The creation of an LLC can help to limit businesses’ liability on corporate debt. Many entrepreneurs choose to form LLCs in order to protect their business. An LLC is separate from its shareholders (referred to as member companies).
The owners therefore are no longer directly liable for any business liabilities. LLCs are generally easier and more flexible to establish than corporates and generally have fewer ongoing reporting requirements. To establish an LLC you must file documents in the state or location where you are located.
What is an LLC?
LLCs are business structures that protect businesses against being liable to their own creditors for debt or other losses incurred. Unlike partnerships, it has a hybrid structure combining both sole proprietorship advantages. LLCs generally are owned by a single person and are also called members of LLCs.
An LLC can help protect your personal wealth from personal losses in most cases and also helps protect your personal assets. LLC’s are pass-through entities that allow the income from the LLC to pass on to the LLC and tax your income.
When forming an LLC you will need the appropriate legal documents to start an llc and make sure you have the right business structure in place for your business entity. There are also managed member llc businesses but typically you’ll have a business owner who is responsible to start an llc.
Start a Business in your State
Get your start today using this easy to follow guide. We also provide contact details for a number of companies that can help you register your LLC on your behalf. We have a review of the best llc services that our on the market today. This detailed guide will describe the steps required to start and maintain an organization in all 50 states. Using the correct guide for your state is also an option and can help you decide how to start a llc or a limited liability company. Click on your state below to get started.
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You may also be required to submit a state filing fee which can be different state by state. It’s important as a small business owners to make sure you understand the laws, get the right business licenses and have liability protection as you go through this exercise.
Choose a name for your LLC
In most states two separate business companies cannot be registered in one place. Similarly, you cannot have Joe’s Donuts LLC and Joe’s Donuts in different cities. Some States restrict companies to use certain phrases for their name, such as banking. You may search for a business name in multiple states for the name of your LLC. Please check the names available for an LLC for a company before filing the LLC paperwork. If your locality does not have state laws, you may need to find other similar businesses with similar names.
When you’re thinking about how to start an llc and trying to find the right business name, it will be important that you get this right before you try and get a business bank account or a tax id number. Without taking the first step of searching whether you can conduct business in the name you want, it’s going to be really difficult for you to hire employees, find business partners or pay taxes.
Choose a registered agent
In nearly all states LLCs must identify their registered agent. Upon request, an authorized agent can request and send lawsuits and subpoena documents to the LLC and pass those to the appropriate individual in the LLC. Almost everyone over the age of 18 is able to become a registered agent in the USA. It is also an employee of any company. In addition, some companies provide registration services for free. Most of the services that we reference above have registered agent services but there are fees associated to them (typically).
Typically you can find a law firm in your state who can act as a registered agent to help you with the limited liability company you’ve setup and help make sure your personal liability is in an ok place if the internal revenue service or any business debts come up you need to deal with.
These services will also give you a physical street address so you don’t need to use your business address or a home address if you’re going to be personally responsible for the ownership interest you have or if you’re using this as a pass through entity.
We do have a step by step guide on we’re working on but for the time being, please use this to help you as you’re starting an llc. The llc cost for some of the services we recommend don’t typically include the filing fees for your own business but you should find what you need here as you form an llc.
There are many llc formation services that provide registered agent services and can help you if you’re a creating a limited liability partnership and need to submit your articles of organization. These are just some of the legal documents that you’ll need with your llc operating agreement.
File Organizational Paperwork With the state
Each state’s laws determine how the company is formed. In some instances, a person forming a LLC must sign a company’s articles of organization. In many states you will file an LLC form with the state government. Some states also have a separate department handling business filings. Usually filings are charged in every state, but LLC charges vary from state to state.
Typically you should work with a service to help you file organizational paperwork like this along with your operating agreement, any business entities you want to reference and the llc owners, llc name and whether or not it is a member managed llc. This process will help you set up an llc and help you if you have multiple owners too. If you’re filing this paperwork and need someone else that handles business filings, this is a good place to have a service help you.
Some states will require you submit to the secretary of state office and inform them of the management structure along with the ownership interests of the legal entity you’ve created. Hopefully this step by step guide can help you get all the information you need to feel comfortable with setting up small businesses and submitting it to the state and federal government.
Prepare an LLC Operating Agreement
Operating Agreements for an LLC are a roadmap for your LLC operations. The agreement lists such things as ownership interest and voting rights of membership, how profits and losses are paid and how meeting attendance is conducted, the rules of business, the rights and duties of members who die or leave, and how the company is run. Operating agreements typically are never filed with the government or are likely not required by state law. Despite the importance of defining rights and responsibilities, a business must minimize future conflicts.
If you have a business partner or partners it’s imperative that you have an llc operating agreement to make sure if there are issues that come up throughout the time you’re in business together, you’re able to resolve it using this operating agreement.
