10 Important Steps to Take After Forming an LLC
You may have recently formed a Limited Liability Company (LLC) or incorporated, using one of the online services we recommend here.
If so, congratulations on your new venture.
However, while the research and process into forming your LLC has now ended, there will be countless more questions and other challenges to face.
In this short guide we have put together 10 important issues to consider in order to ensure that your new business gets the best start that it can.
1. Obtain the Correct Licenses and Permits
It is a common misconception that the LLC formation is the most important part of starting a business, and that once you have obtained all the relevant formation documentation your business can begin trading in its relevant field of work
This is not the case by any means. An LLC is not the same as a business licence, an LLC is merely the fundamental legal foundation and evidence that the business exists.
If you fail to obtain the relevant business operating licenses after forming your LLC, you could end up getting fined.
In a nutshell: Your LLC is like the birth certificate; a business licence is your passport to operate.
There are many types of business licences depending on the type of work your business will be doing. Where you live and relevant state laws may also dictate the kind of business licence you have to apply for.
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2. Obtain your EIN (Employer Identification Number)
An EIN is your federal tax ID number and is essential for you to be able to operate legally in line with the IRS.
The government needs to keep track of your transactions and earnings, and your EIN is the way that’s done.
Essentially, the EIN acts as your social security number does. Every company should have one, and if you plan on employing anyone, the EIN is mandatory.
3. Open a Business Bank Account
A business bank account needs to be opened using the details of the LLC. In other words, the account belongs to the business and not you as an individual.
All payments, expenditures and earnings need to go through the business account for the purposes of your books.
It is in fact a legal requirement to keep your personal account separate from your business one. With it, your business will not be able to function.
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4. Obtain a Seller’s Permit
We covered permits and licences above, however this one is so important it gets its own section.
A seller’s permit is a mandatory requirement for any sole proprietor, LLC, partnership and corporation that sells taxable goods and services.
This pretty much covers any type of business, hence its importance for basically all LLC types.
Again, regulations vary state by state so check your relevant government website to ascertain how and where you can apply for your sellers permit.
5. Insure Your Business
Insuring your business is an important prerequisite to trading. Yes, the formation of the LLC helps separate liability between you personally and the company itself, however, that does not mean you should take the possibility of your business being held liable lightly.
The most common types of business insurance are general liability insurance and Business Owners Policies (BOP).
These will help cover your business against widespread issues such as accidents, injuries, and negligence.
If you are selling any kind of product you will need product liability insurance.
The same applies for professional services (i.e. lawyers, accountants, carpenters, plumbers etc) you will definitely need a professional liability policy to protect the business against any problems that might arise.
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6. Apply for a Business Credit Card & Overdraft
A line of credit for your business will definitely help kick start proceedings. It could be that you have to wait a few months before the first invoices start going out and earnings come in.
Utilizing low interest credit from your bank will help with these early cash flow problems.
Further more, a credit card makes tracking expenses easier as you can charge all payments to that. This provides an instant audit trail of all your expenses when its time to do the tax return.
7. Foreign Qualify in Other States
There may be situations where your business is doing trade in states other than where it was formed.
For this you will need to register the LLC in this new state.
Examples of where this will be required include situations such as opening an office or store in another state; employing people on a permanent basis that live in another state, or general earnings and work practices taking place in another state.
A simple Google search for “Foreign Qualify in Other States” adding the state in which you are doing new business will help you begin this process.
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8. Apply for a Doing Business As (DBA)
Many businesses end up operating under different variations of the official company name.
While you may not do this to begin with, it often doesn’t take long for the variations to creep into areas of your business practices.
When this happens you will need to apply for a Doing Business As (DBA) for each company name variation.
The same service that helped you incorporate should be able to help you here. Each DBA needs to be filed under the LLC.
9. Obtain an S Corporation S Treatment
Things can get complicated quickly when it comes to tax issues and your new LLC.
As the owner of the LLC when it comes to the end of the tax year you will need to report the Profits & Losses of the business on a Schedule C.
This is then all submitted along with your personal tax return.
If you personally receive the profit from the business you will also have to pay self-employment tax on those earnings.
You should speak to your accountant regarding this as in many situations, electing S Corporation status for your LLC will enable you to split your business’ profits into salary and distributions.
You then only have to pay self-employment tax on the salary portion. The distributions are left free of taxable obligation.
Electing for S Corporation status requires form 2553 with the IRS. The process is free and should be completed within the first 75 days since forming the LLC.
Alternatively, you have a window of 75 days at the start of every tax year where you can apply.
10. Keep Your LLC Compliant
As we have explored here, incorporating your LLC is the first of many steps.
In order to keep everything compliant you will need to abide by the above steps as well as keep track of your own LLC status.
In other words, you need to make a plan to keep your LLC working within the regulations that it comes under.
This will mean providing an annual report for your state, as well as paying all your taxes. Keep on top of these important dates by having them firmly etched in your calendar.
The important issue for any new business is to not fall foul of the many regulatory demands that you now face. Keep organised and top of all that so it is one less thing to worry about.