The Right Way To Form An LLC

Limited Liability Companies (LLCs) are an innovative way for an entrepreneur to separate his or her business from their private finances and assets. Investopedia defines an LLC as a corporate structure existing within the United States, whereby the owners are not personally financially liable for whatever debts that the company may incur during its operation.

Because an LLC is defined in state law as opposed to federal law, the stipulations for the formation and incorporation of an LLC may differ between locations. LLCs are useful entities for small business entrepreneurs. According to CNBC, setting up an LLC allows an individual to play around the current tax law system, enabling the owner to get back more of their money.

LLCs are an inexpensive way for new entrepreneurs to get a business name incorporated before the start of their marketing. It does take a bit of research to get off the ground, but the necessary steps for forming an LLC remain the same regardless of which state the company exists in. Some businesses offer LLC information to help new business owners in creating their own companies.

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Step 1: Name Search

Each Secretary of State website has a name-search function. An LLC’s name needs to be unique, and to this end, the name search facilitates looking through the register to find out if a company name already exists. The name also needs to end with an allowable designator. In some states, that identifier may be “Ltd.,” but it might just as quickly be “LLC” or the words “Company Limited.”

Step 2: Registered Agent Definition

The Houston Chronicle notes that a business needs a registered agent that has a permanent address and that the company may even choose to act as its own agent once it is based at a reachable physical address.

While a small business owner could potentially use their own address for their registered agent, it increases the chances of them getting spam and unwanted mail. Online companies offer the service of a registered agent for a fee. The default registered agent for a company is the Secretary of State unless the owner defines otherwise.

Step 3: Articles Of Organization

Before the company can be incorporated, the owner must officially inform the state of his or her intention to open an LLC. This document is referred to as The Articles of Organization, although in different states, the particular name may be different. In most countries, the form can be filled out online, or printed, filled out by hand, and then mailed.

Step 4: Operating Agreement

The operating agreement lists all the owners (referred to as “members”) of the LLC. The document also contains the percentage of the business that each member holds. In the case of a solo business owner, it is possible to have one person own the entirety of the LLC. Alternatively, there could be a board of owners, with ownership split among them as they agree.

Step 5: Employee ID Number

LLCs exist to ensure that people’s personal finances don’t get caught up in the running of their businesses. To aid in this endeavor, the Employee ID Number (EIN) is assigned to the company by the IRS once the LLC is approved. The EIN (also called the Federal Tax ID Number) identifies the company to the IRS for tax purposes. The IRS typically assigns EINs to LLCs in minutes after their approval succeeds.

Step 6: Business Bank Accounts

Remaining with the idea of keeping business funds separate from personal funds, a new bank account should be opened for the company. The Articles of organization, EIN, and two forms of identification are usually enough to open a bank account for an LLC. The bank account is crucial to the success of the LLC. Operating an LLC out of a personal bank account is possible but defeats the entire purpose of registering the LLC in the first place.

Step 7: File Reports

Many states require an LLC to file reports, either once or twice a year. This ensures that a company’s information remains current. The reports are registered with the Secretary of State to ensure that anyone who wants information about the business can easily access it.

Other Laws May Apply

While these steps are the general guidelines for incorporating an LLC, individual states may have particular requirements. Some states like New York and Nebraska have legislation predating the internet that requires the business owner to publish the intention of forming an LLC with a local newspaper. In some cases, these laws may not significantly affect the formation of the company.

However, for example, taking out an ad in the paper may set an entrepreneur back by $1000. Registration of the company itself may not cost that much, but the stipulations for completing the process may have added costs attached. LLCs are perfect for entrepreneurs that need a way to operate a legitimate business entity.

Registration is relatively inexpensive, making it an ideal solution for new business owners that haven’t had experience with owning their own enterprise previously. LLCs are also a safe way for regular entrepreneurs to navigate the tax system and reclaim more of their earnings within the strictures of the law.

If you are interested in even more business-related articles and information from us here at Bit Rebels, then we have a lot to choose from.

IMAGE: PEXELS