Best Way To Start An Llc – Forming a new LLC is easy by filing paperwork with your state. But to set yourself up for success, you’ll also need to think about your business name, finances, operating agreements, and licenses and permits. Here is a step-by-step guide.
This article is for informational purposes only. This content is not legal advice and is the representation of the author and has not been evaluated for accuracy or changes in the law.
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Limited liability companies (LLCs) provide liability protection for business owners and are less expensive and less complex than corporations. LLC owners have flexibility in how they operate and tax their business. This makes it an attractive option for small and medium-sized businesses.
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Learning how to form an LLC isn’t difficult, but there are steps to follow and things to consider along the way. Here’s a seven-step approach to forming an LLC and getting off to a good start.
One of the first steps when starting an LLC is choosing a name for your LLC. Although state laws vary, LLC names typically look like this:
In most states, if you have selected an available name but are not yet ready to file LLC formation documents, you can temporarily reserve the name. To reserve a name, please submit the State Name Reservation Form along with the required application fee. Rules, fees, and formats vary by state.
Choosing an available name is just one part of the naming process for your business, says Emily Grubman, owner of Title Case Naming Consultancy. Grubman advises looking to see if a trademark is available as soon as you decide on the LLC or brand name you want to use. “The biggest hurdle when you want to grow your business is, ‘Can we get this name from a trademark standpoint?’” she says. Even if you don’t plan to apply for trademark protection, your name may infringe on another company’s trademark. “The last thing we want to do is change our company name.”
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Grubman points out that many LLCs are operated “as a business” or under the name of a DBA. Knowing that you have the option of choosing a girlfriend DBA to meet your marketing and trademark needs can take some of the pressure off choosing the perfect business name when starting your LLC.
“I say the first principle in naming is ‘do no harm.’ That means the name can’t infringe on a trademark or be difficult to spell or pronounce. “Another aspect is minimizing negative connotations, especially in the context of an LLC name, which is the name used in the contract,” Grubman says. ” will appear on your bill, so it’s a good idea to choose a more authentic name and save any spooky, confusing, or funny names. D.B.A.
The job of a registered agent (also known as a resident agent or legal representative) is one of hers. That means receiving legal documents, such as lawsuits and subpoenas, on behalf of the LLC and quickly delivering them to the appropriate people within your company.
Each state has its own requirements as to who can act as a registered agent, but generally the agent must be one of the following: (1) a resident of the state who is 18 years of age or older with a domicile within the state (known as a “registered office”); or (2) registered with the state and authorized to provide agency services. company. In most states, you can act as your own registered agent, designate an employee or other person to act as your agent, or hire the services of a registered agent.
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If you’re forming an LLC in a state where you don’t have a physical location, you’ll likely need to hire a registered agent. If your workplace does not have documentation available, you have a home-based business, you are concerned about providing legal documentation, and your personal address is not listed in public records, you may be able to hire someone to represent you in court. Masu. If you want to blame yourself in front of your employees and customers, or if you prefer the reliability of professional registered agent services.
An LLC operating agreement is a blueprint for how to operate your limited liability company. The operating agreement contains information about your business structure. Roles, Ownership, and Contributions of LLC Owners (or “Members”). How profits will be distributed. and how to accept new members or deal with members who have left.
Although operating agreements are not required by law, a good operating agreement can reduce conflicts between members and help things run more smoothly when problems arise. The best time to negotiate and draft an operating agreement is during the early stages of a business, when members are likely to be enthusiastic about a common vision for the business.
The Operating Agreement is an internal document. You don’t need to file it with the state, but you should keep it with your important business documents.
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Officially form an LLC by filing articles of organization with your state. Articles typically include the following information:
Almost all states allow you to submit articles for your organization online. Filing fees vary by state, typically between about $50 and $150, but some states cost more than $200.
Some states process LLC articles of organization right away, while others take a few days to a few weeks. Some states may charge additional fees to expedite the process. Once your LLC documents are approved, you will receive a certificate of incorporation from your state confirming that your limited liability company officially exists.
Once your limited liability company is officially formed, you can apply for an Employer Identification Number with the Internal Revenue Service. An EIN is a nine-digit number that identifies your business for federal tax purposes, similar to an individual’s Social Security number.
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If your LLC has employees or multiple members, you will need an employer identification number. Her single-member LLC with no employees has the option of using the member’s Social Security number, but the financial institution may require her EIN to open a business bank account. An EIN also helps protect an individual’s SSN.
In most states, forming and maintaining an LLC is inexpensive. Many attorneys recommend that small business owners form an LLC because it provides liability protection at minimal cost.
You can obtain your Employer Identification Number for free on the IRS website. Once you have an EIN, you can set up a business bank account and deposit company funds into it. Use business accounts for all business income and expenses, and don’t mix business and personal finances. Keeping your accounts separate helps protect your business and personal assets. When you combine business and personal funds, you risk losing your personal liability protection.
Depending on your business type and location, you may need one or more licenses or permits to operate legally. Here is an overview of some of the more common ones.
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Industry associations and local and state government offices are good sources for determining the types of licenses and permits your business needs.
Consulting with a tax accountant early in your business can save you money in the long run. A CPA can advise you on the best tax classification, what business expenses are deductible, the types of financial records you need to keep, the tax forms you need to file, and more. Kayla Pena, a corporate accountant, says, “Speaking with an accountant can make things go much better and avoid complications down the road.”
From a tax perspective, LLCs are unique because the IRS does not have a specific LLC tax classification. By default, the IRS classifies her single-member LLC as a sole proprietorship or “disregarded entity.” Multi-member LLCs are classified as partnerships. However, an LLC can also choose to file federal taxes and be taxed as an S Corp or C Corp. IRS election forms.
If your LLC is classified as a sole proprietorship or partnership, you are self-employed. Report business income and expenses on your individual tax return (partnerships also file a partnership return). Depending on your share of business profits, you’ll pay income taxes and self-employment taxes (Medicare and Social Security taxes). Estimated taxes must be paid quarterly to avoid fees and penalties. Although the default tax structure is simple, especially for single-member LLCs, some for-profit LLCs save on self-employment taxes by choosing their S Corp taxation.
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With an S Corp, the profits are also applied to the owner’s personal tax return. However, owners of an S corporation can be employees of the company who pay Social Security and Medicare taxes only on their salaries, not on the company’s entire profits. However, the salary must be reasonable for the type of work and the company’s income. To be taxed as an S Corp, an LLC must qualify and meet election form filing deadlines.
S corporations aren’t right for everyone, Pena said. “You have to make sure your business is stable enough to pay your payroll. You have to have constant income. And converting to an S Corp.
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