If you’re starting a small business, it might make sense to consider forming an LLC. While there are plenty of reasons why people choose to do so — including tax savings and increased liability protection — forming an LLC isn’t exactly simple. If you want to start an LLC, you’ll need to file some documents with the state, pay fees, and possibly hire an attorney. But once you’ve done those things, you’ll end up with a legal entity that offers several advantages over being a sole proprietor. Here’s what you need to know about forming an LLC.
Table of Contents
1. What Is an LLC?
An LLC is a limited liability company. This type of business structure allows owners to limit their personal exposure while still maintaining ownership. In most states, LLCs must follow certain rules regarding corporate governance, such as requiring board meetings and keeping financial records.
2. When Should I Consider Starting an LLC?
There are lots of reasons why someone might decide to incorporate. For example, if you plan to raise capital, you’ll probably want to protect yourself against lawsuits. However, even if you don’t intend to take out loans, incorporating your business could help you save money. Some states offer favorable tax rates for corporations, and others offer better insurance coverage.
3. How Do I Start My Own LLC?
Forming an LLC is fairly straightforward. Most states require you to fill out a single document called a “articles of organization.” Once you complete this form, you’ll need to submit it to the secretary of state’s office. Depending on the state, you might also need to pay a fee.
Changing From Sole Proprietor to LLC
The process of forming a limited liability company (LLC) is fairly straightforward. You file the paperwork with the Secretary of State’s office, pay a $100 filing fee, and you are good to go. But it doesn’t end there. There are many steps involved in getting your LLC up and running, including:
6. Getting An Employer Identification Number (EIN)File Articles of Incorporation with Your State Government
A limited liability company must be registered with the Secretary of State in every state in which it does business. Each state requires different information about the business and the owners. For example, some states require ownership information, while others ask for the names of officers and managers. Some states even require specific types of insurance coverage.
Creating an LLC Operating Agreement
A Limited Liability Company (LLC) is a type of business entity used for many different types of businesses. In some cases, it makes sense to set up an LLC without having a separate corporation. This article explains how to do that.
The first step is to decide what you want to call your LLC. You must file a Certificate of Formation with the state where you are doing business. If you don’t know where you’re doing business, check with your local secretary of state. Once you’ve filed the certificate, you’ll receive a number called a “business identification number.” Write down this number because it will help you later.
Next, you’ll need to choose whether to operate under the laws of the state where you reside or the state where you plan to conduct most of your business. For example, I live in California, but my business involves selling products outside of California. So I chose to form my LLC under California law.
Now that you’ve chosen the name of your LLC and the state where you’ll register it, you’re ready to start creating an operating agreement. There are three main sections to an operating agreement: Articles of Organization, Management, and Memberships. Let’s look at each one.
An articles of organization is a contract between the members of the LLC. As mentioned above, there are three basic parts to an articles of organization: Name, Purpose, and Registered Agent.
Name: Your LLC’s name must include the words “limited liability company,” followed by the word “company.” For example, if you wanted to name your LLC “Lucky Dog Productions Inc.,” you’d write “Limited Liability Company – Lucky Dog Productions Inc.”Register with the IRS
An Employer Identification Number (EIN) is required for all businesses no matter what size or type. This number allows the Internal Revenue Service (IRS) to identify your business and track income tax payments. Filing your federal income taxes is optional; however, many employers require it. If you are self-employed, you must register with the IRS.
There’s a fee for applying to obtain an EIN. To apply online, go here. For additional information about filing taxes, see our guide to filing taxes.
You don’t need to file tax returns until you start hiring employees. However, once you do begin hiring employees, you’ll want to keep accurate records of wages paid to each employee.Apply for a New Bank Account
If you want to start a business, it’s important to have a business checking account. This allows your business to keep track of its cash flow and expenses. In addition, having a business checking account helps protect against fraud. If someone tries to deposit fraudulent checks into your personal account, you won’t lose money because your business account will still show a positive balance.
Five tips to help you decide whether to open one yourself or use a third-party provider.
1. Determine what type of business you have. There are three types of businesses: sole proprietorships, partnerships, and corporations. Sole proprietorships and partnerships don’t require a separate bank account, while corporations do.
2. Decide how much money you plan to hold in your business account. A good rule of thumb is to limit your business checking account to no more than 10% of your total net worth. For example, if you have $100,000 in assets, you shouldn’t put more than $10,000 in your business checking account.
3. Consider the fees associated with your business checking account. Some banks charge monthly maintenance fees and transaction fees. Fees vary depending on the size of your business. To avoid paying unnecessary fees, review your bank statement regularly. If you find errors, contact your bank immediately.
4. Make sure you understand the terms and conditions of your business checking account. Banks often offer different terms for small businesses. For example, many banks allow unlimited free ATM withdrawals, while others restrict access to ATMs outside of banking hours. Review your account agreement carefully.
5. Create a budget for your business checking account. Once you know how much money you will spend on your business account, you can set up a budget to make sure you don’t exceed your limits.Apply for Business Licenses and Permits
The process of setting up a business varies depending on what type of business you are starting. For example, if you want to start selling food products, you’ll need to apply for a Food Establishment License. If you’re planning to open a barbershop, you’ll need to obtain a Barber Shop License. You’ll also need to register your business name with the state government. To do so, you’ll need to file an application with the Secretary of State’s office.
You’ll also need to apply for any required federal licenses and permits. These include things like a Federal Firearms License (FFL), Alcoholic Beverage Control (ABC) permit, Tobacco Tax Stamp, and others. Some states require additional licenses and permits. So make sure to check with your local city/county clerk’s office to see whether you need to apply for anything else.
Once you’ve completed all of the above steps, it’s important to remember that you must keep your records for three years. Failure to maintain proper documentation could lead to fines, penalties, and even jail time.
Frequently Asked Questions
What is better LLC or sole proprietorship?
I am a new business owner and have researched the differences between an LLC and a sole proprietorship. This research is because my accountant has advised me to form an LLC because it will be easier to get financing from banks, etc. However, he also says that if I do not have any employees, then a sole proprietorship would be better.
How often do you have to renew your LLC in Maryland?
An LLC is a type of business entity that can be formed for many different reasons. It is not necessary to form an LLC if your business will only operate within the state of Maryland. Still, it is highly recommended that you consider forming one if you are planning on doing any kind of business outside of Maryland. An LLC allows you to protect yourself from personal liability and also gives you more flexibility.
How do I form a single-member LLC in Maryland?
If you are looking to form a single-member LLC, you will need to complete a Form M-1. The first step is to fill out the form completely and submit it to the Secretary of State. Then, you will receive a certificate of formation. Finally, you will need to pay $75 to the Secretary of State’s Office.
James Rourke is a business and legal writer. He has written extensively on subjects such as contract law, company law, and intellectual property. His work has been featured in publications such as The Times, The Guardian, and Forbes. When he’s not writing, James enjoys spending time with his family and playing golf.
