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A Business Owner’s Guide to Forming an LLC

Are you ready to take your innovative business idea to the next level? The thought of being your own boss is exciting, but before starting your journey, you need to decide the right structure for your business. Your decision will have far-reaching repercussions for your business, so it requires careful selection. Factors like tax treatment, regulations, personal liabilities, etc., are governed as per the business entity’s form. It could be a partnership, corporation, sole proprietorship, or you could take the formal step of forming a Limited Liability Company (LLC).

Why Choose an LLC?

Setting up an LLC is one of the easiest, fastest, and most efficient ways to start a company. They offer many of the benefits associated with corporate filing but come with less paperwork. Moreover, they protect the owners without any kinds of complications. The hybrid form of business entity offers the flexibility of management and operation and yet limits the liabilities of owners by placing them on the company. Owners are often referred to as members in the case of LLCs. While even a single person can start an LLC, there’s no upper ceiling on the number of members. LLCs also enjoy the flow-through taxation benefit, limiting double taxation on both the company and the owners. LLC formation is a relatively straightforward process. Let’s look at a few things to know before forming an LLC.

Choosing a Name

Most business owners get stuck when it comes to naming their business, as everyone wants their entity to have the perfect name. While the LLC’s name must comply with the state’s rules, you can pick any name as long as it’s not the same as an already registered business within the state and has an abbreviation or full form of Limited Company or Limited Liability Company at the end. Don’t worry; you won’t be stuck with the name you’ve picked because this name is mostly going to be used on legal documentation. You can always file a Fictitious Business Name (FBA) or a Doing Business As (DBA), allowing you to use the name of your choice for the brand, while the LLC’s name remains the same.

Filing Articles of Organization

You need to file articles of organization with the Secretary of State or relevant corporate filing authorities. Some states call the document a ‘certificate of organization’ while others call the document a ‘certificate of formation.’ The completion usually requires the name and address of the LLC, information about the registered agent, and other details, such as the owners’ name or how it will be managed. There’s a filing fee associated with the articles, but it’s modest in most states.

Professionals discussing documents before signing

Choosing the Registered Agent

You’re required to have a registered agent who can accept the legal papers on behalf of the LLC if it gets sued. This could be a company or an individual and must have a physical street address within the state the LLC wants to get registered. One of the LLC’s members can also act as the registered agent, but it’s recommended to choose commercial registered agents to avoid potential complications.

Creating an Operating Agreement for the LLC

While most states don’t require this document, it’s a good idea to have an LLC operating agreement for your entity. The internal document established how the LLC will be managed or run publicly and internally, helping you start at the right foot for business success. The operating agreement sets down the relationship between all the LLC members and ensures full protection offered by the LLC business structure. If the document is absent, your LLC’s operation will be governed by state law instead.

Tax Regulatory Compliance

LLCs have certain additional regulatory and tax requirements. For instance, if the entity has more than one member, it must obtain an IRS EIN (Employee Identification Number), even if there are no employees currently. If your LLC has a single member, the EIN will only be required when you hire employees or elect to have it as a corporation rather than a disregarded entity, such as sole proprietorship. You should also consult with professionals to learn if you’ll require business licenses or need to pay sales and employer taxes.

 

If you need help with business plan development, new business advisory, industry-specific tax compliance, or innovative tax planning, experts at Nidhi Jain CPA can help you streamline end-to-end business solutions. We present a comprehensive comparative analysis to help you make an informed decision regarding incorporating your business entity with the right structure.

 

Our tax advisor in San Jose and different cities deliver top-of-the-line payroll services, personal and business bay area bookkeeping and accounting, tax filing, tax consultation, and back tax solutions to help businesses manage their finances accurately.

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