Getting Started

How To Start An LLC For A New Business

Learn the steps to create your own limited liability company (LLC), from forming to running the business.

The steps of starting a business follow a nearly standard guideline regardless of what industry you’re in. Here is a step-by-step guide on how to start an LLC company. Let's dive in.

Step 1: Start Up Your Business

When learning how to start an LLC, you should first determine the state in which you want to run your business. Different states have different requirements for businesses. For instance, Nevada and Wyoming do not tax business income, and Delaware does not tax income from out of state.

But if you don't live in any of these states, you might end up paying more taxes since you will still need to pay your home taxes in addition to business taxes. As such, your home state is likely the best location to start a business. 

Once you have your location figured out, create a business name for your LLC. Keep in mind that you can change your business name later. Be light and precise when choosing your business name. Filing a Doing Business As (DBA) is another option to consider if you can't settle on one business name at this point.

Your name should be unique, it should not include protected words like Bank or Hospital, and it must consist of LLC. Also, get a website domain that matches your business name immediately to prevent others from owning your business name's domain. Create an email address for your business too. 

Step 2: Register Your LLC

Both the state and federal agencies require new businesses to get permits and licenses before starting operations. Also, you need to consider whether your business is in an industry with federal regulations like agriculture, fish and wildlife, aviation, mining, drilling, or nuclear energy.

The state might also have regulations you must meet before starting your new business. Fill in any forms necessary for business registration with your local and federal government. For instance, an LLC is required to register for several state and federal taxes, like sales tax if your business will sell physical products and a franchise tax for merely having a business.

Employment tax registration is also necessary if your business has employees. Some states like New York and Nebraska might require you to publish the opening of your business in the local newspapers. 

Therefore, contact the business license department in your local region to ensure you know the requirements needed for starting your business.

Step 3: Get Your Funding

Funding is a major concern for many business owners looking at starting an LLC. Nonetheless, you have numerous funding options like using your assets, getting informal loans, or expanding your LLC membership numbers. 

Consider each option carefully before you settle on a funding option. If you decide to start the LLC using your assets, consider your risk if the business fails. For example, if you take a personal loan, a bank loan, or use your credit cards to start the business, losing the company might mean losing your home and other assets like your cars or bank account savings. 

Taking an informal loan from family and friends might also cause significant complications with your relationships if you fail to make promised payments. Also, loans come with additional interest fees you need to consider.

As such, inviting new members to your LLC business to offer additional funding might be a safer bet. But this also means that you share ownership and profits from your business. Nonetheless, choosing the right members might give you added professional experience to boost your business growth, sustainability, and success strategies.

Less risky options include getting government-sponsored grants or funding from peer-to-peer lending sites. You might need to be in a specific industry or be a particular type of business owner to get a government-sponsored grant or loan.

But if you get one, the interest rate and the repayment period will be much more reasonable. Peer-to-peer sites like crowdfunding sites also provide funding from individuals interested in your business.

Some of these funding sites require no repayments, and others might give you angel investors or venture capitalists ready to fund your business. Or, learn more about small business administration investment programs and apply for a business loan. 

Step 4: Define Your Roles

Defining your roles in the organization helps to ensure your business structure works for you before you start operations. As such, create an operating agreement that establishes the legal separation between your personal assets and your commercial assets.

The operating agreement is also essential for ensuring you get limited liability protection from your LLC. It allows you to define your members, their roles, and their share of the business ownership and profits.

The operating agreement also details the member in charge of the LLC, the procedure for making business decisions and reaching a deal, and the method used to fund the business. This is necessary to ensure you don't butt heads with other members in the LLC. 

Step 5: Find Legal Help

You don't necessarily need legal help when starting an LLC since you can file all the legal documents yourself on the IRS and Secretary of state website. 

However, it is prudent to get an attorney to help you through the registration process to avoid mistakes, especially if you are starting a multi-member LLC, your assets are complex, your financing is in a bank, or you have no ideas how to start an LLC.

An attorney will help you create the operating agreement, articles of organization and select the acting registered agent for your business. An excellent attorney will also keep all your legal documents safe and ensure that everything is filed appropriately in case of audits or lawsuits.

On the other hand, you’ll likely need an attorney to deal with legal issues such as commercial leases for your real estate and employment contracts once you have formed your LLC Company. As such, consider getting a lawyer from the start of the process to ensure everything is legally covered.

Get a tax lawyer, a business lawyer, and an intellectual property lawyer as well to ensure your taxes, tax returns, business contracts, and products or services meet the legal business requirements in your state. Hiring one legal firm might be an easier option.

Another person to hire to help start your LLC is an accountant to take away the hassle of bookkeeping and other tasks like structuring your business entity, applying for licenses, creating your business plan, and setting up your sales tax.

An excellent accountant will also set up your payroll issues and handle any requirements you need for business reporting. Get an accountant to keep your LLC compliant and reduce your tax liability. 

