Key Takeaways

  • An LLC offers flexibility for both active and passive income ventures, including side gigs, consulting, and real estate.
  • LLCs can help you build business credit, protect intellectual property, and separate personal assets from business liabilities.
  • You can use an LLC for estate planning, joint ventures, or asset protection, depending on your goals.
  • Avoid illegal asset transfers, tax evasion, or commingling of funds, which can undermine your LLC protections.
  • Proper setup, documentation, and compliance help you make the most of what you can do with an LLC.

What can you do with an LLC? Forming a limited liability company is a crucial first step toward setting a good foundation for your business and protecting your personal assets.

What Happens After Forming an LLC?

Creating your limited liability company is just the start. You're legally poised to open for business, but there are several steps you need to take before the business is official.

First, obtain the necessary permits and business licenses. You will need to obtain these separately and check for any permit requirements. Depending on what type of business you own and its location, you may need to secure a license through the county, town, or state. Forming an LLC alone isn't the same as getting a business license. Examples of permits and licenses include:

  • Zoning permits
  • Professional licenses
  • Health department permits
  • General business operation licenses
  • Home occupation permits

Fortunately, many of these licenses are inexpensive and easy to obtain. Getting one upfront will ensure your business operates legally and avoids any fines. Just be sure to research your local requirements carefully.

Many states also require a seller's permit, which is required for LLCs, sole proprietorships, partnerships, and corporations that sell taxable services and goods. For instance, a seller's permit is required in California for any business that leases or sells property subject to the state's sales tax. You must get the necessary seller's permit before selling anything to the public.

Next, obtain an Employer Identification Number from the Internal Revenue Service. Also known as a federal tax ID number, an EIN serves as a way of identifying your business to the IRS for tax purposes and for tracking its transactions. Think of it as a Social Security number for your LLC. You don't necessarily need an EIN, unless you hire employees, but it's still good practice to obtain one because you can give the number to vendors and clients without providing your Social Security number.

If applicable, apply for S corporation status. An LLC is a pass-through tax entity by default, which means that the company's profits and losses are passed through to the members and then reported on their tax returns. In some cases, electing S corporation status may benefit the business because you can split profits into distributions and salaries. You'll still pay self-employment tax on the salaries, but not on any distributions.

File Form 2553 with the IRS to elect S corporation status within 75 days of forming your LLC or from the start of the existing tax year.

Finally, open your business bank account and apply for a business credit card. You can open the account under your LLC name, which means you can accept checks payable to your company. Since LLCs and corporations are obligated to separate their personal and business finances, it also makes sense to have a business-related credit card. When you put all your company expenses on the credit card, you have an automatic paper trail that makes it easy to review end-of-the-year expenses.

After forming your LLC, it's time to insure the business to keep it protected from losses. Consider getting a business owners policy (BOP) or general liability insurance.

Expanding Opportunities With Your LLC

Once your LLC is formed, you can use it as a foundation for multiple business activities beyond your initial venture. For example, an LLC can:

  • Operate Multiple Businesses Under One Entity: You can run several projects under the same LLC using “DBAs” (Doing Business As) to create distinct brands without forming multiple companies.
  • Serve as a Holding Company: Some entrepreneurs create LLCs to hold ownership of other businesses or assets like real estate, intellectual property, or equipment, reducing liability exposure across ventures.
  • Facilitate Family or Estate Planning: An LLC can be used to manage family assets and investments, simplify inheritance processes, and minimize estate tax complications by clearly defining ownership interests.
  • Create Partnerships and Joint Ventures: LLCs make collaboration simple by allowing flexible ownership percentages and management roles for partners without corporate formalities.

These expanded uses make an LLC not only a business structure but also a strategic financial tool for long-term growth and protection.

Establishing Business Credit and Financing Options

Once your LLC is established, building a business credit profile is crucial for future financing options. Starting with a dedicated business credit card and applying for a Dun & Bradstreet D-U-N-S Number can help establish creditworthiness, enabling access to loans and better credit terms. Many suppliers offer credit options to established LLCs, which can aid in managing cash flow for inventory or expansion without dipping into personal funds.

Leveraging LLCs for Investment and Expansion

After building your business credit profile, you can use your LLC to attract investors or apply for financing more easily. Banks and investors often prefer working with LLCs because they provide clear ownership and legal protection.

You can:

  • Bring in Investors Through Membership Interests: Instead of issuing stock, LLCs can grant “membership units” or ownership percentages to investors.
  • Apply for Business Loans or Grants: Having a separate business credit score strengthens your eligibility for funding programs targeted toward small businesses.
  • Use Profits for Reinvestment: LLC owners can reinvest profits into equipment, hiring, or expansion without double taxation, since income flows through to members’ tax returns.

This flexibility helps your LLC grow organically while preserving control over its operations.

Setting Up Payroll for Employees

If you plan to hire employees, setting up a payroll system is necessary to manage tax withholding, benefits, and compliance. Payroll services, such as Gusto, ADP, and QuickBooks Payroll, can simplify this process by automating calculations and filings. An organized payroll system ensures timely employee payments and compliance with tax regulations, which is essential for your LLC’s reputation and legal standing.

