ZenBusiness Review – Best LLC Formation Service in 2020?
Forming an LLC can be confusing. With the various service providers online, all selling different types of packages it is difficult to fully understand which is the best for you.
The various reviews online are useful. However, after looking around ZenBusiness seemed to offer one of the most comprehensive range of services available. I went for their starter package as it seemed to have everything I needed. The price suited me too.
Anyway, after talking to the guys here at Vault50 about my experience, they asked me to help with a review. So here it is. What follows is an introduction to the ZenBusiness services, plus some of my thoughts on the good and bad points of using them to form an LLC.
For all those starting an LLC, good luck, and I hope this helps.
Who is ZenBusiness?
ZenBusines, Inc PBC is a business formation service provider specializing in LLC formation, as well as formation of corporations. It aims to help its clients start and manage a viable business.
It uses automation, a unified platform, and a personalized dashboard to drive service provision, and eliminate redundancies and errors during business formation.
Basically, it uses technology to drive aggregation of the myriad services related to business formation into a single platform that an entrepreneur can access using a dashboard.
Also, its world-class support team provides expert and trusted support to its clients. Furthermore, ZenBusiness not only helps one register a small business but also helps this business enter a B2B network for upscaling and professional growth.
Relatedly, it allows an entrepreneur to organize an LLC by composing the operating agreement and articles of organization, as well as issuing membership certificate (or certificates if the LLC has multiple members).
Also, it offers LLC formation services in all 50 states, which allows anyone to form an LLC anywhere in the USA.
Moreover, it helps the LLC to file returns, as well as provides advice on legal compliance with basic LLC statutes. Its core values are transparency, simplicity, and provision of fast and low cost-business formation services.
Also, of note, is that its services have been packaged into tiered plans – the Starter plan, the Pro plan, and the Premium plan.
ZenBusiness is a professional provider of business formation services, and it is headquartered in Austin, Texas. It specializes in offering LLC formation services, corporation formation services, and registered agent services, to entrepreneurs, small business owners, and partnerships at a competent price that maximizes value-per-dollar spent.
Majorly, it focuses on the formation of a limited liability company (LLC), and it can organize an LLC in any of the US states. It has leveraged technology to automate some of the processes in business formation, as well as automate customer support.
It even features a chatbot called zenbot for answering some of the most frequently asked questions. Its team is dedicated to providing up-to-date expert advice on business formation and how organized businesses can achieve legal compliance.
Moreover, it provides business websites in its Premium plan, and this has necessitated it to bundle data security and privacy protection services in this plan.
Moreover, business websites, domain name privacy, and business email addresses can be purchased separately in the Starter and Pro Plans. These offers also capacitate it to offer online LLC formation service.
Regarding its history, the founders of ZenBusiness cut their teeth operating a white label formation service that faced challenges that forced them to seek new investors and operationalize a new business idea – providing business formation service to historically-underserved populations.
These investors provided the capital that allowed ZenBusiness to be founded as an LLC. As expected, ZenBusiness originally focused on providing business formation services to underserved populations.
Later, the clientele base expanded as the team learned new trade skills and gained market experience, and currently, it provides these services to small business owners and entrepreneurs, as well as partnerships that want to re-organize as a corporation.
Presently, ZenBusiness, Inc., is registered as a Public Benefit Corporation (PBC), which is basically a B corporation that combines the operations of a for-profit corporation with a social mission.
One of the key social missions of ZenBusiness is to empower minority-owned and women-owned businesses to grow and upscale by lending them interest-free loans.
The special-purpose entity created to drive this social mission is the Pay-It-Forward project, which is an alliance between ZenBusiness and the non-profit entity, Kiva.org.
This shows that ZenBusiness has not abandoned its foundational mission of helping underserved populations create viable businesses.
Portfolio of Services
ZenBusiness operates as a hybrid business formation company that provides online business formation services, post-formation tax filing services, and offline business formation services, as well as registered agent services. The scope of services offered by ZenBusiness is described below as service packages called plans.
ZenBusiness has packaged its services into 3 service plans. These 3 plans are designed to offer transparent and streamlined business formation services at 3 price tiers, with the Starter plan being the cheapest option.
Now, that the plans have been described, it is necessary to explain what business formation is, and what it entails for people who are not familiar with this service.
Business Formation Services
To create a business, the entrepreneur must first choose a business structure that suits his/her business and marketing channels.
A business structure is nothing more than a description of how the business needs to be organized for operation in the market, with this organization taking into consideration ease of business set-up, tax rules, ease of liquidation, and attendant legal liabilities.
