Should I Set Up an LLC: Everything You Need to Know
Should I set up an LLC? A limited liability company is easy to form and may benefit you.3 min read
- Choose a business name. It should be unique in your state and have an LLC name attached to the end of it, such as “LLC” or “limited liability company.”
- Create and file Articles of Organization. This document is simple to create, with some states having a fill-in-the-blank form to use. It may require one or several member signatures.
- Appoint a registered agent. This individual will act as a connection between the LLC and any legal matters, performing tasks such as sending and receiving documents. Usually, the registered agent is a member of the business.
- Payment of required fees. The number of fees varies by state.
- Publish a Notice of Intent. You may need to announce to the public many weeks or months before that you plan on forming an LLC. Check your state laws to see if this is a required for your business.
- Create an Operating Agreement. While it may not be required by all states, this should be created to prevent conflict among the members of your LLC. It shows the members their rights and what is expected of them.
How Can an LLC Benefit a Small Business?
The most appealing benefit of an LLC is asset protection through limited liability. Double taxation won't be an issue due to the IRS only taxing the individual members in the business based on their total income and losses. Your business will look more established and can be managed any way you would like.
When Should an LLC Be Formed?
Forming an LLC can make running your business easier. Most states only ask for a fee to be paid, Articles of Organization to be filed, and annual reports to be sent in.
An LLC helps prevent you from paying high self-employment taxes. Many LLCs have a partnership set-up where the members have the LLC pay their share in taxes. Other types of taxes may need to be paid, depending on the state your LLC is formed in.
Key Issues in Setting Up an LLC
To do business in various states, you may have to register and pay required fees with each state's Secretary. Besides the usual name requirements, your state may prohibit certain words like "incorporated." Your name must also not violate a registered trademark. Consider taking the following steps when choosing a name:
- Do a detailed search on the Internet of the name you'd like to avoid issues.
- Check to see if the domain name is available.
- Register a Fictitious name or DBA if you want to do business with another name.
Advice for creating your “Articles of Organization” before filing includes the following:
- Keep it short and simple.
- Assign a “registered agent” that will send and receive legal documents for the LLC.
- Fees and additional taxes may apply.
- The purpose of the LLC must be stated.
- You may have to choose how the LLC will be managed.
The Operating Agreement for an LLC's members should state the following:
- How much capital must given, when it's due, and consequences if contributions are not made
- How profits and losses will be divided among the members
- LLC management
- Appointment of officers
- Voting powers
- Protection for LLC managers
- Regulations on LLC interest transfer
- Meeting procedures
- Dissolution procedures
The following should be considered if your LLC is looking for investors:
- Most investors prefer corporations.
- If LLC units are to be given to investors, it may be wise to get advice from an attorney to avoid legal problems.
- Investors should know that investments are not risk-free.
- Any investor rights should be stated in the Articles of Organization and the investor rights agreement, if there is one.
The IRS will issue you a free Employer Identification Number (EIN) if you wish to hire employees and open a business bank account. You may also need a business license. The LLC may need a Membership Ledger, which states who the members are, how many units each holds, and other related items. It's also important to amend any filings if information on your LLC changes.
If you need help with setting up an LLC, you can post your job& on UpCounsel's marketplace. UpCounsel accepts only the top 5 percent of lawyers to its site. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale Law and average 14 years of legal experience, including work with or on behalf of companies like Google, Menlo Ventures, and Airbnb.