If you have a small business and are curious how to setup the structure of the business, then watch our latest TikTok on how to setup your small business as an LLC.
Part of Our Business Week Series: How to Setup Your Small Business. Click the link in my profile for free help with your LLC Formation. ##partners♬ original sound – ILoveMakingMoney
Step 1: How to Check Your Business Name
You'll want to make sure your business name is not already taken. You can search your local Secretary of State's office for any duplicate companies. We have created a shortcut that links directly to your state's Secretary of State. Click here to search.
If you don't already have a name, then check out our seven ways to come up with your business name here. Once you have your name, then in order to form your LLC, make sure you know your state's rules on your company name.
For example, your name must include the phrase LLC, L.L.C. or limited liability company. You company name cannot include words that confuse the consumer like FBI or State Department. And there are restricted words like Bank and Attorney that require additional paperwork and licenses.
Step 2: How to Register an LLC
Now, you'll want to decide who will receive your mail for the company. That person is known as a “Registered Agent”. You can choose to be your own registered agent or you can hire this out. This is perfect if you want to establish your LLC in a different state.
You'll fill out a certificate of formation with your state, similar to this. This is Texas's Form 205 which forms the LLC. As you can see the form is divided into sections called articles.
Article 1: You'll enter your name.
Article 2: You'll enter your registered agent & mailing address.
Article 3: You'll decide if your LLC will be governed by managers or members.
LLC's have two basic management structures: member-managed and manager-managed. Let's say your company is owned by you and your partner. Both of you would be listed as the owners of the business (or members). You'll make the decisions of the LLC and share equal responsibility in running the company. You opt for a member-managed LLC structure. (as seen on the form under Article 3)
Let's say 40-members of your church open up a local restaurant. Most of the members have full-time jobs and really no desire to run a business. For this reason, they would select manager-managed to manage the business. They appoint one member to manage and make decisions for the company.
Since we're talking about small business here, I'm going to assume you want to full control over the decisions of your company.
There are two items to consider:
Should you file your company in another state to save money? Click here for the advantages of filing in a state like Wyoming or Delaware.
The second item is getting help with your paperwork. Wouldn't you love to have a team helping you fill out all the biz formation paperwork? And then, wouldn't you love to get your questions answered without having to pay a fortune? We've partnered with Incfile to help you get your paperwork filed and your questions answered without charge.
Step 3: Apply for an EIN – Your Company's ID Number
Now, your company will need its own ID number. This ID number is called an EIN – Employer Identification Number. Click here for our most recent post: How to Apply for an EIN Number
Determine Your Eligibility
- You may apply for an EIN online if your business is located in the United States or U.S. Territories.
- The person applying online must have a valid Taxpayer Identification Number (SSN, ITIN, EIN).
- You are limited to one EIN per responsible party per day.
- The “responsible party” is the person who ultimately owns or controls the entity or who exercises ultimate effective control over the entity. Unless the applicant is a government entity, the responsible party must be an individual (i.e., a natural person), not an entity.
This part takes less than 7 minutes, and you'll use this number for your company's new bank accounts and IRS forms.
Step 4: LLC Setup, Creating the S-Corporation Tax Status
Once you've setup your LLC, you'll fill out form 2253 to create the s-corp tax status. The s-corporation does not pay federal taxes at the corporate level and the profits/losses flow up to the members.
What is an S-Corporation?
The definition of an S-Corporation is a corporation that is treated for federal tax purposes as a pass-through entity through a tax election made with the IRS.
Advantages of an S-Corporation
There are many advantages for electing the s-corp status that allow you to save taxes and be legally protected. These advantages are not available to sole proprietorships and general partnerships.
These advantages include:
- Protected assets.
- Pass-through taxes.
- No Federal taxes at corporate level.
- Can draw salaries.
- Shareholders can be owners of the s-corp.
- Easy transfer of ownership.
- No adverse tax consequences when transferring ownership.
QUESTION: Do You Need Checks for Your Business?
These are the hard to find laser printer checks here.
Disadvantages of S-Corporation
Before you register form 2253, make sure these disadvantages don't interfere with your company's goals.
These disadvantages are:
- Formation paperwork.
- Registered Agent (which can be you).
- Possible State Franchise Fees (for example, Texas).
- Additional State Paperwork for S-Corp (check with your state)
- Must adopt a calendar year.
- Limited to 100 shareholders.
- Foreign ownership is prohibited.
- Must pay reasonable salary.
- Dividends may be under IRS scrutiny.
If you need help with any questions or filling out any paperwork, take advantage of our partnership with Incfile. They will fill out most of your paperwork and answer any questions for $0. You just pay the filing fees with your state. Very easy. Click here to get started.
Frequently Asked Questions about LLC Setup
We've created a complete list of states so you can easily search your local Secretary of State's office. Click here to search.
Yes. We have partnered with Incfile to help you get your paperwork filled out and answer any questions you have about setting up your LLC. Click here to get started.
Yes. You must have a valid SSN or another EIN. You are limited to one EIN per responsible party and your business must be located in the United States or United States territories. Click here to apply for an EIN
Yes. An LLC can have as many managing members as desired.
Member-managed means that the owners aka members are responsible for managing the day-to-day operations of the business.
All LLC's that have employees are required to have an EIN. This is your company's identification numbers, and you'll use this for all merchant accounts, bank accounts, company credit cards and lines of credit.
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