Joanna Marie, Executive Chronicles | When making a decision on how to structure your small business, it is important to consider options that will give you the best protection possible. This is protection in terms of business liability. For this reason, there are several business structures to choose from, with varying levels of liability. The most commonly used option is the Limited Liability Company or LLC, but you may want to check with an organization design firm to find the best fit for your company. The structure for an LLC is popularly used by startups and small businesses because it combines the best aspects of corporations and partnerships. In this case, owners do not bear any legal or financial liability incurred by the company. What does this mean?
An LLC is considered as a separate entity from its owners. Therefore, as the owner of an LLC, no business debts will be personally attributed to you. With all these benefits, it is important for you to also consider the downsides of forming an LLC. This will help you make an informed decision when it comes to the structuring of your business. Use the tips below when filing your business as an LLC:
- Choose a Unique Business Name
This is an essential consideration because business laws in the United States do not allow for two entities to share the same name. Therefore, you should consider this as the first step. This means you have to do a trademark search to ensure you do not violate any regulations. It is also advisable not to use names that bear a specific location. This is because it may be a hindrance to future growth opportunities. Make use of the Internet, because it is a very valuable resource.
- Understand Tax Regulations
The business structure of an LLC requires it to pay tax as a separate entity. This means you need to apply with the IRS for an Employer Identification Number (EIN). This is one of the instruments used in the United States to keep track of taxpayers and their returns. The others include Social Security Numbers (SSN) and Individual Taxpayer Identification Number (ITIN). The ITIN and SSN are mainly for individuals, while the EIN is for companies. The EIN is needed when you want to pay taxes and when opening a business account.
Getting these tax numbers is very simple because you can apply online through the IRS website or third-party platforms such as https://applicationfiling.com.
- Formulate an Operating Agreement
An LLC operating agreement is a document bearing internal governing rules and member positions and duties. It defines how the members relate and interact in terms of transferring membership interests, the division of profits and losses, as well as the organizational structure. It is important to formulate and agree on the components of this document in the early stages because it will reduce any future conflict.
- Open a Business Account
This is recommended because it allows you to keep the your personal financial transactions separate from those of your company. The reason you should keep them independent is that it minimizes personal liability by strengthening the distinction between you and your company. It also simplifies tax reporting and business accounting. To open a business account, your bank requires an EIN, as well as the documents of business formation and organization.
- Business Permits and Licenses
In the United States, there are different rules and regulations for forming an LLC in every state. Once you have followed all the necessary steps, you will get a certificate of registration from your state body. This then allows you to apply for other basic licenses and permits.
Make sure to contact your local government office to find out the local or federal licenses your business needs, as well as any other state paperwork and compliance requirements.