When forming a business there are several types of corporations you could consider. The LLC, or Limited Liability Company, is becoming more popular and many states now allow an LLC to be formed with a single member. While each type of business structure has pros and cons, an LLC can be one of the simplest and cost effective way for a small business to obtain many of the advantages of incorporating. Here are seven steps to starting an LLC:
1. Decide on a name for your LLC: Once you decide on a name for your LLC, you will need to file for the name with your state. Most states require you to use “LLC” or “Limited Liability Company” at the end of the name. You will also need to search on your states database of business names to be sure the name is available.
2. Register your business name: You will need to register the name with your state. This will include not only your registered LLC name, but also any fictitious business names that you do business under. The specific process can be obtained by contacting the corporation division of your state’s Department of State.
3. Execute your LLC operating agreement: While not required, you should develop an operating agreement. If you don’t have an operating agreement, you will have to operate under the states specific LLC operating rules, which may not be optimal for your business. To develop your operating agreement, you can work with a business attorney, or review operating agreement templates that can be found on-line. The operating agreement provides the rules for the ownership and operation of your LLC. A typical operating agreement includes member ownership, member rights and responsibilities, how the LLC will be managed, meeting rules and financial procedures. You should also have meetings, even if your company a single member LLC. Be sure you document these meetings and sign and date the minutes.
4. Develop your LLC’s articles of organization: Developing and filing your articles of organization is usually a simple process. There are templates available on-line you can review. You will also be required to name a “registered agent” during the process. The registered agent is usually one of the LLC members and will the person designated to receive any legal papers.
5. File the articles of organization: These would normally be filed with your states Department of State. There will be a filing fee required. The fee depends on your state, but is usually very reasonable. . Many states have placed the process on-line and it only takes a few minutes, once you have determined how your LLC will be organized.
6. Obtain the required licenses and permits: You will also need to assure you have any required business licenses and permits. These may include zone permits, tax certificates, selling permits and other required documents. In some states, you must also publish a notice in your local newspaper that you have formed your business. Check with your state’s Department of State and county for specific requirements.
7. Open a bank account: You will need to open a bank account for your LLC. When opening the account you will need to note how the LLC is managed, such as member managed. Be careful when completing the paper work, I have seen where the banker did not understand how to properly document the LLC. You should remember to always sign the company name and not your name on any legal documents. An example would be – “Singer Executive Development, LLC. By Andrew Singer, Managing Member.” You will also need to designate how your LLC will be taxed. If an LLC has one member and it has not elected tax as a corporation using IRS 8832, the IRS treats the LLC as a sole proprietorship. Thus all profits and loss pass through to owners Schedule C. Keep in mind, it’s always best to consult with a financial and legal adviser when first determining the best structure for your business.