Exploring LLC Benefits for Side Gigs and Passive Income

One of the cool things you can do with an LLC is use it to manage side gigs or generate passive income. Many side hustlers create LLCs for projects like freelancing, consulting, real estate investing, or e-commerce. An LLC provides a professional framework for invoicing clients, paying subcontractors, and managing related expenses. Passive income ventures, such as rental properties, can also benefit from the tax advantages and liability protection an LLC offers, allowing for both asset growth and protection in these secondary income streams.

Obtaining Intellectual Property Protection for Your LLC

Your LLC can own trademarks, patents, and copyrights, making it easier to protect and manage intellectual property (IP). Filing for trademarks or patents under your LLC separates the IP from your personal assets and ensures that it remains with the business even if ownership changes. This is particularly advantageous for businesses that build valuable brands or develop unique products, as it provides a layer of protection against infringement and misuse.

Using an LLC to Protect and Monetize Your Brand

Beyond simply owning intellectual property, you can strategically license or sell your LLC’s IP to generate additional income. Many creative professionals and inventors use LLCs to:

  • License Patents or Trademarks: Licensing allows others to use your creations in exchange for royalties while keeping ownership under your LLC.
  • Sell Intellectual Property Rights: Transferring IP ownership from your LLC to another business can provide significant capital while maintaining liability protection.
  • Hold and Protect Multiple Trademarks: A single LLC can own several trademarks or copyrights, making it ideal for managing multiple brands under one entity.

Managing IP through an LLC ensures legal clarity and strengthens the business’s overall value if you ever sell or expand it.

Hiring Contractors and Using Non-Disclosure Agreements (NDAs)

Hiring independent contractors is a common practice for LLCs, especially when a flexible workforce is needed. Drafting clear contracts and using Non-Disclosure Agreements (NDAs) protects sensitive information and clarifies the relationship with contractors. By hiring as an LLC, you can set up contracts under the LLC name, thereby reinforcing separation between personal and business liabilities.

Avoiding Commingling of Personal and Business Funds

To preserve the liability protections of your LLC, it's essential to keep personal and business finances separate. Commingling funds — such as paying personal expenses from your LLC account or vice versa — can lead to "piercing the corporate veil," where courts may hold LLC members personally liable. Always use dedicated accounts and keep clear records to demonstrate that the LLC operates as an independent entity.

Maintaining Legal and Financial Integrity

One of the most important rules for what you can do with an LLC is maintaining its independence from your personal finances. To keep your LLC in good legal standing:

  • Document Major Decisions: Keep meeting minutes or written resolutions for significant transactions, even if you’re the sole member.
  • Renew Annual Filings and Pay Fees: States often require yearly reports and fees to keep your LLC active.
  • Track Distributions and Contributions: Properly document when members add or withdraw funds to avoid confusion during tax time.
  • Obtain Adequate Insurance: Liability or errors-and-omissions coverage can reinforce your LLC’s protection, especially if your business operates in high-risk industries.

These actions help demonstrate that your LLC is a distinct entity, maintaining the “corporate veil” that safeguards your personal assets.

Activities to Avoid With an LLC

While you can achieve great things with an LLC, there are also activities that can get you into trouble with the law. For example, if you transfer your personal assets to the LLC in an attempt to protect them, you've fraudulently conveyed those assets. Fraudulently conveyed assets include those that are:

  • Transferred or sold under fair-market value
  • Transferred in an attempt to keep creditors from seizing them

You cannot form an LLC as a means of avoiding a creditor. Fraudulent conveyance is considered a civil offense and will cost you a lot of money in legal fees. You also can't form an LLC with the intent to avoid paying taxes or reduce your tax burden. Tax avoidance is legal and acceptable, which includes transferring money to a Roth IRA to defer taxes, but avoiding them altogether is considered a crime that could result in jail time.

If going into business with a partner, make sure you know the person and go into the relationship with your eyes open. You both want to stay on the same legal page.

Smart Legal and Tax Strategies for LLC Owners

To make the most of your LLC’s flexibility, consider lawful ways to optimize taxes and long-term success:

  • Choose the Right Tax Classification: Electing S corp status can reduce self-employment taxes, while C corp treatment may suit businesses planning to reinvest profits.
  • Deduct Legitimate Business Expenses: You can deduct startup costs, professional fees, and business-related travel under your LLC’s name.
  • Plan for Succession: Drafting an operating agreement with succession clauses ensures your LLC continues smoothly if an owner leaves or passes away.
  • Avoid Personal Guarantees When Possible: Keep business credit strong so that loans and leases rely on the LLC’s reputation—not your personal assets.

These strategies help owners balance compliance, tax efficiency, and long-term protection while expanding the potential of their LLC.

Frequently Asked Questions

  1. What can you do with an LLC besides run a business?
    You can use an LLC to hold assets, manage real estate, license intellectual property, or structure family investments.
  2. Can one LLC own another LLC?
    Yes. An LLC can serve as a holding company that owns one or more subsidiary LLCs, often for liability protection or organization.
  3. How do I pay myself from my LLC?
    You can take owner draws or a salary, depending on your tax election (default pass-through, S corp, or C corp).
  4. Is it possible to change my LLC’s purpose later?
    Absolutely. LLCs are flexible; you can amend your Articles of Organization or operating agreement to include new activities or industries.
  5. What are the most common mistakes LLC owners make?
    Mixing personal and business finances, skipping annual filings, and failing to keep written agreements are common issues that can jeopardize liability protection.

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