To choose the right business structure, one needs to consider the positioning of the business in the market channel, legal statutes, and opportunity to prosper, as well as operational flexibility afforded by the chosen business structure.
In case one does not know which business structure is good for his/her business, (s)he can contact the ZenBusiness Team for advice on choosing the right business structure for his/her desired trading venture.
Most importantly, the team at ZenBusiness has specialized in helping entrepreneurs formally register a small business, as well as help this small business connect to other duly-registered businesses so as to enter into a business-to-business (B2B) network that allows for business growth.
In other words, ZenBusiness not only helps one register a small business but also helps this business enter a B2B network for upscaling and professional growth.
Usually, an entrepreneur can cherry-pick the advantages afforded by 3 types of business structures – partnership, corporation, and sole proprietorship – while limiting the statutory constraints and operational demerits associated with each of these business structures by forming a limited liability company (LLC).
The LLC is a private limited company-specific to US jurisdiction, and it is recognized as a business whose structure has 2 key domains: the limited liability of a corporation and the pass-through taxation of partnerships and sole proprietorship.
ZenBusiness focuses on organizing and forming LLC entities, and hence it can be described as an LLC formation service.
As mentioned, LLC is specific to the US, and thus it can rarely operate as an LLC outside US tax jurisdiction. This lack of cross-national operation of an LLC is partly caused by the non-standardization of titles of (its) principals who can enter into a legal contract on behalf of the LLC.
Usually, one or more of these principals can identify themselves as LLC members, managers, chief executive officers, managing directors, managing members, or even presidents; and this creates confusion on who has the authority and legal powers to enter the LLC into a binding contract with another business outside the US.
For this reason, ZenBusiness does not organize LLCs to operate outside the USA.
During LLC formation, the business being formed is said to be organized if the owner(s) – legally defined as a member(s) – has composed a founding legal document called articles of organization and an operating agreement to guide the internal operations of the LLC.
If the LLC has members, then the share of each member is called an LLC interest, and it is confirmed in the membership certificate.
As expected, ZenBusiness allows an entrepreneur to organize an LLC by composing the operating agreement and articles of organization on his/her behalf, as well as issuing membership certificate (or certificates if the LLC has multiple members).
Even so, ZenBusiness can only register an LLC whose members do not exceed 99 members.
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Why incorporate as an LLC?
As mentioned earlier, LLC has unique advantages not offered by other business structures, and these are limited liability and pass-through taxation.
Liability simply means an obligation to pay the debt, and limited liability means that this obligation falls on the LLC and not its members, which implies that business assets (and not the personal wealth of its members/owners) are considered as collateral assets for loans.
Therefore, limited liability protects the personal wealth of LLC members. It also ensures that this liability is proportionate to their contribution to the seed fund, capital investment, or ownership of LLC assets. Likewise, this means that profits are shared proportionately.
Even so, how much profit is available for sharing is determined by how much of the earnings is taxed. In a corporation, double taxation occurs as earnings are taxed at two levels – the declared earning is subjected to direct tax, while each dividend paid out to the members is subjected to a dividend tax.
In an LLC, the mode of taxation used is called flow-through taxation because no direct tax is levied on the earnings, but instead, the earnings are first divided up and allocated to each LLC member according to stipulations of the operating agreement, and then the share of each member is subjected to tax.
For this reason, tax authorities recognize an LLC as a pass-through (business) entity or flow-through entity. Likewise, each member is expected to declare his or her earnings from the LLC within a specified time period, and this declaration is made as a statement of allocated income.
The internal revenue service (IRS) expects this statement of allocated income to be filled in a Schedule K-1 document, also called Form K1.
Understanding LLC Tax Regimes
The team at ZenBusiness can also help one to form an LLC that is operationally flexible, that is(i.e), it (the LLC) can choose to use one of 3 tax regimes: partnership tax regimes, corporation tax regimes, or sole proprietorship tax regimes; as well as be liable to conversion into a B corporation.
Also, if one needs the LLC to be a professional service provider of specialist services such as radiology services, accounting services, or legal services, or any other service that requires the service provider to obtain state or federal licensure, then the LLC can be formed as a professional LLC or PLLC.
ZenBusiness allows entrepreneurs to form a wide range of LLCs that serve different segments of the market. This is achieved by designing its service plans to be neutral on market channels.
