Being a sole proprietor comes with some risks. If you want to avoid personal liability, it’s a good idea to form a limited liability corporation or an LLC. The following information will give you the basic info needed to set up an LLC step by step.
Establish an LLC Quickly and Easily
To establish an LLC, it takes about 10 business days after you complete the necessary documents. It just depends where you file your paperwork. The documents you need to fill out are submitted to the Secretary of State’s Office where you plan to base your business.
To make things easier, it’s best to fill out the paperwork on a website that handles incorporation and the formation of LLCs and partnerships. That way, you can go to the state where you want to get established and get things started in a minimal amount of time.
Getting Started: The Steps You’ll Need to Take
To establish an LLC, you’ll need to go through the process, as follows:
1. Select a Name for Your LLC
Make sure the name is not already filed with the Secretary of State. It must be original. Check the state’s database of names before you proceed. Having an original name further protects you from liability.
2. File the Articles of Organization
The articles of organization for your LLC lays out the ground rules and structure of your LLC. These “articles” are similar to the Articles of Incorporation filed to establish a corporation.
3. Choose Your Registered Agent
You’ll need to choose a registered agent to receive or send your LLC’s official correspondence by mail. You can choose a person or a business to handle these transactions.
The registered agent should be available during the business weekday during business hours. While you can serve as a registered agent yourself, it is not advised. It’s better to make this a separate activity.
For example, if someone served your legal papers to you as the registered agent, it may prove to be embarrassing. Using the services of a business or individual is more practical from a professional standpoint. Focus on running your business and delegate this type of task to someone else.
4. Decide on Whether You Want to Make Your LLC Member-Managed or Manager-Managed
If you operate a member-managed LLC, you’re giving the LLC members a voice on how the business should operate. Therefore, they can vote on matters related to your company. If you choose to form a member-managed LLC, you’re giving the management responsibilities to an appointed manager.
5. Draft an Operating Agreement for Your Business
You don’t have to file an operating agreement with the Secretary of State (SOS) and it’s not a legal requirement to establish an LLC. However, legal experts advise you create the OA to avoid any internal arguments. If you have the agreement in place, you can resolve any management disputes without further conflict.
6. Comply with Tax and Regulatory Mandates
Depending on the type of business you operate, you may need to acquire a local license or follow certain tax rules the IRS imposes.
According to the website, the balance, if you operate your LLC independently, like a sole proprietor, you’re taxed as a disregarded entity. This means you’ll report your business income with a Schedule C as you would if you owned a sole proprietorship. You’ll include this information with your tax Form 1040/1040-SR.
If your business has more than one owner, it’s taxed as a partnership. In this case, the tax is included on IRS Form 1065 and the tax of the owner is figured on Schedule K-1. This amount is added on the LLC owner’s individual income tax return.
Moreover, you’re not subject to double taxation like a corporation. The IRS taxes a corporation on its income and taxes the company’s shareholders on dividends.
7. Complete and File an Annual Report
The annual report of an LLC is called a Statement of Information. It gives the SOS details about your company. The filing of the report keeps you compliant with state guidelines, which allows you to enjoy the liability protections accorded to LLC owners. LLC protections keep you financially safeguarded from someone suing you for your car or home (personal assets).
As the name suggests, this report is usually filed after a year’s time. However, some states, such as Pennsylvania, allow filings every 10 years (called decennial filings).
It’s important you file the report, whenever it is due, as you’re subject to fines or even the dissolution of your LLC if you forget to do so.
The report should include:
- Your LLC’s name and address
- The name and addresses of managers and members
- Identification numbers for your LLC (such as the state entity number)
- The reason for you LLC
- A listing of sanctioned signatories
- The name of your registered agent and their contact details
Establish an LLC Today
To establish an LLC, you need to go through several steps. However, once you know these steps, the process is clear and streamlined. Keep this process in mind. Make a checklist before submitting your paperwork. For further information and to form your LLC, contact the Corporation Center today at 800-580-4870.