If you’re thinking about pulling distributions from the business, it might be worthwhile to consider forming an s corporation through your own llc. Look up the laws related to the s corp filing but it helps to make sure there is no double taxation but again please chat with legal council or use one of the services we recommend to get the details about this and how it might impact your personal tax returns.
File the appropriate tax and regulatory requirements
The IRS requires LLCs to file taxes as a partnership or sole proprietor. The owners of an LLC report the income and losses from the business on their personal tax returns. The company does not pay corporate taxes, but it must file an informational return with the IRS.
In some cases, your local municipality might require you to get a business license or permit to operate within city limits. This is usually reserved for businesses that are public-facing or have a storefront, but home businesses might also be required to obtain a permit depending on your city’s ordinances.
You will also need to register for state and federal taxes. Most likely, you will need to obtain an Employer Identification Number (EIN) from the IRS in order to open a business bank account and hire employees. This is also called the federal employer identification number and you’ll need it if you are paying self employment tax and depending on the state – you may have sales tax that will need to be handled too. As you go through this journey make sure you pay employer taxes – that is important!
File your annual report
Most states require LLCs to file an annual report listing the company’s officers and registered agents. The report is generally due around the anniversary date of the LLC’s formation.
You will also need to file your corporate taxes which are separate from personal taxes. These are typically due by mid-April but again, please consult with a tax advisor or CPA for more details about this.
You will need to make sure you’ve added the corporate shareholders, llc members and if there is a general partnership you’ll need to disclose that too.
FAQs
Is owning an LLC worth it?
There are many advantages to owning an LLC, including personal asset protection, flexible tax treatment, and the ability to raise capital more easily. LLCs also tend to be less expensive and easier to set up than other types of businesses. However, there are some disadvantages to consider as well, such as the potential for higher taxes and increased paperwork.
What is the difference between a limited liability company and a corporation?
The biggest difference between an LLC and a corporation is that an LLC offers its owners limited liability protection, while a corporation does not. Limited liability means that the owners’ personal assets are protected from debts and liabilities incurred by the business. Corporations also have greater flexibility when it comes to raising capital and distributing profits. However
Can I open an LLC and do nothing with it?
No, you cannot. LLCs are required to file annual reports even if the business is not actively operating. Additionally, LLCs that do not take steps to keep their businesses in good standing may be dissolved by the state.
What is an LLC and how do I start one?
An LLC, or limited liability company, is a business structure that offers its owners limited liability protection. LLCs are relatively easy to set up and maintain, and can be a great option for small businesses and entrepreneurs. To start an LLC, you will need to file the appropriate paperwork with your state government and pay any applicable fees. You will also need to create an operating agreement outlining the roles and responsibilities of the LLC’s members.
What is the downside of an LLC?
There are a few potential downsides to consider before starting an LLC. First, LLCs offer limited liability protection, which means that the owners’ personal assets are protected from debts and liabilities incurred by the business. However, if the LLC is not properly managed, this protection can be lost. Additionally, LLCs are required to file annual reports even if the business is not actively operating. Finally, LLCs that do not take steps to keep their businesses in good standing may be dissolved by the state.
How do I search to know if my name is available?
The best way to search for available LLC names is to use a business name generator. This will help you brainstorm potential names and ensure that the name you choose is available in your state. You can also check with your state’s Secretary of State office to see if the name you want is available.
Do I need to pre-pay taxes for my LLC?
If you will owe $1,000 or more in taxes for the year, you must make estimated quarterly tax payments to the IRS. These payments are made using Form 1040-ES.
Failure to pay your quarterly estimated taxes can result in interest and penalties being assessed on the unpaid amount.
It’s important to note that even if your LLC is not yet profitable, you might still be required to make these estimated quarterly tax payments. This is because self-employment taxes are assessed on the net income of the business, regardless of whether that income is actually distributed to the owners.
Do I need an operating agreement?
An operating agreement is not required in every state, but it is a good idea to create one regardless. An operating agreement outlines the roles and responsibilities of the LLC’s members, as well as how the business will be managed. This document can help prevent misunderstandings and disputes among the LLC’s owners.
Tips for Operating your LLC
Now that you’ve got your business entity formed, it’s time to start operating!
Here are some tips:
- Decide on the management structure of your LLC. This will determine who has authority to make decisions for the company and how those decisions are made.
- Set up a system for keeping track of finances. This includes maintaining records of all income and expenses, as well as paying taxes on time.
- Keep your personal and business finances separate by opening a business bank account and using business credit cards.
- Comply with all applicable laws and regulations, including obtaining any required licenses or permits.
- Hold regular meetings with your LLC members or managers to discuss the business and make decisions.
- Make sure to keep up with your filing requirements, both at the state and federal level. This includes annual reports, tax filings, and any other required documents.
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