Starting your business venture is an exciting time in your life! Sure, you had your doubts, but you’ve finally decided it’s time to make this dream a reality. According to the Small Business Association, over 627,000 new businesses get started every year. That means you’re in good company.
Starting your new venture won’t be easy — nothing worth having is — but it will get you started on the road to entrepreneurship which is your heart’s desire.
When starting your business, it’s important to determine the form of business your venture should take on. If you’re thinking of a Limited Liability Corporation or LLC, good choice. Of the four major forms of businesses (sole proprietorship, partnership, corporation, and LLC), LLC is a popular choice among small business owners. An LLC provides liability protection, management flexibility, and tax advantages for the business owner.
What Is an LLC?
An LLC is a business structure that offers limited liability protection and pass-through taxation. That means business income or loss is passed through to the owners and can be reported on their personal income tax returns. Since LLCs exists as a separate entity from its owners, the owners can’t be held personally responsible for any debts and liabilities.
There are fees associated with starting an LLC. Depending on the state you live in, there may be an initial formation fee. Some states also impose ongoing fees, such as annual reports and/or franchise tax fees. Check with your state corporation commission or agency of similar status to ensure you know the necessary fees to pay.
How To Form an LLC
It’s not difficult to form an LLC. Although it’s easier to form an LLC than a corporation, there are still some basic steps to adhere to:
Step 1: Choose a State To Form Your LLC
Choose the state you would like to do business in, or at least, the main office for your business. For most people, this is the state in which they live. Whatever state you choose, make sure you know the LLC laws, cost, and taxation affiliated with owning an LLC. Laws vary from state to state. A state corporation commission or similar entity is available in each state. Find the one associated with the state you’d like to open your business to become familiar with their LLC laws.
Step 2: Name Your Business
You will need to give your business a name. This name should be unique; no one else can have it. When you register your business, you can also search to ensure no one else has the business name you have. If the name you choose is already taken, you’ll have to start over with a different name.
Step 3: Choose a Registered Agent
Choose a registered agent for your business. A registered agent receives important legal notices and tax documents on behalf of your business. Consider this person, the official representative for your business. Should any type of complaint or liable suit come about, it’s the registered agent who will be notified.
Step 4: Prepare an LLC Agreement
Some states require an LLC to have an operating agreement. An operating agreement spells out how the business will operate. It names all of the owners, their stake in the business, and what should happen should one of them leave the business, among other things. This is a great document to have if there are multiple owners in the LLC. Even if the owner is the only member of the business, an operating agreement is still a good tool to have in place. It not only keeps the owner on their toes about how the business operates, but it also lays out the ground rules for future members.
Step 5: File Your LLC
Your LLC is not official until you actually submit the paperwork to the appropriate state. That would be a Certificate of Organization, Certificate of Formation, or Articles of Organization, with the department that handles the formation of business entities.
Also, check with your county of residence to ensure you have the appropriate business license. Some counties require an actual business license to be a vendor at events and for other reasons.
Step 6: Get Your EIN
Your business’s EIN or employee identification number is as important to your business as a social security number is to an individual. Go to the IRS website to properly apply for this. Your EIN will be used for your business bank account and tax filings.
Step 7: Open a Business Account
You will want to keep your business account separate from your personal account. The way to do this is to open a business account using your EIN rather than your social security number. Do some thorough research on banks before opening an account. Not all banks handle business accounts the same, and you’ll want to work with a bank that will be a good option for your business and provide it with the best options for growth.
Congratulations on your LLC!