Often, young entrepreneurs are full of innovative ideas and eager to get started but don’t know where to begin when it comes to creating an LLC. Unfortunately, many businesses never see the light of day because of this. As an entrepreneur looking to clear a hurdle and take the steps necessary for forming an LLC, it would be wise to simplify the process and break it down into three easy steps. This can reduce the chances of becoming overwhelmed and can keep entrepreneurs dedicated and focused on the task at hand – forming an LLC.
1) Begin Preparing Information
When developing an LLC, entrepreneurs will have to draft and file many essential documents. One of the most critical materials for forming an LLC is an Articles of Organization. Entrepreneurs can most often find a blank document, as well as other pertinent information, on their state’s Secretary of State website. The Articles of Organization will contain information that the state deems vital to a business, such as
- Business Purpose
- Business Address
- Registered Agent
In addition to filing an Articles of Organization, new entrepreneurs must come up with a name for their new company. However, not just any name will do. Entrepreneurs must search through a database, also found on the Secretary of State website, which lists the names of every company registered with the state. Entrepreneurs cannot choose a name for their business that is already in use by another company. Lastly, the company name will likely need to have “LLC” at the end. This isn’t necessarily a big deal, but it certainly something to keep in mind.
Lastly, entrepreneurs may have to file an Annual Report with their state. Again, owners can find this information on the Secretary of State’s office. If a company does not have to file this information the first year, they will likely need to submit it every year after that. Filing this paperwork allows the state to see if there have been any significant changes to the corporate structure or business. Some states may not call it an Annual Report, however. For example, California refers to the form as a Statement of Information. Entrepreneurs would be wise to take their time and ensure they have all of the required information.
2) Think Outside The Box
Potential new businesses often fail to recognize that their operating requirements will likely extend far beyond the scope of the state. To be identified as an LLC, a company must merely successfully file Articles of Organization and pay an associated fee. However, the requirements to own and operate a business often go far beyond that.
For one, many states or municipalities require companies to secure a business license before conducting business in a particular area. Many new companies begin conducting business once they are granted LLC-status by the state, without having first obtained a business license. The Articles of Organization does not cover any additional business licenses. Operating a business without proper business licenses could jeopardize the future standing of the company.
Similarly, companies must understand the tax aspect of owning a business. For one, LLCs typically can choose to be taxed in a few different ways. Potential owners would be wise to look up, for example, things such as “pass-through taxation” and “S corporations.” When filing, owners will have the choice on how they wished to be taxed. It’s essential that when the time comes, owners are well-versed on how taxes will affect their business.
Additionally, companies should also consider the fact that they will not just be taxed at the federal level. They will likely be taxed at the state and local levels as well. Entrepreneurs would be wise to break down all of the expenses associated with filing for LLC status. This not only includes the filing fee associated with filing the Articles of Organization but the cost of any business licenses and potential tax hits.
Imagine an entrepreneur excited about forming an LLC and starting a business. The individual completes this process correctly. But soon after registering as an LLC, the owner realizes they need five different business licenses to operate the company. They don’t have the capital to cover the cost of these business licenses, and they can no longer conduct business or make money. When it comes to registering as an LLC, preparation is critical and is often the difference-maker that sets apart successful owners from the unsuccessful ones.
3) Contact LLC Experts
Since entrepreneurs may not have much knowledge about forming an LLC, they would be wise to contact a team of third-party professionals who excel in this precise business. These professionals have years of experience helping new business owners get their foot in the door and create their first company.
These third-party professionals can begin by helping entrepreneurs review their LLC application. They could provide tips on how to improve the form so that there is a better chance that is accepted, or they could work on the application directly – whichever the business owner prefers. They could also double-check other aspects of the application, such as the chosen business name, to ensure no portion of the form is rejected.
Once the application is accepted the state recognizes the business as legitimate, the third-party service could continue to help. These professionals can act as a company’s registered agent, providing them a trustworthy, reliable source that is well-versed in handling government documents. The third-party company can also help prepare future documents, such as annual statements, which often must be filed annually.
If an entrepreneur attempts to register as an LLC and fails, the results could be devastating. The individual would now have to spend countless hours reviewing and correcting the application so that it could hopefully be accepted the second time around. While doing so, they would cost themselves valuable time and money. Why would a potential new business owner ever want to take this risk?
Business owners should consider third-party services so that they can focus on other aspects of running and growing their business, instead of bogging themselves down with mundane and repetitive paperwork.
Business Filing Section