What To Do After Forming An LLC? (9 Steps Guide)
Establishing an LLC is a procedural approach. After forming your LLC, there are several steps that have to be accomplished before actually conducting business.
With over a decade of practice as a business consultant for limited liability companies, I will provide you with a detailed procedure regarding the steps you need to take after forming your LLC.
The article is backed by extensive research and feedback from legal experts and lawyers.
- After forming your LLC, complete all internal requirements including the Operating Agreement, tax status, LLC name, registered agent and business plan.
- Acquire all the necessary licenses and permits applicable to your business.
- The LLC must register for taxes.
Step 1: Obtain a Federal Tax ID Number
You'll need to obtain a federal tax ID number or Employer Identification Number (EIN) for your limited liability company.
A tax ID is a 9-digit alphanumeric identifier the Internal Revenue Service (IRS) provides for free. Because if you input your social security number instead of a tax ID, you're likely to get rejected.
You must get an EIN (Employer Identification Number) from the IRS for your limited liability company even if you don't have employees.
If you do not get this and you open a business bank account to start paying yourself a salary, then guess what?
You just started paying yourself as an employee of an LLC.
So then you will need an Employer Identification Number plus a W2.
Step 2: Create Your LLC Operating Agreement
Create your LLC operating agreement to define and establish the bylaws and outline the management structure.
More specifically, the operating agreement should contain the following details:
- Name of the LLC.
- Date of Formation.
- Statement of your purpose for forming an LLC
- The names and addresses of the current members.
- The members' ownership percentages
- Members and managers' rights and responsibilities
- Profit distribution and loss liability
- Meeting guidelines
- Dissolution clause
- LLC Articles of Organization
- How an operating agreement can be amended.
Step 3: Choose Your LLC Tax Status
Choose your LLC tax status by determining which structure best suits the nature of your business.
Your LLC can be taxed as either a corporation or a partnership.
As a default, forming your LLC will be treated as a "disregarded entity" which means that it is not taxed separately, but instead, all profits and losses are passed on to the members who then report this on their personal tax return (Schedule C).
There are many pros and cons to each option, so you should consult with a tax professional before making the decision.
Step 4: Register For Taxes
All LLCs must register for a Tax ID Number and you should also contact your state about their tax requirements.
To collect sales, personal property, and other taxes, you must register with the Secretary of State.
1. LLC Taxes
- Employment Tax:
When forming your LLC with employees, you will need to pay employment tax which includes FICA (Social Security and Medicare), Federal Unemployment Tax, and state unemployment insurance. Your LLC also needs to register with the IRS and obtain an EIN.
- Sales Tax:
If your LLC sells goods or is purchasing goods for resale then it must collect sales tax in some states.
- Franchise Tax:
LLCs with a net worth of $4 million or more and that meet other qualifications must pay franchise tax on their LLC.
- Withholding Tax:
If your LLC has employees, you will need to withhold income tax, social security tax, and Medicare tax from your employee's wages.
If your LLC is the employer of any other type of worker, then you should contact the Secretary of State to determine if withholding taxes are required.
- Unemployment insurance Tax:
If your LLC has employees, you will be responsible for paying for unemployment insurance.
- Self-Employment Tax:
If your LLC has more than one member, each member is responsible for reporting profits and losses on Schedule C on their personal federal tax return.
Each member will be taxed on self-employment income at their individual tax rates which will cause them to pay self-employment tax.
2. LLC Insurance
You will need to obtain the following business insurance licenses before starting your LLC:
- General Liability Insurance
- Workers' Compensation Insurance
- Auto Insurance
- Disability Insurance
After registration, you should also file a DBA/Fictitious Business Name Statement vs. an LLC (if your LLC's name doesn't match the name on your license).
Step 5: Assign Your LLC Name
You need to assign an LLC name that is not registered by the state.
A lot of people make the mistake of not doing this at once. No, you cannot use your name as the name for your LLC (Limited Liability Company).
