If you’re thinking of opening up a small business, one of the things you need to do is establish your limited liability company (LLC). It can offer your business protection and many benefits to enjoy.
As of 2019, the number of small businesses in the US stands at 6.08 million firms and 27.1 million non-employers. Forming an LLC is essential whether you’re a company or a non-employer. Read on to learn what an LLC means and how to set up your own.
What Is a Limited Liability Company (LLC)?
A Limited Liability Company (LLC) is an arrangement American entrepreneurs can establish for their enterprise operations. As a small business owner, starting an LLC can protect your assets in case of liabilities, debts, and bankruptcy.
State statutes permit LLC. These state statutes vary, meaning your state’s LLC may not be others’ statutes. Each state has different regulations. It’s essential to take note of these and understand your state’s LLC statute conditions.
Some states don’t limit ownership, which can make anyone create an LLC. However, entities like banks and insurance companies cannot form one.
An LLC can also allow flexible taxation options because businesses don’t operate similarly. You can either be taxed as a sole proprietorship or as a corporation.
Here are the types of LLCs.
- Single-member – Owned by a single person
- Multi-member – Owned by multiple members
- Low-profit (L3C) – The bridge between nonprofit and for-profit LLCs that don’t necessarily prioritize earnings
- Series – Allows unlimited segregation of member assets
- Professional (PLLC) – Available only to certain licensed professionals
- Restricted – Untaxed during the first ten years and cannot create member distributions
Importance of LLC
An LLC is integral to your small business. It can serve your enterprise in many ways.
- Asset protection – LLC’s purpose is to protect your assets in case of legal trouble.
- Establishment of a legal entity – LLC can separate your legal and ownership entities, making your business less attractive to lawsuits.
- Pass-through taxes – Instead of paying corporate income taxes, your profits and losses pass through your tax returns.
- Cost-efficiency – Filing for an LLC can be quick and cost-efficient, which makes it ideal for your small business.
Setting Up Your LLC
Forming your LLC should be based on your state’s guidelines because all 50 states can have different laws and processes. Below are the general steps you can take to set up your LLC.
1. Create your business name
Creating your business name for an LLC can be time-consuming. You should think about the branding and your state’s law regulations.
Your state may not allow you to use a business name owned by other entities already. Some states may not allow specific words that infer you’re a particular business. You may also be asked to affix “LLC,” “LTD,” or “Ltd. Co.” at the end of the business name as a requirement.
2. Appoint a registered agent
All states require registered agents for LLCs, so you should appoint one for your business. This agent is responsible for receiving official and legal documents for your LLC.
A registered agent is not younger than 18 years old. You and one of your employees can be one. They should be living within your state and be available during business hours. You can also employ a registered agent service like doola to help you with all the legalities.
3. Prepare and file your LLC articles of organization
Once you have your registered agent and they finally receive the documents, start preparing your articles of organization form. Some states refer to it as the certificate of formation.
This form contains the state’s requirements for an LLC. These requirements include basic information such as business name and address, purpose, LLC management, registered agent contact, and LLC duration. One or more business owner signatories may also be needed.
Double-check the form before filing it. After double-checking, proceed to submit it to your state. Expect to pay a filing fee.
Filing fees vary depending on the state. Other states’ charges may not be the same as your state.
When everything is approved, the state will issue a formal registration certificate. You can use it to apply for a corporate bank account and tax ID number acquisition.
4. Establish an operating agreement
An operating agreement comprises all relevant data about your LLC operations. This information includes your LLC’s financial, legal, and member management rights. Additionally, it has profit distribution and member contributions.
Some states may not require you to create one, but it doesn’t mean you shouldn’t. Operating agreements can ensure a consensus that everyone agrees on their rights and obligations. Hiring an attorney may help craft this agreement for you.
5. Keep your LLC reputable
Setting up your LLC doesn’t end there. You should ensure it remains reputable in your state. You may need to file annual LLC reports with fees to keep your trustworthy standing. Regularly check your state’s business filing website to be updated on their guidelines.
LLC Is Ideal for Your Small Business
Forming an LLC can be a daunting task. You should take your time and pay attention to every detail your state requires. However, the process will be worthwhile when done right. In return, your small business can significantly benefit from it.