If you want to start a business, or secure additional protections for an existing one, forming a Limited Liability Company, or LLC, could be the ideal choice. LLCs are designed to be an inexpensive and simple setup and are easy to operate. Most people who are thinking about starting an LLC have a long list of questions. Here is what you need to know.
The Benefits of an LLC
One of the main benefits of an LLC is that it limits the owner’s “personal liability” for any business obligations. When it comes to taxes, business income “flows through” to your personal tax return similar to an S-Corp, which can reduce your accounting costs. LLCs are also fairly simple to form compared to other business entities.
Steps for Starting an LLC
To form an LLC, you need to fill out some state-specifc paperwork. Each state has slightly different procedures and rules, but some of the steps for forming an LLC are the same, regardless of your location.
Step 1: Choose Your LLC’s Name
Most states have rules against allowing two different business entities to share the same name. For example, you can’t have “Downtown Coffee Bar, Inc.” and “Downtown Coffee Bar, LLC,” even if they’re located in different cities. Some states also either prohibit certain words in a name, such as “Treasury” or require additional paperwork to use them, such as with the terms “attorney” or “bank.”
Your first step should be to search active business names in your state. For example, if you are in Ohio, you can do this on the Secretary of State website. Once you find an available name, you might also see if you can get an acceptable domain name to market your business.
Step 2: Choose a Registered Agent
Nearly all states require that an LLC have a registered agent, which might also be referred to as a statutory agent. This is an individual who agrees to receive any official documents on behalf of the LLC. In general, it must be a state resident who is over the age of 18, and it can be a registered officer or member of the LLC.
Step 3: Prepare Your LLC Operating Agreement
Your LLC operating agreement is a document that outlines the details of running your LLC. Specifically, it states who owns the LLC, how the business will be governed, how profits and losses are to be calculated, and the rights of members should others leave the company or pass away. You may not need to file this document with the state, but you should have it on hand.
Step 4: File Your Articles of Organization with Your State
You do need to file your Articles of Organization with your Secretary of State or other designated department. This is the paperwork that lists the name of your LLC, its business address, the date the LLC was formed, the name and address of your registered agent, and the purpose for forming your LLC.
Step 5: Obtain Your LLC Certificate from the State
Once the state approves your formation documents, you’ll receive a certificate. Then, you can move forward with other business matters such as securing business licenses, opening a business bank account, and getting a tax ID number.
Orcutt & Company provides comprehensive accounting solutions to small business clients, including those that form LLCs. We deliver all of your financial and accounting solutions under a single umbrella so that you can focus on what matters most – serving customers and maximizing your business results. Contact us today to learn more about how our services can help move your business forward.