(Newswire.net — April 14, 2020) — If you’re interested in starting a formal business entity for your operation, one of the best options is a limited liability company (LLC). However, before you can create an LLC, there are some things you’ll be required to have in place (and a few things recommended to have beforehand).
What You Need to Start an LLC
Let’s look at some of the things you should (or must) have before creating an LLC:
- An understanding of laws in your state. LLCs are business entities you can create throughout the United States, but it’s important to realize that the rules for creating and maintaining LLCs will vary from state to state. For example, in your state, the fees for creating an LLC may be higher or lower, or you may be required to submit an annual or semi-annual report. Make sure you understand the laws in your state thoroughly before you begin to formally create your LLC.
- Access to personal information. To create an LLC, you’ll need to have a registered agent, who will act as the person responsible for this LLC. In most cases, this is the person deciding to create it (i.e., you). Make sure you have access to the personal information of everyone registered to this LLC, including names, addresses, and social security numbers (SSNs).
- A business name in mind. When you register your LLC, you’ll need to choose a business name that’s unique. It’s important to have a business name in mind before you begin this process. It’s also wise to have a backup plan, in case your chosen name is already taken.
- An LLC operating agreement. In many states, you’ll be required to have an LLC operating agreement in place before you start the LLC. Even if this isn’t a requirement, it’s recommended that you have one. Your LLC operating agreement will explain how your LLC will operate, including naming the key partners of the LLC, how those partners contributed to the company, the rights of those partners to receive profit distributions, and other key pieces of information.
- An LLC certificate. Once you formally register your LLC with your state, you should receive a certificate that finalizes the business’s creation.
Once you have these things in order, you can consider your LLC officially launched. From here, you’ll need to work on other items that may be necessary for you to run a business properly. For example, most LLCs will need to have a federal tax ID number and/or a state-level tax ID number. You may also want to have a business bank account.
Additionally, most businesses benefit from the documentation of a formal business plan. Even if you have a solid idea that you feel confident in, a business plan will help you research and clarify the finer points of that plan.
The Advantages of an LLC
Why would you create an LLC in the first place?
There are several types of business entities you could use as your foundation. Sole proprietorships and partnerships are easy to set up, requiring little to no paperwork, while LLCs and corporations are treated as separate entities from a legal perspective. LLCs afford their owners several distinct advantages, compared to these other options, including:
- Financial responsibility. Because an LLC is considered a separate entity from a legal perspective, you can use it to handle the business’s finances. The LLC can take out a loan (instead of you taking out a loan personally) and can manage its own assets and liabilities.
- Liability protection. “LLC” stands for “limited liability company” because it shields its owners from liability in many cases. If the business breaches a contract or could otherwise be held legally responsible for damages, your personal assets won’t be vulnerable. There are some exceptions to this, especially if you take personally negligent action on behalf of the business, but you’ll still be better protected.
- Income and tax control. LLCs are considered pass-through entities for tax purposes. Rather than paying taxes on the revenue they generate, partners, shareholders, and employees will pay taxes on whatever they take from the business as profit or salary. This provides you with some degree of control over how you’re taxed. Note that taxation laws for LLCs vary from state to state.
- Simplicity. Compared to a corporation, which is also a standalone entity, LLCs are simple. They don’t require much paperwork to start, are easy to understand, and take far less time to actively manage.
Starting an LLC isn’t difficult, and could protect you from a variety of financial and legal issues down the road. Make sure you have everything you need to launch your LLC quickly, and don’t hesitate to reach out to a lawyer if you have questions.