What To Do After Forming An LLC? (9 Steps Guide)

After forming your LLC, there are several steps that have to be accomplished before actually conducting business.

As a Mergers and Acquisitions specialist, I helped several businesses with forming their LLCs and joint organizations. After consulting our team of legal professionals, we will provide you with a detailed procedure regarding the steps you need to take after forming your LLC.

Quick Summary:

Step 1: 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

• The members' ownership percentages
• Members and managers' rights and responsibilities
• Profit distribution and loss liability
• Meeting guidelines
• Transfer of ownership
• Bringing in new members, retirement, death
• Dissolution clause
• LLC Articles of Organization
• How an operating agreement can be amended.

Step 2: 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. You need to obtain an EIN to register your company with the IRS before you can pay your business taxes. According to the IRS, they have issued over 40 million EINs since the inception of the program.

I always inform new business owners and clients to acquire an EIN because it is necessary for opening a bank account, applying for loans, and hiring employees.

Step 3: Open a Business Bank Account

An LLC needs to open a business bank account and credit card to keep your company finances separate from your personal assets. Since all financial transactions are kept within the company's account, it is easier to monitor and record cash flow.

I inform new business owners that a separate bank account will ensure limited liability protection from any legal action against the company.

It's critical to note that, while obtaining any business credit card, you should use your company name rather than your own to keep your personal and LLC finances separate.

Step 4: Get Your Business Licenses and Permits

To legally operate your company, you have to obtain certain licenses and permits that apply to your line of business. Depending on the specific business, you may need to apply for federal, state, and local permits and licenses.

The state determines if you need to obtain a general business license, DBA name registration, and sales/seller's permit.

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

Although not all states require a general business license, you should verify if your company is required to acquire one [1]. According to the U.S. Small Business Administration (SBA), approximately 60% of states mandate some form of general business license for operating within their jurisdiction.

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.

"Obtaining a business license differs from registering your business with the state; while some states mandate a state-wide business license, others only necessitate acquiring a business license at the local level, either through the county or municipality."

- Jon Morgan, CEO, Co-Founder & Editor-in-Chief of Venture Smarter

Step 5: Register For Taxes

All LLCs must register for a Tax ID Number and you should also contact your state about their tax requirements.

Before you can pay business taxes in general, you must register with the Internal Revenue Service. By default, an LLC is taxed as a pass-through entity but you have the option to switch the classification to a C corp or S corp status.

Choose your LLC tax status by determining which structure best suits the nature of your business.

If a business owner is unsure of the tax implications, I usually advise them to consult with a tax professional like an accountant or lawyer.

Depending on the line of business, structure of the company, and presence of employees, you are responsible for the following 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.

Step 6: LLC Insurance

You may need to obtain the following business insurance plans before starting your LLC:

• General Liability Insurance: General liability insurance may be used to settle any lawsuits filed against your company, to protect the finances of the LLC. It also offers coverage in case of injury or damage cost by a business operation.
• Workers' Compensation Insurance: Worker's compensation is a government mandated insurance for employees who become ill, injured, or disabled as a direct result of their employment.

Step 7: State Specific Requirements

Some states require newly-formed LLCs to file an initial report, and have publishing requirements.

An initial report is filed several months after forming your business, and contains the name and address of the business, registered agent information, business purpose, and names of the members.

In other states, a newly-created LLC is required to announce its formation through a publication notice in the newspaper. It should include all pertinent information about the company and has to be published for a certain amount of time, depending on the state.

Step 8: Compliance

Once your LLC has been registered, you need to remain compliant with the state laws by filing annual reports and paying franchise taxes. This would qualify your company to obtain a Certificate of Good Standing.

In my experience, most investors and clients prefer companies that are compliant with state business laws and have a Certificate of Good Standing.

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.

Related Articles:

• Which QuickBooks is Best for an LLC
• How to Add an Employee to an LLC
• Asset Protection Strategies LLC

FAQs

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References:

1. https://www.sba.gov/business-guide/launch-your-business/register-your-business