This is an article by Sujain Thomas. She is a marketing expert. She is working with agencies to promote the right marketing practices . She is a regular speaker and commentator on business development, marketing and sales seminars nation-wide. Feel free to follow her on Twitter, LinkedIn, Facebook, and Google+.
Any business startup would like to acquire the LLC (Limited Liabilities Company) entity due to its flexible business structure that offers attractive tax benefits and legal benefits to its owners. In an LLC, the liabilities of the owners are limited, whether the owners are individuals or partners and there is complete asset protection. The flexible nature of the LLC structure gives scope for lowering taxes that increases profits, as taxes are attributable to any entity. Whether the business is member managed or manager managed, it is possible to determine who has liability protection and who has the control. Besides the flexible structure of management and ownership, the pass through taxation is a big attraction of LLC. It helps to avoid double taxation as found in C- Corporations. The tax is on the owners only and not at the LLC level.
Seeking professional guidance makes the complicated task of forming LLC easy for you. There are several legal compliances necessary and the complex legal matters, and the taxation structure is not easy to comprehend without expert advice. However, you must have the basic knowledge about forming your LLC. As you read on you will come to know about how to proceed in organizing it.
Decide on the state where you want to have your LLC
Although it is not always mandatory, it is advisable to register it in the state where your business is located and where transactions will happen, subject to the laws of the state. Most states want it that way and business owners prefer it because it entails fewer fees and the process is simpler. However, if your business operations cover many states, then you must register your business in all those states. You have to file separately to the Secretary of State of the respective states by paying the necessary fees.
If your business does not have any physical location like an online entity, you can select any state for registering it if you find favorable tax structure in that state. As Delaware has well developed laws, many people choose it.
Give it a name
Choose a suitable business name for your LLC by referring to the laws that govern the naming of business. There are some guidelines and restrictions in naming that you must follow.
- The name must end with the designation Limited Liability Company or suitable acronyms like LLC or Ltd or something similar as stipulated by law.
- You cannot use the words insurance, bank, corporation, inc. and trust in the name as the law prohibits it.
- The name cannot be similar to any other business name registered in the state, whether foreign or local entity.
- Avoid using any name that infiltrates on trademarks used by others.
- If you want to project your business in any name other than the formal LLC name then you must file a “doing business statement” for a fictitious company name.
Choose a name that upholds the distinct identity of your business without any ambiguity and makes it easy for distinction from your competitors. If you want to do business in multiple states, then the name should be unique for all the states where you have to register.
File the Articles of Organization for LLC
As a new LLC, you must file the articles of organization that includes the names of members of LLC (owners) and their contact details by paying the requisite fees that can vary from $30 to $200, depending on the state. The filing of articles of organizations marks the formation of LLC. The document includes a statement of purpose for the business and in some states, it is required to declare how you intend to manage the business – all company members will manage it, or there will be one or more managers. Designate a registered agent for LLC duly authorized to receive any legal documents and mention it in the document. A professional company can take up the role of registered agent, or any member can take it up.
Execute the operating agreement
It might not always be mandatory by law to have an operating agreement, but it is advisable to have one in place so that it clarifies the roles, responsibilities, obligations and liabilities of the members (owners). The interest of the members in the business are clarified through the agreement as also how the company is managed and how profits and losses will be distributed, how new members will be admitted, the policy of resignation of members and rules for holding meetings and voting rights are all covered by it. How managers who run the business remain indemnified is also included in the agreement. The agreement captures the details of the business arrangement.
Get an employer identification number (EIN)
If your business is not a one-man show where you are the only one to run it, generally you assume the role of an employer as maintain must have employees and in this context, you must obtain the Employer Identification Number (EIN) from the Federal Tax Identification Number. It is now easy to get the number online by logging on to the IRS (Internal Revenue Service) website. The EIN is required to open a business account with any bank.
Obtain necessary licenses for business
Any business will need a license that you must get from the local, state of federal government. Some companies that deal in firearms and alcohol would require licenses from all three levels of the administration. Check with your local and state authorities for the type of business license that you need.
Open a bank account for LLC
This is the final step in forming LLC. Open a bank account for your business by using the articles of organization, EIN number and in some cases a resolution of LLC that authorizes opening of the account. Mention the names of signatories who will operate the account together with their authority levels at the time of opening the account.
Finally, check with the state laws to ensure that if there is a requirement of filing annual reports you comply with it.
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