ZenBusiness & Market Channels Neutrality
The service plans offered by ZenBusiness are designed to be neutral on market channels so that one can form an LLC or corporation that operates in any of the 4 levels (or 4 market channels).
A market channel describes how a product made by a producer reaches the end-consumer. This market channel is layered into 4 levels from the zero-level market channel to a three-level channel.
ZenBusiness has created an LLC formation platform that allows traders specializing in each of these marketing channels to create a company that suits their needs.
One can form an LLC that provides a zero-level market channel that allows the buyer to purchase a product from the manufacturer or producer.
Likewise, one can also establish an LLC to operate at the one-level market channel that allows a retailer to sell products to consumers.
Its service plans also allow wholesalers to create a two-level market channel that allows them to trade their wares to retailers.
Moreover, for brokers and agents, they can create their own three-level market channel that allows them to brokers goods from manufacturers to wholesalers.
Even so, the LLC must comply to the state rules regarding LLC formation and operations, and these rules differ from state to state.
Understanding State Statutory Specificity
Each state has its own laws governing the organization, formation, and operations of an LLC, and ZenBusiness ensures that each LLC it forms adheres to these statutory state-specific laws and regulations.
This also means that an LLC formed in one state cannot necessarily operate in another state. For this reason, ZenBusiness tailors LLC formation packages to be specific to each state, because each state has its own statutory requirements and legal schedules for LLC formation and operations.
Currently, ZenBusiness offers LLC formation services in all 50 states, which allows anyone to form an LLC anywhere in the USA.
Usually, the state laws, statutes, and regulations governing LLC formation and operations must be reflected in the operating agreement of the LLC that wants to operate in that state.
Therefore, LLC members or their LLC formation service must be conversant with these state-specific legal obligations, as well as know what to do to ensure that the LLC is in legal compliance with state laws regarding LLC operation following a successful organization and formation of an LLC.
ZenBusiness can help an LLC formulate a provident operating agreement that allows the LLC to be duly formed, as well as cater to its post-formation scaling needs and operating environment.
Most importantly, the ZenBusiness team can help the LLC member(s) create an operating agreement that conforms to the aforesaid requirements, as well as incorporates protective provisions designed to shield the members from unrecoverable losses should the LLC be rendered unviable, inoperable, or insolvent by existing market forces or legal hurdles.
Regarding legal compliance, 7 US States require an LLC to pay a capital levy and/or franchise tax. These states are New York, California, Pennsylvania, Tennessee, Alabama, Kentucky, and Texas (which is the home state of ZenBusiness).
As expected, ZenBusiness will help its clients to know which levies and taxes to pay when forming and operating an LLC in one of these 7 states.
ZenBusiness can also help LLCs that it has formed to pay their annual renewal fees to their respective states.
How ZenBusiness Forms an LLC (Process Explained)
As mentioned, ZenBusiness can operate as an online business formation service that specializes in forming a hybrid unincorporated LLC according to the LLC codes of the state where the LLC is to operate. It also helps the LLC to file tax returns to tax authorities.
To begin with, the ZenBusiness team is well-versed with the universal LLC model code known as the Uniform Limited Liability Company Act (ULLA) that provides the general standardized set of LLC codes that states use to create their own state-specific LLC codes.
Therefore, understanding the ULLA allows the team handling the ZenBusiness LLC Formation Service docket to have a good grasp of what is expected of businesses that want to be organized and formed as LLC, and this also allows them to understand why and how specific states have modified specific clauses in ULLA so as to create state-specific LLC codes.
The basic business formation process is described below:
1. Select State of Incorporation
The entrepreneur selects the state where the LLC is to be located. Of note is that the state with the most well-developed LLC codes is Delaware, so entrepreneurs who want to base their businesses in a state with well-developed LLC laws and unified taxation scheme can choose this state. Also, one can register the LLC in multiple states.
2. Choose Formation Package
Choose a business formation plan from the 3 packaged plans – Starter Plan, Pro Plan, and Premium Plan. The following formation process focuses on the Premium Plan which offers a full repository of services.
3. Choose your LLC Name
One must choose a unique name for his/her LLC, as well as ensure that the suffix LLC is added to the business name. This gives the business a legal identity through its LLC name.
This operates just like human names where personal names are used to enter into contracts, open bank accounts, and receive credits from banks. For an LLC, its name is its legal identity which allows it to open a merchant account, receive payments, make tax filings, and receive loans and credits.
ZenBusiness checks if the chosen name has been used before, as well as determines if the name has terms prohibited for use by an LLC, such as a corporation, bank, trustee, or insurance company.
