How to Form an LLC
Your new business is your baby.
So let’s take good care of it from the start.
Truth be told, you probably don’t have to become an LLC. (Shocker!) You can run as a sole proprietor and not register with your state.
Keep in mind, some licensed professions like law and engineering (and other specific industries) require registration.
But there are some reasons why you may want to register your business.
Here’s how to know when it’s right for you...
The Benefits of Registering
If you don’t register your business, then you’re personally liable for everything that happens in it. That means your personal assets (like a car, house, bank account) can be used to pay business debts.
The main benefit of registering as an LLC (Limited Liability Company) is that you receive limited liability. You won’t be personally liable for your business anymore.
An LLC protects you from losing your personal assets.
One big reason to skip registering is to save money.
The cost depends on your state. In most states, it’s around $100 per year, which isn’t too bad.
But in some states, like California, you’ll pay $800 minimum in LLC tax per year.
So make sure you can afford it and it’s worth the risk.
You should also consider how difficult the process is to register.
For example, LLCs in New York have to publish a notice in the newspaper to become an LLC.
When to Register
Registering depends on your level of risk.
You may want to register from day one or you might be comfortable waiting until the business grows.
In the end, it all boils down to when you start feeling uncomfortable about being personally responsible for the business.
Your level of risk also depends on your industry.
It's recommended to register early if your business has a physical location or carries certain products (food, beauty, kids products) because of the greater risk of lawsuit.
All in all, consider your risk and the level of personal financial liability you can handle.
Your business, your decision.
So you’re ready for an LLC.
Here’s the process to start one…
Register with the State
It's pretty simple. You'll have to register your new LLC with your state and then fill out annual paperwork and fees.
First of all, double check your state filing fees and minimum taxes to make sure it works for you.
It can be expensive in some states like California or have a tricky process like New York.
You can typically file online at your state corporations’ website.
Look for Additional Filings
Read the LLC website and confirmation paperwork to see if other filings are due in upcoming months.
For example, in California, a Statement of Information is required a few months later.
Check Taxes and DBAs
You may need to register for state taxes as well.
You can typically do this online or when you file your LLC. Look at your confirmation paperwork to learn about the tax process.
You may also need a DBA if you’re doing business under a different name than registered.
Check your Renewal
Read the LLC website and confirmation paperwork to see when you need to renew your company.
You’ll want to keep up with renewals to avoid late fees and cancellation.
Create an LLC Agreement
An Operating Agreement is a great idea when you have more than one owner or considering investors.
It spells out the process for making decisions and how to resolve any issues in the company.