Starting your own business? It’s an exciting time!
Forming an LLC (Limited Liability Company) is a very straight forward and increbibly flexible way to get going. It protects you personally and gives your business a higher level of credibility. Let’s breakdown the process step-by-step.
1. Pick a Name for Your LLC
Choose a name that’s unique (research available names), follows your state’s rules, and includes “LLC” or “Limited Liability Company.” Avoid using restricted words like “Bank” or “Attorney” unless that’s what are.
2. Appoint a Registered Agent
This is someone (or a company) who receives legal documents on your behalf. They must have a physical address in your state and be available during business hours. Note: this could be you.
3. File Formation Documents
Submit Articles of Organization to your state’s filing office, which is usually the Secretary of State. This is a relatively short form that includes basic information: LLC name, address, registered agent info, and sometimes the purpose of your business. There’s a filing fee, and some states even offer expedited processing.
4. Draft an Operating Agreement
This isn’t always required, but it’s a smart move. It outlines how your LLC will be run—who owns what, who manages what, and how profits are split. It’s especially helpful if you have business partners. For single-member LLCs this may not be necessary.
5. Get an EIN from the IRS
Your Employer Identification Number (EIN) is like a Social Security number for your business. You gotta have it. The EIN will be needed to open a bank account, file taxes, and hire employees. It’s free, quick and easy to obtain on the IRS website.
6. Register for State and Local Taxes
Depending on what you do and where you operate, you might need sales tax permits, business licenses, or payroll tax registration. Check with your state and local agencies. This process is very state specific.
7. Open a Business Bank Account
I HIGHLY recommend that you keep your business and personal finances separate. To open an account, you’ll typically need your EIN, Secretary of State formation documents, and possibly your Operating Agreement.
8. Consider Electing S-Corp Tax Status
By default, an LLC is taxed as a sole proprietorship Form 1040, Sch C (if it is single-member) or partnership Form 1065 (multi-member). But you can choose to be taxed as an S-Corporation by filing IRS Form 2553. This can help save on self-employment taxes (see other blogs posts for details) if your business earns a healthy profit. You’ll need to pay yourself a reasonable salary and file additional payroll and tax forms, so talk with a CPA to see if it makes sense for you.
9. Stay Compliant
Each year, you may need to file an annual report and most state require a fee. Keep current records, follow your Operating Agreement, and stay on top of state requirements to avoid headaches down the road.
Final Thoughts
Starting an LLC isn’t complicated—but it’s important to do it right. Following these steps will help you build a solid legal foundation for your business. If you’re unsure, consult a professional to help guide you through the process.
“Who’s Saving You Taxes?”
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