To file a fictitious company name with the county clerk in the state where you will be operating, you must first establish a fictitious business in that state. You can use any name you want for this business.
You must get your LLC in good standing, so the document will be transferred to your state when you register.
This is because if your company name doesn't have the LLC status it will be "unregistered" and any legal document that it sends to you or from you can be identified as a non-LLC document.
Step 6: Get Yourself A Registered Agent
Get yourself an LLC registered agent to act as a business correspondent on behalf of the company.
A registered agent is someone who resides in your LLC's state and will receive all certified mail and court documents.
This person should be accessible and available because you may need to contact them (or sue them). You can't use yourself as your own registered agent if you live out of state.
You must appoint a registered agent for the low fee of $50 to $100 by filing an appointment of agent form with the Secretary of State.
The person you appoint must be at least 18 years old.
Step 7: Get Your Business Licenses and Permits
You need to get all necessary licenses and permits for your business.
If you are operating as an LLC, then some of your licenses may require that you list the LLC's name.
Remember to always put "dba" (doing business as) on all of your licenses and permits just in case others try using them to do business under a different company name at a later date.
These licenses may also include a tax license, zoning permit, general business license, health department certification, worker's compensation certification, etc.
1. Federal Business Licenses
For an LLC selling items or services that cross state lines, a federal business license is required.
This implies that if you have a website, you'll need a federal ID number.
2. State Business Licenses
You'll also need to get a state-specific license from the state where your LLC is registered .
This license may be required for you to do business in the state, although not all states require it. These licenses are frequently only a few hundred dollars.
3. Local Business Licenses
Depending on what you do, you may also need local licenses. If you operate a service company or have employees, for example, your city or county will want to know about it. This is generally necessary before applying for other licenses and permits.
Step 8: Open a Business Bank Account
An LLC needs to open a business bank account. It has to be at a bank that keeps your company's money separate from your personal account.
It is good to have two people with authority over the bank account in case one of them is unable to access the finances.
After you open a business bank account, make sure you have a business credit card, since it can reduce the amount of documentation and save you time and effort.
It's critical to note that, while obtaining any business credit card, you should use your business name rather than your own to keep your personal and business finances separate.
Çan Arici, junior business developer at Doing Business International, also recommends the same. Using your business name for the credit card simplifies bookkeeping, and can offer liability protection by keeping personal and business expenses separate.
Step 9: Create Your Business and Marketing Plan
Create your business and marketing plan to organize your goals and objectives.
This is normally done by creating a SWOT Analysis (strengths, weaknesses, opportunities, threats) as well as an action plan with time frames for all tasks assigned to each employee.
You need to create a strong marketing plan. This includes promotion costs, budget, and target market.
You need to understand your position in the market and how you will use business and marketing plans (i.e., online and offline promotion) and keep track of budgeting.
Rich Horwath, founder and CEO of Strategic Thinking Institute, adds that the combination of both gives a roadmap on how to attract customers as seen in the marketing plan, and fulfill their needs in a profitable way as idealized in the business plan.
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Is There a Charge for Quarterly Taxes When Forming Your LLC?
There is no charge for quarterly taxes when forming your LLC.
How Much Does It Cost to File Your Annual Report?
The cost to file your annual report depends on the state where the business is registered. Some states do not charge annual report fees while others require payments between $10 (Colorado) to as much as $800 (California).
What Are the Advantages of Establishing an LLC?
The primary advantages of establishing an LLC are liability protection and pass-through taxation. Since the company and members' personal assets are separate, their property cannot be used to settle business debts or losses. Taxes are paid only on the personal income tax level.
Is It Necessary to Acquire a License if I Operate an LLC?
It is necessary to acquire a license to operate an LLC. Depending on the nature of the business and state laws, some LLCs may be required to acquire several licenses.
What to Do After Getting an LLC
As small business owners, starting an LLC is a good way to protect your personal assets.
After forming an LLC, make sure you have all the necessary information for filing your taxes and formally establishing the company before applying for a business bank account. Finally, make sure you create a business and marketing plan.