LLC's are one of the most commonly chosen business entities because of the amount of protection it affords as well as the way that its taxed. LLC's are considered flow-through entities, meaning that they are disregarded as corporations and that the income is passed down directly to the owners or investors. Starting an LLC is not that hard at all. Here are 7 steps to legally start your LLC.
1. Choose a Name for your LLC. Before making your business name legal, you should perform a name search on your states website. The website for performing a name search in New York is The New York State Department of State. For Maryland, its Maryland Business Express. After choosing a name for your LLC, then it's time to file. Every state is going to have different filing fees. To obtain a certified copy of your LLC filing, be prepared to pay a little bit more.
2. Before you finish filing for your LLC online, you'll need to assign your business a registered agent. A registered agent is really just a person or company that you entrust to accept legal mail on your behalf. For instance, if someone were to take legal action against you, your registered agent would accept the complaint on your behalf and relay the message to you. Registered agents typically can be found online and charge from around $50 to $300 per year, depending on which services you elect to have added on as extras.
You can also choose to be your own Registered Agent, which is of course FREE.
3. Create your Business' Operating Agreement. Your Operating agreement outlines your business' operating procedures when it comes to financial decisions and how your business will function. For instance, what will voting rights be among members? What will be the distribution for your company's profits and losses? And what will be the procedures for transferring interest in the event of the death of one of your members (if any)? An operating agreement addresses all of these questions and concerns.
There are tons of websites where you can create your own FREE Operating Agreement by just answering a few questions.
4. File your Articles of Organization. Your articles of Organization (similar to Articles of Incorporation, but for a different business entity), are legal documents that contain information such as:
- Name of Your Business
- Description of your business
- Who your company's members and managers are
- Name and address of your registered agent
5. Apply for an EIN Number. Please DO NOT pay anyone to get your EIN number for you. I've heard so many stories of people PAYING to get their EIN Number. It's very much FREE on the Irs.gov website. Literally, all you have to do is type in 'Apply for EIN IRS' on Google and it will take you directly to the IRS website where you can then apply. The process is quick and super easy. All you have to do is answer a few questions about your newly formed LLC and then BOOM! Done! All you have to do is choose how you'd like to receive your EIN number, by mail (which takes a few weeks), or right away (download the PDF).
If you do choose the immediate option, PLEASE SAVE THE PDF TO YOUR COMPUTER before you exit. The IRS will not re-issue your original EIN #. You'd have to call the IRS and request an EIN Verification Letter. It won't be the original EIN issuance. So make sure you save it to your computer. You could even email it to yourself so that you'll always be able to access it.
6. Open a Business Bank account. This step is super easy. To open a business bank account, you'll need proof that your business actually exists. Typically, the documentation that you'll need to start your LLC will be:
- Your EIN Number
- Your Business License (Not all banks require this)
- Your Business Formation Documents
- Your Business Ownership Agreements
Before choosing a bank, you'll want to see what they have to offer. Check out the bank's transaction fees, minimum balance requirements, overdraft fees, introductory offers, interest rates for checking and savings accounts and interest rates for credit cards.
The reason you should open a Business Bank account is because #1, you should be separating your personal finances from your business finances. Especially for auditing purposes. If you happen to get audited, then you'll have a big financial mess on your hands and could get slapped with all kinds of finds.
In the future you may need business funding to scale your business, so having a business bank account will look better to banks and other financing institutions. Also, if you want to secure a grant, a business bank account is a must.
7. Register your business with your state's department of revenue. Keep in mind, different states have different names for it. In Florida, it's called the Department of Revenue and in New York it's called the New York State Department of Taxation and Finance. You'll need to look up what it's called for your state. This state department deals with taxes you'll have to pay. You not only have to pay Federal tax to the IRS but you'll also have to pay state taxes.
The amount you'll have to pay will depend on how much money your business has made for the year (or the quarter).
Business itself can be extremely overwhelming! That's why I created The Business Burn Book. This 340 page guide will help you discover how to:
- Start an LLC
- Choose a Registered Agent
- Open a Business Bank Account
- Build your Email List
- How to Legally Protect Your Business
- How to Write a Business Plan
- Building Business Credit
- Managing Small Business Taxes
And so much more! grab your copy of The Business Burn Book now!