Forming an LLC: 11 Steps to Take after Your Business Is Established
Congratulations! If you have recently organized your business as a Limited Liability Company (LLC), you have taken the first step to becoming a proud business owner. Forming an LLC involves registering your company with the state, filing an operating agreement with your state, and paying registration fees. But this is just the beginning. Before you can officially open for business, you must take the following 11 steps to give the business the best chance of success.
Name Your Business Properly
The name that you register the LLC does not need to be the name you put on your letterhead, signage, and marketing materials. Your name should be creative, informative, and broad enough to appeal to the consumers you want to attract. There are three considerations when choosing the business's name.
One of the reasons you decided to register your business as an LLC was to limit your personal liability. When you are considering which name to use, remember that you should always use some variation of “Limited Liability Company,” “LLC,” or “Ltd.” For example, if your company is called Computer Solutions, be sure to call it “Computer Solutions, LLC.”
A company is “doing business as” when it operates a name that is different from its legally registered LLC name. If you are an LLC, you cannot use the name Corp, Co., or Corporation as part of your name since you are not registered as a corporation. In some states, the law requires you to register under a fictitious name. Research your state to find out the requirements for doing business under another name than the one you filed as the LLC.
You do not need to trademark the business name, but you should be certain that the name does not infringe on anyone’s trademark. If another company decides your name infringes on their trademark, they could get an injunction from a court to prevent you from using it. You can hire an attorney or a trademark research firm to ensure you will not run into problems later.
Get an Employer Identification Number
The next step to take is to register for an employer identification number, also known as an “EIN.” Although a single owner can use his or her social security number to file taxes on an LLC, the better practice is to simply get the EIN. The EIN allows the federal government to track wages and payments to employees, independent contractors, and others.
There are three ways to apply for the EIN with the federal government.
- You can register on the IRS' website by answering questions and entering your social security number.
- You can apply by telephone by calling (800) 829-4933.
- You can complete IRS form SS-4 and submit it by mail.
If you register online or apply by telephone, the IRS can verify your information in minutes and will immediately issue your EIN. If you submit your application by mail, the IRS will give you an EIN within four weeks.
Consider using accounting software to track your revenues and expenses. Alternatively, consult with an accountant who can help you implement the best fiscal practices so you start on the right track.
The first thing you should do is define your fiscal year. If you intend to keep your fiscal year in tune with the annual calendar ending on December 31, then your taxes will be due every April 15. If you are the sole member of the LLC, you can file one tax return. However, if there is more than one member, then each person must file their own personal tax return, in addition to filing one for the business.
Appoint a Registered Agent
A registered agent is a person who is officially authorized to receive:
- service of process;
- official correspondence; and
- other legal notices.
In most states, you must have a registered agent if your business is an LLC. If you live in a state that does not require a registered agent, then you should still appoint one so that your business can be contacted by appropriate authorities. This is especially important if your company does business in one state but maintains its physical location in another state.
Lawyers, accountants, and other professionals can act as registered agents. There are also companies that provided registered agent services in all 50 states for a nominal fee. In some cases, the members of the LLC elect to be their own registered agent.
Get a Business Bank Account
It is essential to establish a separate business bank account for your LLC, which makes it easier to separate your business expenses from your personal expenses.
You will need at least one authorized signer on the LLC business account. Although bank account signers do not need to be members of the LLC, when you are considering who else should be a signer, look to your co-members first. Since signatories are authorized to conduct business on behalf of the LLC using the bank account, including withdrawing money and closing the account, the person you choose should be trustworthy.
To establish a business bank account, you should bring the following documents and people to the bank:
- LLC operating agreement
- Proof of your Employer Identification Number (EIN)
- All persons who will be signatories and their personal identification
Get a Merchant Account or Line of Credit
One area often missed by new business owners is setting up a merchant account to accept credit cards and establishing a line of credit for purposes of obtaining financing for the business.
According to the most recent U.S. Census, there are 181 million credit card holders in the United States, which accounts for over half of the population. That means whether you have a brick-and-mortar store or a strictly online e-commerce site, your business needs to accept credit cards.
When it comes to merchant accounts, the best thing to do is establish an account with Square or PayPal while you assess how many payments you will process by credit card. Both Square and PayPal have low overheads and are merchant-friendly. Although there are many other options, they often have significant processing costs and hidden fees if you do not meet a monthly quota.
Before signing up with a third-party card processor, you need to have an idea of how much money you process on cards so you can find the account that is best for your needs.
Many banks also have merchant-friendly accounts for its members, so do not overlook partnering with your bank.
LLCs should get a business credit card. In addition to giving the business more flexibility in spending, the regular credit card statements also help the business track its expenditures. A business credit card is also a good way to earn credits, perks, and cash back. For example, some credit cards offer discounts on some services, like rental cars or airline tickets, which can help you save a few dollars.
If you use the business credit card to pay vendors, you will be able to make sure you don't take too much money out of cash accounts, which helps you avoid a cash flow problem. Many businesses then pay the credit card in full every month.
Insure Your Business
No one likes thinking about insurance, but it is a necessary expenditure. In the case of an LLC, one of the reasons to choose the structure is because it insulates you from personal liability. But that isn't the end of the story. The LLC structure does not protect your business from losses. You should evaluate your assets and buy business insurance to cover them in the event of a loss.
