How to Form a LLC in Alaska

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 What Is a Limited Liability Company (“LLC”)?

A limited liability company, also commonly referred to as an “LLC,” is a specific type of business entity. According to United States business law, if an individual files a lawsuit against a corporation and the suit is successful, the corporation is liable to pay money out of the corporation’s assets.

This means that individual members and owners of the corporation will not have their assets accessed. Thus, the members and owners are not personally liable for the corporation’s debts. Members and owners are also not responsible for any damages awarded against the corporation in a lawsuit.

One of the main disadvantages of forming an LLC could be double taxation. Double taxation means that corporate profits are first taxed to the corporation as they are earned. Next, these profits are then taxed to shareholders as capital gains income when the shareholders receive dividends. Another disadvantage of forming an LLC would be that the liability of LLC structures is such that owners can still be sued for their own negligent acts.

However, similar to partnerships, LLCs are not taxed at the entity level. This means that unlike corporations, they do not pay taxes as an LLC. Instead the only taxes are paid by individual members who have earned profit.

To reiterate, limited liability companies differ from corporations in terms of the ownership structure. Limited liability companies are owned by individuals, while corporations are owned by its shareholders. Additionally, LLC owners generally are not personally liable for any liabilities or debts that are incurred by the LLC. This fact allows LLC owners to manage their business without being concerned with losing their own personal assets.

Who Should Form an LLC?

When considering whether or not to form an LLC, individuals who want to own a small business should all consider forming an LLC. As noted above, forming an LLC protects an individual’s assets by limiting liability to the LLC’s own resources. Thus, if the LLC is ever sued, the small business owner will not have to pay any damages awarded to the prevailing party out of their personal assets.

Any person that is interested in forming a business with minimal paperwork and costs should also consider forming an LLC. This is because forming an LLC only requires filing articles of organization, and paying a simple fee with the state. This filing fee is generally less expensive than the required fee necessary for forming a corporation.

Additionally, individuals that like to keep track of a corporation’s income and expenses should also consider forming an LLC, as doing so is considerably easy. This is due to the fact that under an LLC, separate tax return filings are not required. Instead, members and managers of an LLC report all income and expenses on their individual tax return.

LLC management can also be simple, as an LLC with two or more individuals can draft an operating agreement that helps them manage the LLC. In an operating agreement, the LLC members will typically provide details regarding how the LLC is governed, how profits will be allocated, and what members’ votes are needed for which specific actions.

Additionally, an operating agreement can also help to address how the LLC may be dissolved or shut down. The operating agreement may also provide rules as to how disputes among LLC members are to be resolved, as well as address what happens if an LLC member dies or becomes incapacitated.

How Do I Form an LLC in Alaska?

Forming an LLC in Alaska is a pretty straight forward process. In Alaska, the easiest way to file for an LLC is to fill out the online forms that are on the Alaska Department of Commerce, Community, and Economic Development (“DCCED”) Division of Corporation, Business, and Professional Licensing’s (“DCBPL”) website.

In addition to utilizing the online forms, there is also an option to fill out hardcopy versions for both domestic Alaska based limited liability corporations and foreign-based limited liability corporations.

In order to form a domestic LLC in Alaska, the individual submitting the application must include the following information:

  • The name of the LLC.
    • It is important to note that Alaska will not allow anyone to form an LLC that is similar to an existing company’s name;
  • Disclosure of the corporation’s purpose;
  • The registered agent for the service of legal process
    • It is important to note that an agent may be an Alaska resident or a corporation that is registered and in good standing with the state of Alaska. Further, the agent must have a physical mailing address in Alaska;
  • The address of the corporation for service of legal process; and
  • The names of any of the founding members or managers.

If you are filing for an LLC in Alaska as a foreign-based LLC, you need to include the name of the company or assumed name, the state of incorporation, the date of incorporation, the duration of incorporation, disclosure of the purpose of the corporation, the registered agent, the physical mailing address for the agent, and a list of the founding members or management.

What Are the Advantages and Disadvantages of Forming an LLC in Alaska?

As mentioned above, LLCs enjoy a lot of protections. Under Alaska’s Revised Limited Liability Company Act, Alaska has some of the strictest rules against creditors trying to get money from any members of an LLC.

In Alaska, a creditor going after a member of an LLC for a personal debt can only access that member’s portion of the LLC to pay off the debt as an assignee. This means that a creditor can only passively receive the financial benefits of the member’s involvement in the LLC, and cannot touch any of the LLC’s assets for their personal debt. This is not the case in every state. Further, in Alaska, an LLC member’s liability is limited to only the amount of money they contributed to the LLC. This is true even if there is only one member of the LLC.

Although Alaska has taken many steps to mirror Delaware’s favorable laws in terms of providing LLCs advantages not found in many other states, there are still some disadvantages to forming an LLC in Alaska.

One of the main disadvantages in forming an LLC in Alaska is that Alaska’s court system does not handle equity matters. Equity matters mostly revolve around corporate law and are favorable to companies, and separate from regular civil law matters. Also, Alaska requires all LLCs to renew their business licenses annually, along with filing a report every other year. If the LLC does not do either of the two tasks in a timely fashion, they will be charged a late fee.

How Does a Business Owner Choose the Right Business Management Structure?

When determining what business structure to use, some of the factors that a new business owner should consider include:

  • The number of owners that are forming the business, such as considering whether the LLC will be formed by a single proprietor, multiple members, etc.;
  • Whether or not the founding member(s) want the ability to issue stocks and raise money from investors;
  • Considering both federal and state tax laws and evaluating the tax incentives that each business management structure offers;
  • How much control the owner(s) wishes to have over the decisions of the company and assets;
  • The amount of money that the owner is willing to spend on forming their business; and/or
  • The potential risks and legal liabilities that the founding members are willing to incur both personally and professionally.
    • For example, a person who wants to protect their personal assets from creditors should consider forming an LLC.

New business owners should also consider the following:

  • How their business should handle wind-up or termination procedures;
  • The legal rights that the business owner wishes to possess if they decide to ever sell or expand their business; and
  • The business owner’s comfort level in having their company’s details exposed to the general public.

Do I Need A Lawyer for Help With Forming An LLC In Alaska?

If you wish to form an LLC in Alaska, you should contact an experienced Alaska corporate lawyer. An experienced attorney can help guide you through the LLC formation process. Additionally, an attorney will also be able to represent you in court should any legal issues arise.

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