What Should I Know Before Starting an LLC?
A limited liability company is perhaps the most popular business structure for new businesses.
LLC’s provide the benefit of limited liability protection as well as pass-through taxation, meaning there is no double taxation, as with C corporations.
In other words only the owners are taxed and there is no tax at the LLC level.
Setting up an LLC isn’t too complicated and the rules vary slightly from state to state.
Before forming your LLC, here are a few key steps to get your started:
Select the State where you want to create your LLC
Usually your LLC is formed in the state in which you will be doing business, but some business owners choose to create their LLC in a different state for various reasons. If you plan on doing business in multiple states, you will need to make sure you register in all states where you will be doing business.
Name your LLC
Before creating your LLC, you will need to select a name for your LLC. Just remember to choose a name that isn’t already being used and one that doesn’t contain terms that are prohibited by law (such as “bank” or “trustee” or “insurance company” etc). You can conduct an internet search or use a naming company to help generate name ideas.
File the Articles of Organization
The Articles of Organization are filed with the Secretary of State and they are what legally form your LLC. You will need to designate a registered agent for your LLC and pay a filing fee which varies by state. Learn more about articles of organization here.
Create an LLC Operating Agreement
The LLC Operating Agreement is not required but highly recommended, especially with LLC’s that have multiple members. In a nutshell, the LLC Operating Agreement highlights the financial, management and other rights and responsibilities of each member.
Get an Employer Identification Number (EIN)
You can file for an EIN with the IRS and receive an employer identification number immediately once your application is complete. Most banks require an EIN to open a business account or apply for funding.
Local, State, and Federal business licenses are required depending on the type of industry you are in. For example, if you are opening a beauty salon, you will need to apply for the proper licenses and permits to run your business. Business license and permit information can be found at your local state government website.
Open an Business Bank Account for your LLC
While some single-member LLCs just operate under a joint personal and business bank account, this is not recommended. Opening a separate bank account for your LLC will help you better track your finances and will come in handy come tax time.
Stay on top of Required Filing and Renewals
Most states have some sort of annual reporting requirements and you will want to make sure you stay on top of those deadlines. Missing a deadline could lead to fees and even the cancellation of your LLC.
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IRS.gov "Apply for an Employer Identification Number (EIN) Online" Page 1 . April 19, 2021
IRS.gov "Business Taxes" Page 1. April 19, 2021
IRS.gov "Starting a Business" Page 1 . April 19, 2021