Starting a new business is one of the best accomplishments of your life, but the time you spend worrying about personal liability or filing the right legal filing is time you spend not making your business great do.
So, learning how to form an LLC is a smart move.
In addition to protecting your personal assets from business obligations, LLCs are quick and easy to set up.
In just 7 steps and without a lawyer, we’ll show you how to set up an LLC today.
What is an LLC?
LLC stands for “Limited Liability Company”. As one of four large legal entities, LLCs are the most versatile business structure as they provide three major benefits to business owners.
- Personal financial protection from business liabilities including taxes, debts and lawsuits
- Minimal paperwork to shape and manage
- Flexibility in organization and management
Who is an LLC for?
The flexibility of LLCs means any type of business can fit under an LLC, but that doesn’t mean it’s worth it for you. Most freelancers (graphic designers, copywriters, consultants) working with a laptop and a local coffee shop will find it useless.
That’s because an LLC is a waste of time and money if you can’t take full advantage of personal finance protection. To find out if this is the case for you, ask yourself two questions:
- Do I have to go into debt for the company?
- Do I have a lot of business goods?
A no to both is a no to an LLC.
Of course, you can also look at the other three business structures (Sole proprietorship, partnerships and companies), but each of these requires you to compromise.
Sole proprietorship and partnerships are cheap and easy to set up – – But these structures put your personal assets at stake in the event you owe money or get sued (you could lose your home or car).
On the other end of the spectrum, companies can offer you a ton of liability insurance and some capital benefits (thanks to shareholders), but they are incredibly complicated and expensive to operate.
This is why LLCs are the best option for the right business owner and the best place to start for many people.
The main disadvantage for LLCs
If there’s one major downside, it’s Uncle Sam.
LLCs have a higher self employment tax and a higher profit tax than other structures.
This means you will feel a little more like a sting during tax time. Don’t let that convince you. When you take advantage of the protection, flexibility, and simplicity of personal liability, you will more than make up for those tax costs in the long run.
How to start an LLC in 7 steps:
- Choose your operating status
- Name the LLC
- Choose a registered agent
- Submit organizational articles to the state
- Choose a management structure
- Draw up a company agreement
- Get an EIN
1. Select your operating status
It is easy. This is the state in which the company should be registered. Logically, this should be the state you already live in. Technically, you can register an LLC in another state. This creates a “foreign LLC”.
A foreign LLC adds a whole host of new complications and fees. If you don’t have a good reason to choose another state, don’t.
2. Name the LLC
For an LLC, you must include some form of “LLC” in the company name. This can be the full phrase “limited liability company” or an abbreviation.
In addition, there are only three restrictions.
- Your name must be unique
- You cannot associate your company name with any government agency (e.g. IRS, FBI, DOT, etc.).
- Inserting words such as “accountant”, “lawyer”, “dentist”, “bank” and other similar titles first requires official licenses. Simply put, if you’re not a dentist, don’t say you are.
3. Select a registered agent
A registered agent is someone who sends and receives legal documents for your company and acts as an official agent. It can be you, your grandma, your best friend, whatever. As long as the agent is in the status in which your LLC is active, you are committed.
This is required by law. The government needs to contact your agent about taxes, annual reports, or other matters, so it is in your best interest to get an alert.
4. Submit organizational articles to the state
While “organizational articles” sound like high-level legal jargon, it is not. It’s just the form you submit to your Secretary of State that says, “Hey, I want to form an LLC.”
Usually a page or two in length, some basic information is required, such as your company name, business address, registered agent, and the number of members / managers on board. Print it out, fill it out, pay the fee and send it to your State Department office.
5. Choose a management structure
An administrative structure defines who you want to run on a daily basis. Would you like the LLC owners / members to manage day-to-day duties? Or do you want to hire someone else?
Small businesses tend to be member-managed (owners control things), while larger businesses may want someone else to take control of day-to-day operations while they focus on higher-level goals.
Choose what works best for your business.
6. Create a company agreement
This is not necessarily a legal requirement, but it is essential.
A company agreement is a contract that defines how electricity and profits will be distributed in your company.
Not spending time for you could be chaos. It could lead to financial disputes, internal power struggles, and anything else that would lead to an HBO drama series.
Not sure where to start? Do not worry. There are many free works agreement templates available online. We can also walk you through some of the best business practices to get you started.
7. Get an EIN
EIN stands for Employer Identification Number and is provided free of charge by the IRS. You need one to properly file your LLC’s taxes and hire employees.
There are services out there that advertise “low” fees for getting you an EIN.
They’re all a waste of money, much like extended auto warranties or fragrant garbage bags. The application takes five minutes and can be done entirely online on the IRS website.
The cost of an LLC
Getting an LLC is cheap. There are really only two costs to consider.
- First registration of organizational articles
- Annual reporting fees
For the organization articles, some states like Arizona only charge $ 50 to submit, while a state like Massachusetts costs $ 500 to submit!
Plus, the annual fee isn’t bad either. Some states like Mississippi don’t even have one while others only need it once every few years. While it usually costs less than $ 100, Massachusetts is again ruining everything by charging $ 500.
No matter what the cost to you, NEVER forget to pay it.
If you fail to meet the deadline, your LLC will be administratively dissolved so that you cannot do business (this is bad). Pay the fee on time and you are golden.
What if you move to an LLC?
For those with an existing business upfront, you have homework.
You need to make sure that everything related to the business is properly transmitted and correctly represents your LLC. This contains:
- Business accounts
- Credit cards
- Ownership documents
- Employee and customer contracts
- Logos and graphics
- and everyone else you can have
This can be as simple as updating your bank account name and address to include “LLC”. However, things can get complicated if, for example, your contracts need to be revised to reflect a new organizational structure.
Yes, forming an LLC makes your business official – – But your work ethic and focus make it successful.
You need to work on making your product or service the best you can so that you can attract customers and produce work that will blow them away.
Sure, a cute logo, pretty website, and sexy business card are great, but don’t let that take the time to find customers and sell your product / service.
Work comes first, everything else is fluff.
That means you need solid tactics, focused strategy, and the confidence to make the right business decisions. We put together Earnable – – A detailed business playbook to help you make your dreams come true and make them succeed.
Learning how to set up an LLC is a good start, but it’s nothing without the effort you put in.
How to Start an LLC: The 7 Step Beginner’s Guide was posted by: I’m Going to Teach You How to Be Rich.