7 Steps to Success: Your Roadmap to Launching a Rock-Solid LLC

 

Are you planning to register a business as an LLC? If you are and you got confused about the process and nuances, don’t worry. Many business owners have been where you are. That’s why we’ve put together this full guide on all things related to LLC launching and what you should do to get it right from day zero. So, read on to learn how to create a rock-solid LLC.

 

What is an LLC?

 

An LLC (Limited Liability Company) is a business structure used in the United States. It combines elements of both corporations and partnerships or sole proprietorships. Members (owners) of an LLC have limited liability, meaning they are typically not personally responsible for the business debts and liabilities. This is similar to the liability protections afforded to shareholders of a corporation.

Around 21.7 million businesses in the United States are registered as an LLC. There are some reasons why it’s such a preferred registration, too. Here are some benefits and key characteristics that make an LLC an enticing route:

• Flexibility in Taxation - LLC taxation is highly flexible. By default, the government treats them as pass-through entities for tax purposes, meaning they don’t tax your business directly. Instead, you pass the profits and losses to the members, who then report them on their tax returns. However, you can also tax an LLC as a corporation if that benefits you.
• Management Structure - LLCs can be managed by the members (owner-managed) or by managers who may or may not be members. This flexibility lets you tailor the LLCs to your business's specific needs.
• Fewer Formalities - Unlike traditional C-corporations, LLCs typically have fewer record-keeping and reporting requirements. You also won’t need a board of directors, nor do you have to hold annual meetings or keep minutes.
• Ownership and Membership - There are generally no restrictions on the number or type of members an LLC can have. Members can include individuals, corporations, other LLCs, and foreign entities.
• Duration - An LLC can be perpetual or for a specified term. Moreover, you can also dissolve them upon certain events, such as the death or withdrawal of a member.

 

Pros and Cons of Registering Your Business as an LLC

 

Registering a business as an LLC (Limited Liability Company) has several pros and cons that should be considered. Let’s look at them and see if this is the best route for your business startup.

 

Pros

• Limited Liability Protection - One of the primary advantages of an LLC is the limited liability protection it offers to its members (owners). This means that members are typically not personally responsible for the business debts and liabilities, protecting their personal assets.
• Tax Flexibility - LLCs offer flexibility in how they are taxed. They can be treated as a pass-through entity, where profits and losses are reported on the members' personal tax returns, potentially avoiding double taxation. Alternatively, an LLC can choose to be taxed like a corporation.
• Operational Flexibility - LLCs have fewer formalities and record-keeping requirements compared to corporations. They don't need a board of directors, annual meetings, or meeting minutes, which can simplify your operations and decision-making.
• Management Versatility - LLCs can be managed by members or appointed managers, offering flexibility in how the company is run.
• Ownership Flexibility - There are generally no restrictions on the number or types of members an LLC can have, and the profit and loss sharing can be flexible, as agreed upon in the operating agreement.

Cons

• Self-Employment Taxes - For LLCs treated as pass-through entities, members may have to pay self-employment taxes on their share of the profits, which can be higher than corporate taxes.
• Limited Growth Potential - One of the legal challenges for startups is raising capital. An LLC might not be the best option if you plan to do that. LLCs might face limitations in raising capital, as they cannot issue stocks. This can hinder businesses looking to expand rapidly or require significant external funding.
• Varying State Laws - LLCs' rules and regulations can vary significantly from state to state, potentially complicating interstate operations.
• Paperwork and Fees - While generally less than for corporations, forming and maintaining an LLC still involves paperwork and fees, which can burden very small businesses. Still, you can find other ways to streamline your legal process or accounting if you want to.

7 Steps to Create a Rock-Solid LLC

 

So, how does one register a rock-solid LLC? Here are all the steps you should take to get started:

 

1. Choose a Business Name

 

Selecting a suitable name for your LLC is the first step, and it’s an important one. Remember that your business name should be unique and adhere to your state's specific LLC naming requirements, including "LLC" or "Limited Liability Company." 

 

You might also want to consider your business's online presence when choosing your business name. Check the domain name's availability for a future website. A well-chosen name will establish your brand. Moreover, it ensures legal compliance and avoids potential legal issues.

 

2. Select Your State of Formation

 

Deciding where to form your LLC is a strategic choice. Generally, it's advisable to establish your LLC in the state where you plan to do business because this will simplify the legal and tax processes for your business. 

 

However, some businesses opt for states like Delaware or Nevada. States like these have more favorable business laws and tax advantages. Still, you should keep in mind that creating an LLC outside your home state can add complexity, so weigh the pros and cons well and think ahead.

 

3. Designate a Registered Agent

 

You’ll need to designate a registered agent, which is the person who will act as the official contact to receive legal documents on behalf of your business. Every LLC must have a registered agent with a physical address in the state of formation. 

 

This agent can be an individual or a company authorized to do business in your state. Choose someone who tends to be proactive so you never miss important legal notices, including tax documents and lawsuit notifications. This can be the CFO or COO of your business.

 

4. File Articles of Organisation

 

Filing the Articles of Organisation with your state's business filing agency will officially register your LLC, which is a crucial step too. Your articles will include key details about your business, including its name, address, purpose, duration, and the registered agent's information. This document establishes your business as an LLC and will lay the foundation for all your operations and legal protections.

 

5. Create an Operating Agreement

 

So, here’s the thing: an operating agreement is not legally required in every state. However, it’s vital to outline your LLC's management structure and operating rules. So, whether it’s required or not, we still recommend that your business have an operating agreement. 

 

This document should detail member percentages, rights, responsibilities, and profit and loss distribution procedures. Additionally, it should cover the processes for adding or removing members. This agreement is a critical internal document, ensuring all members know the business's operation and governance.

 

6. Obtain Necessary Licenses and Permits

 

You must pick up all the necessary licenses and permits to operate your LLC legally. These vary based on your business type, location, and the specific requirements of local, state, and federal authorities. 

 

This step is crucial for legal compliance and can include a range of permits, from a basic business license to specialised permits, depending on your business activities. Failing to obtain the necessary permits can result in fines and legal challenges.

 

7. Register for Taxes and Open a Business Bank Account

 

Lastly, you’ll need to register your LLC for proper taxation. You should get an Employer Identification Number (EIN) from the IRS, which you’ll need for tax purposes and hiring employees. 

 

Next, open a business bank account to separate your personal and business finances. Commingling funds can lead to legal challenges regarding your personal liability protection.

 

We highly recommend outsourcing your books and taxes to a third party or employee. Hire someone with a bookkeeping certification or accounting degree so they know all the ins and outs of business finance. 

 

LLC to The Moon

 

We live in exciting times for entrepreneurs. To date, around 65.3% of businesses in the US are profitable. Digitalisation and globalisation have many opportunities, but it must all start with due diligence. Registering your business is a step you shouldn’t skip. So, follow the steps above and get an LLC done. When you do, you can comfortably march on and grow your business to new heights without worrying about all the legalities.