agreement is adopted, interest certificates are distributed and other
preliminary matters are completed.
After your LLC has been formed,
if the entity will have employees, or elect partnership or corporate
taxation, the entity will need an Employer Identification Number (EIN).
If the entity is a single member LLC with no employees, this will not
be necessary as the entity will use the social security number of the
single member. If an EIN is necessary, an IRS Form
SS-4 (PDF 87KB), Application
for Employer Identification Number, will need to be completed.
The final form to be filed is IRS Form 8832 (PDF 46KB), Entity Classification Election. You
have 75 days from the effective formation date of the LLC in which to
select your choice of entity. Each classification does have a default
election, if not filed within the 75 days. One signed copy will be
mailed to the IRS and one will be filed with the entities’ tax return for the
year of formation.
16. Rules for LLC
formation in states other than New Hampshire.
Below is a list of
links for various state requirements for LLC formation.
Of course, if you need help, we are available to assist you, for help email our LLC specialist; simple set up charges, excluding an
operating agreement are $500 or less including State of N.H.
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