Even if you aren’t someone that follows business on a regular basis, you have probably seen the letters LLC accompanying many different business names. What exactly is an LLC?
LLC stands for limited liability company. In business, there are various business structures. Business structures are the legal organization of your business and they range from sole proprietorship, partnership, LLC, a corporation, and a few more.
LLCs can be a bit complicated from the outside, as they combine different features from a partnership, sole proprietorship and a corporation. They’re still relatively new and make up a tiny proportion of small businesses as a whole.
As an LLC, the owners (also called members) are not personally responsible for debts and lawsuits and report profits and losses on their personal tax returns. The LLC itself can choose to be taxed as a corporation but does not issue stock like a corporation normally would.
People often choose LLCS if they see debt as a possibility, but many businesses such as banks, trust, or insurance companies are prohibited from forming one. Some states have more restrictions.
Now that you have the basics, it’s important to go over what needs to be taken into account before starting an LLC. These tips can vary state by state, so it’s important to connect with someone who can guide you along the way.
Location, Location, Location
As stated above, rules, regulations, laws, and documents can vary state by state. What may work in one state could be completely different from what you’ll have to do in another.
Before you set up your LLC, you need to decide where. Some states charge you extra fees to set up or different tax laws you’ll have to follow. It’s important that you perform a cost-benefit analysis before you set up shop.
While you can set up the LLC in a different state where you live, it’s usually encouraged to set it up in your state of residence to save you the headache and eventual travel costs.
Work with A Professional
Even if you’re starting an LLC by yourself (which is entirely possible), it’s important to have someone come in and help you navigate the winding path to LLC bliss.
LLCs offer a number of tax benefits, but for someone who is not well-versed in tax law they could be difficult to find or understand. Make sure you’re turning to accountants, advisors, or lawyers in a time of need. Even though you might try to want and do it all yourself, it’s going to be tough to manage every aspect of your future business.
Develop a Money-Raising Plan
The one big hurdle that many LLCs face is the problem with initial capital. Many investors steer away from LLCs, as they cannot have any stock control over the company. Banks are also hesitant to issue out loans to LLCs.
So when you’re out pitching to investors or family members, you need to make sure they’re well aware of your business risks. Much of this will come from the LLC’s articles of organization, spelling out the risks involved and what specifically is going to happen with their money.
In this case, it’s best to be patient and expect to hear plenty of no’s before landing on your eventual yes.
Put the Legal Issues First
When laying out items of your agenda from most important to least important, some items may fluctuate between categories. Choosing your ideal business sign, while important, may not be at the top of your list. Legal matters should always be at the top.
There are a large number of legal matters you’ll need to take care of. First, you’ll have to name your LLC and make sure it is distinguishable from all other businesses in your state. Running into a trademark issue from the beginning is a horrible route to take.
You’ll also have to set up an operations agreement, which lays out the members rights and responsibilities within the business. These are important guidelines that lay down the law for members and conduct how the business will be run.
Even though it’s a small and incredibly easy step, obtaining an EIN (employee identification number) is sometimes overlooked through all the hustle and bustle. The EIN is like the social security number for your business, and you’ll use it to hire employees and file taxes at the end of the year. Forgetting about that is a big misstep that you don’t want to commit.