Date: April 7, 2023
Helpful Guidance for Forming a New LLC
An LLC (Limited Liability Company) is a popular entity choice for many small business owners. It offers the liability protection of a corporation while avoiding some of the drawbacks of a corporation like extra requirements, double taxation, and more. (1) To form a Limited Liability Company (LLC), you will generally need to follow these steps:
• Choose a business name – Choose a name for your LLC that is unique and not already registered in your state. You can search for the business name availability using the Secretary of State website for your state.
• Apply for an EIN (Employer Identification Number) – An EIN is a unique identification number assigned to your LLC by the IRS, having an EIN prevents you from having to use your social security number on tax forms from your customers and establishes your business as a separate legal entity (separate from you personally).
• Designate a registered agent – this is someone who will receive the necessary legal documents for your business. This can be you, an employee, or a company of your choosing.
• File The Articles of Organization with the state in terms of the applicable state law, these are your business formation documents that set forth how the business will be managed and taxed.
• Complete the Entity Classification Election Form (IRS Form 8832) if you are changing an existing LLC to a partnership or corporation and vice versa.
• Create an LLC Operating Agreement – an Operating Agreement is a document that outlines the ownership of the organization, details the operating procedures of the LLC and lists how certain situations will be handled/addressed.
• Open a business bank account – opening a separate bank account for your LLC will help you keep your personal and business finances separate, which is very important. Not only will it help ensure you don’t have to constantly look over your shoulder worrying about an audit, but it will also give you accurate information on how your business is performing.
• Obtain the necessary business licenses and permits (this varies by state)
• Know and abide by the relevant employment laws – hire an expert to make sure you stay in compliance.
• Learn the requirements to remain in good standing.
Legal Support to Add a Member to an LLC:
If you want to add a member to your LLC, you are required to do the following:
1. Add the names of the new members to your Articles of Organization.
2. In your Operation Agreement, stipulate how the membership interests will change.
3. If your LLC has been paying taxes as a sole proprietorship, your accounting books and records must be closed when new members join your company.
4. If your LLC adds new members during the tax year, you are required to file a short-year tax return for the current year.
Overall, an LLC is a good choice for businesses looking for liability protection, flexibility in management and taxation. However, it is important to consult with an attorney or Tax Expert to determine if it is the best business structure for your specific needs. If you would like to speak with someone to see if your business is in the best entity type tax-wise, we are happy to help. We are passionate about ensuring our clients don’t overpay in taxes because of selecting a business structure that no longer suits them. Click here to speak with one of our tax experts today.
References:
(1). Rob Watts, Cassie Bottorff (Forbes Advisor- How To Start An LLC In 7 Steps – 2023 Guide)