Congratulations! You have just formed and are now a business owner of an LLC. I bet you’re asking...now what? Having an LLC, or any other legal entity for that matter is not the end of your business journey.
It's just the beginning. Here are 9 things you can do after forming your LLC to start your new business on the right track:
Step 1: Obtain a Federal Tax ID Number
You'll need to get a new tax identification number for your LLC, or you should at the very least double-check that all of your future documents include the correct ID number.
A tax ID is a 9-digit alphanumeric identifier the federal government (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 LLC 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 now you will need an Employer Identification Number plus a W2.
Step 2: Create Your LLC Operating Agreement
The Operating Agreement is a vital document that outlines the rights and responsibilities of each member/manager.
Operating agreements ensure that you have a clear direction for your LLC, which means you're taking the necessary steps to protect yourself from any potential liability.
Furthermore, it holds everyone in the business accountable for their actions and assists with better communication.
This is the most important step.
When forming an LLC, you need to make an agreement that tells what each member of the group can do and what they will do if they leave or die. If you don't do this now, it will be hard to solve problems later.
Operating Agreement Sections
- Name of the LLC.
- Date of Formation.
- Statement of your purpose for forming an LLC.
- The members' percentage interests in the LLC and either the number and type of classes or designation of membership interests if there is more than one class.
- The names and addresses (and percentage interest) of the current members.
- The name and address (and percentage) of any members who will receive special allocations of profits, losses, or distributions upon the dissolution of the LLC.
- The requirement for new member approval.Â
- Any provision which may be made to change this agreement.
- How an operating agreement can be amended.
- Any other matters the members deem appropriate.
3) Choose Your LLC Tax Status:
Your LLC can be taxed as either a corporation or partnership. As a default, forming an 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 definitely consult with a tax professional before making the decision.
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.
LLC Taxes
- Employment Tax:
When forming an 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.
LLC Insurance
You will need to obtain the following 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
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 could call it "Club Sandwich" or "Cute Kittens LLC". That's entirely up to you.
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
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 and cannot do business under your LLC's name for this position. Most people choose a friend or family member to act as their registered agent because it's free!
Step 7: Get Your Business Licenses and Permits
You will need to get all of your necessary business 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.
Federal Business Licenses
For an LLC with workers or 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.
State Business Licenses
You'll also need to get a state-specific business 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.
Local Business Licenses
Depending on what you do, you may also need local business 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 its own.
It is good to have two people with authority over the bank account in case one of them cannot take all the money out.
After you open a business bank account, make sure you have a business credit card, it can save you time and effort.
Having one is a good idea since it reduces the amount of documentation you have to maintain.
It's critical to note that, while obtaining any business credit card, you should use your business name rather than your own in order to keep your personal and business finances separate.
Step 9: Create Your Business and Marketing Plan
A business plan is a way of organizing your business goals and objectives. You need to have a good idea about how you plan to achieve those goals and objectives before actually starting out.
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.
A business plan is not required for an LLC, but it can make planning and running your business easier when trying to keep track of everything at once.
You need to create a strong marketing plan. This includes what you will do for promotion, how much it costs, and where the money is coming from.
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.
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FAQs
Is There a Charge for Quarterly Taxes When Forming an LLC?
No, if you form an LLC with the IRS then you shouldn't have to pay quarterly excise taxes.
How Much Does It Cost to File Your Annual Report?
The government does not charge a fee for filing your annual report. But other people, like the Secretary of State, might charge you a small fee.
What Are the Advantages of Establishing an LLC?
By establishing an LLC you will enjoy personal liability protection that may result from starting a business or in other words, liability protection.
An LLC also has the benefit of pass-through taxation, meaning that taxes are paid for at the LLC owners' level and not the business level.
Is It Better to Acquire an Ein or a Limited Liability Company (LLC)?
It is better to acquire an EIN because it will work in all states. An LLC will only work for certain states, so you should check with your CPA before deciding which works best for you.
Is It Necessary to Acquire a Business License if I Operate an LLC?
It depends on the type of work you do. For example, if you are in the service industry or have employees then your local city or county will want to know about it.
This varies state by state so you should check with your city or county clerk. You can also seek legal advice for guidance.
What to Do After Getting an LLC...
In conclusion, as small business owners, owning an LLC is a good way to protect your personal assets is to start an LLC.
It is also important to follow the steps mentioned above when starting an LLC. Start by getting in contact with your local government offices to see if you need any licenses or permits in order to start your LLC. Consider hiring an attorney or law firm if you have any legal issues.
After that, 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 and know what you're doing before starting your company.