The most common types of insurance for LLCs include:
- general liability insurance;
- product liability insurance;
- professional liability insurance;
- commercial property insurance; and
- home-based business insurance.
If you have employees, then you are required by law to have some types of insurance, like workers' compensation. Research your state's laws and contact your local insurance agents to discuss a policy that meets the LLC's needs.
Research Your State's Requirement for Licenses and Permits
Do not overlook the licensing, permitting, and regulatory schemes that apply to the business. Consider the following issues:
- What kind of business are you operating? The regulations that apply to your business depend largely on what kind of business you are in. Lawyers, for example, are regulated in a different way than home healthcare aids. Food service providers are regulated differently than auto mechanics. Establish which industry you are in and look for laws that apply to that industry.
- Are you regulated by the federal government? You only need to meet federal licensure requirements if you are in a business that is regulated by a federal agency. If you sell firearms, then you are regulated by the Bureau of Alcohol, Tobacco, Firearms and Explosives. If you are in financial services, then your business is governed by the Securities and Exchange Commission. However, most LLCs are generally governed by state and local laws.
- Does your business require professional training? If the LLC is a member of a specific occupation—such as law, medicine, cosmetology, accounting, or massage therapy, to name just a few—then there are state training and licensure requirements it must meet before advertising its services to the public.
- Do you need a local permit? Most localities have their own licensing requirements. You may need a general business license to operate in the county. Bars and restaurants have their own local permits and licenses they must have before opening for business. The local health department issues permits for businesses engaged in food preparation.
- Have you overlooked any local quirks? Some cities have laws regulating your signage. Others require permits for use of elevators, for fire safety compliance, or for businesses that operate in residential areas. The best way to be aware of these laws is to speak with a representative of your local business licensing office to make sure there is nothing you have overlooked.
Some LLCs are run by one person or just by the members, but if you intend on hiring employees, many additional considerations are necessary. Having employees triggers your responsibilities to pay taxes, keep records, and verify your employees' right to work. It also should trigger your responsibility to ensure you maintain a healthy and fair workplace.
When you pay people to work for you, you need to determine whether they are employees or independent contractors. You must properly define the relationship before work begins in order to avoid difficulties at a later date.
Whether a worker is an employee or an independent contractor determines the business's tax liability. If your workers are employees, then you must pay state and federal unemployment taxes, social security tax, workers compensation insurance, and in some cases, health insurance premiums. If the workers are independent contractors, the employer does not have these obligations.
The LLC also has obligations to notify their employees of their rights and inform them of the employer's expectations.
- Notices – If you have employees, you must post notices regarding workers' compensation and fair employment practices. You can obtain these notices by contacting your state's workers' compensation department and by contacting the US Equal Employment Opportunity Commission (EEOC).
- Company policies – To keep your workplace running efficiently and to protect your business from liability, you should have a clear employee handbook that establishes your company's rules and policies on sick days and annual leave, payroll, dress code, anti-harassment policies, and more.
Work with Independent Contractors
There are many different sources of law to define independent contractor. Generally, the IRS and state laws focus on the level of control the employer has over the person and the work they perform when they assess whether the person is an employee or not. The way a person is compensated is another key factor in the analysis.
- If a person receives a regular paycheck, then the IRS tends to view them as an employee.
- If they are paid on a per project or other basis, then the IRS leans toward classifying the person as an independent contractor.
The nature of the work performed is another measure of the relationship between the person and the employer.
- If the work is temporary or per project rather than integral to the business, then it is more likely to make the person an independent contractor.
Other factors that suggest a person is an independent contractor rather than an employee include:
- whether the person supplies their own tools;
- whether the person purchases the materials on their own; and
- whether the worker has regular hours or can set his or her own working times.
Working with independent contractors does not mean you do not need to maintain records. In order to define the relationship and scope of the work performed, you should complete an independent contractor agreement before work begins. This will also help guide you if problems arise at a later date.
Protect Your Intellectual Property
All new LLCs should identify intellectual property and take actions to protect their interests. Intellectual property refers to products of the mind, like patents (inventions), trademarks, and copyright. Even if you are not in a business that needs patent protection, you may have trademarks and copyrights to protect.
A trademark is a brand name. Trademarks are relatively easy and inexpensive to register and can be done with or without a lawyer. Once the application is filed to use your distinctive name, slogan, or other qualifying mark, you may use the designation (TM).
Copyright protects the following works:
- Music and sound recordings
- Motion pictures
- Architectural works
- Computer programs
Copyright protection gives the owner the sole right to copy or modify the work. Copyright is inherent in the work you create, but there are two additional ways to protect your copyrights. First, register with the United States Patent and Trademark Office for a small fee. Second, ask employees and independent contractors to sign confidentiality agreements prohibiting them from disclosing, misusing, or stealing your copyrighted materials.
To be a successful business, you need to master the small details during the set-up phase. That means being aware of the laws that apply to your business and satisfying your obligations before you begin. This may seem like a lot of effort, but as the founder of Etsy, Rob Kalin, observed, “[t]he last 10% it takes to launch something takes as much energy as the first 90%.” By completing these 11 steps after forming your LLC, you prove that you have both the vision and the will to execute your business strategy.
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