Step 6: File Your Corporate Documents

Start by filing your articles of organization with your Secretary of State. These documents should include your business name, address, and registered agents' address. It should also have all the names of your founding shareholders and members.

The articles of organization also indicate your statement of purpose, expected duration for the LLC, and the date the LLC went into effect. Usually, articles of organization come in a package of three for you to choose from.

The first is the basic formation, including the information needed by the articles of organization and the operating agreement. The second is the complete formation providing information about your registered agent service in addition to the basic formation. The third part includes a business website, the security certificate, and the website domain.

Additionally, get an employer identification number (EIN) through the IRS because it represents your nine-digit tax identification number. Your social security number can act as your EIN if you are a single-member LLC.

But if your LLC is a multi-member company, you must file and register for the EIN. The government allows business owners to file for one online, and you'll receive the number instantaneously in your business email.

Don't forget to get the right business insurance. For instance, the Federal Government requires every employer to have worker's compensation, unemployment, and disability insurance.

As a business owner, you should also consider whether you need general liability, professional liability, home-based business, product liability, commercial property, and business owner's policy insurance.

If you have an online service business, these insurance policies might not be necessary. Nonetheless, liability insurance will protect your business assets just as the LLC protects your personal assets. Also, general liability and worker's compensation insurance are vital if you work in an industry where employee injury is highly probable. 

Step 7: Establish Your Registered Agent

Your registered agent is the point of contact for your new Limited Liability Company (LLC). For instance, if an attorney follows up on a case with your business, they will visit your registered agent. Therefore, ensure you choose the right agent for your business.

Usually, a registered agent might be a company, an individual from your shareholders, or yourself. Any individual who is 18 years of age and older can be the registered agent if they have a residential address in the same state as your business.

However, refrain from appointing yourself as the registered agent for your company because your personal information, like your registered address, will become public. Additionally, as a registered agent, you cannot take a sick day, vacation days, or leave the office during business hours.

These rules are set to ensure that any legal documents do not fail to reach your company. As such, the best-registered agent is a third party like a registered agent service or your lawyer's office. Keep in mind that you'll pay a higher fee if you choose a law office as your registered agent.

A registered agent service also benefits from being professionally equipped to handle your legal documents properly. 

Step 8: Keep Your Corporate Papers Close

One of the vital things to learn early on how to start an LLC business is the importance of keeping your corporate records close, including meeting minutes, which is necessary if a liability arises. The IRS already requires firms to keep records like tax records in case of an audit or if you want to change your business tax returns.  

Business corporate papers help you attain loans if you need to grow your business and strengthen your position in negotiations for factors like insurance policies or business contracts. It is crucial to keep your corporate business papers for at least seven years to ensure you have ample time to amend your tax return.

Keep your employment tax documents for four more years after paying your employment taxes. Additionally, keep your HR documents for at least five years and any additional business asset records until the period of limitations is over.

Other corporate records like the EIN, annual reports, business formation documents, licenses and permits, business loan documents, insurance policies, corporate by-laws, and shareholder meeting minutes should be kept permanently. 

Step 9: Set Up Your Business Accounts

Even if you've decided to branch out into freelancing and start a single-member LLC business, ensure you have a separate bank account for your new business. A business bank account protects you from the corporate veil that can deem your limited liability protection null and void.

Additionally, a business bank account will process your credit card and POS transactions. It also makes it much easier to pay your business taxes since a bank account maintains easy bookkeeping. Another benefit of opening a separate business account for your LLC is that it allows you to build your business credit and gives you legitimacy as an actual professional business entity. 

Step 10: Know What To Report

Keeping your new business in line with your state ensures you sustain your LLC business. As such, look through your state website to determine the reporting requirements for an active LLC company. For instance, many states require an annual filing fee for your LLC business.

Every LLC member should also report their profit share as part of their personal tax returns. Hiring laws in states also require that your employees are eligible to work in the United States and that you report any new hires and show that you pay your employees at least minimum wage.

You also need to show that your LLC complies with employment laws by placing posters in visible areas around your office space. Annual meetings and detailed company records must also be reported to the state.

Step 11: Finalize Your Business Entity

Now that you know how to start an LLC, get your lawyer and accountant to help you finalize your business before officially starting operations. For instance, they can advise whether you've fulfilled all the requirements of the IRS to start a business. 

A business evaluation expert can also conduct an audit to ascertain that everything is in order.

What To Do Next

Start running your LLC now that you have everything put in place. The most probable step would be hiring employees for the organization and creating your marketing strategy. 

With solution providers like Hoist, you can even present all these documents to a team of experts that will run much of the business for you.

Hoist takes on your busy work like business registration, brand creation, and marketing. The result? You focus on your craft while we handle the rest. If interested, get in touch with Hoist to start and run your new painting business hassle-free.

Sources:

How To Fund Your Start-Up Business Idea | forbes.com

Articles of Organization Definition | Investopedia

LLC Filing Fees By State | How Much Does an LLC Cost? | Incfile

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