ZenBusiness also allows one to file a unique statement called a Doing Business As (DBA) or Fictitious Business Name (FBN) statement, which allows one to legally conceal the LLC formal name.
4. Choose Business Structure
The business structure for the LLC needs to be chosen, and one can choose one of 3 structures: single-member LLC, partners in LLC, and LLC as a corporation.
Regardless of the business structure chosen, ZenBusiness can assist in filing the necessary paperwork. For the single-member LLC, Form 1040 and Schedule C needs to be filed, while for Partners-in-LLC, Form 1065 needs to be filed. For LLC-as-a-corporation, Form 1120 can be filed by ZenBusiness on behalf of the LLC.
5. Filing of Articles
One can now start filing the articles of organization (AoO). The team at ZenBusiness can help one with this filing, as well as the preceding step of the conception of an AoO.
ZenBusiness can help the LLC carefully word the AoO with legal jargon, as well as pay the filing fee on behalf of the LLC is formed.
The AoO describes the type of LLC being organized, and its purpose, in addition to listing the names of its members.
The LLC can be organized in one of 2 types – as a Time LLC which will exist for a specified period of time, or as an At-Will-LLC which will exist for an unspecified period of time.
The business name and its address are also included in this AoO. Moreover, the AoO must state the registered agent of the LLC. This registered agent is the legal entity authorized by the LLC to receive and process legal documents – including subpoena and service of process – on behalf of the LLC.
Filing the AoO is important because it must be presented to the Secretary of State. It is advisable that one uses the LLC formation service provider like ZenBusiness as the registered agent as this streamlines the LLC organization and formation process, as well as saves time and money as only one service provider offers these services.
Moreover, the LLC benefits from legal continuity from LLC formation to post-formation operation, especially the filing of taxes and payment of an obligatory fee for filing the AoO.
6. Members agree on how LLC will be Operated
Next, the members must agree on how the LLC is to be operated and governed, and this agreement is set down in the Operating Agreement.
This agreement also sets how the members and the management team will relate to each other, as well as how the management team will be chosen.
Moreover, the agreement stipulates the capital contribution formula for each member, penalty for failure to make the required contribution, sharing of earning, voting rights, and procedures of meetings, as well as the process of LLC dissolution.
Most importantly, this operating agreement must clearly state whether the LLC is a manager-managed LLC or a member-managed LLC as this determines who is vested with the legal authority to enter into contracts on behalf of the LLC.
Likewise, this agreement must state in clear terms the duty of loyalty and duty of care which falls under its fiduciary domain.
Here, ZenBusiness can help the LLC take advantage of the legal concepts termed preferred stock of corporations, indemnification protections, and restrictions on the transfer of units so that members legally get preferential treatment.
As compared to non-members like investors and other shareholders – in matters concerning earning distributions, LLC securities provision, and decision rights during discussions about LLC dissolution.
Additionally, ZenBusiness provides a standard operating agreement that an LLC can customize and build up to meets its needs.
The operating agreement allows the LLC to raise capital – either from its members or from investors.
The capital contribution of each member or investor must be converted into an LLC unit, and this requires invocation of the private placement exemption – a provision of securities law that matches the LLC unit to risk and rights in the LLC.
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7. Licensing, Employment & Accounts
The LLC needs to employ a manager and other team members, and this requires the LLC to acquire an Employer Identification Number (EIN) – also called Federal Tax Identification Number (FTIN) – from the IRS.
ZenBusiness can obtain the FTIN/EIN on behalf of the LLC being formed. Remember, EIN must be provided by the LLC when it is opening its bank account.
With the EIN, the LLC can now obtain business licenses. These licenses are tied to the business type of the LLC as well as where the LLC has been organized to operate, i.e the state where the LLC will operate in.
ZenBusiness can assist the LLC to choose a business type and state where business licenses can be acquired easily and affordably, as some licenses are charged prohibitively and need to be renewed annually.
Likewise, ZenBusiness can build and develop a business website for the LLC. This website will have a unique web address that can be easily recalled by customers. Even so, this service is only bundled in the Premium Plan.
Another special service provided by ZenBusiness is the ability to convert an existing partnership or sole proprietorship into an LLC.
This is done by formulating an agreement of conversion which allows the business to state down the terms of conversion into an LLC.
After this agreement has been finalized, the process of LLC formation can begin. Acquisition of business licenses confirms that the LLC has been successfully formed and is ready for operation.
Overall I was very happy with the speed and ease of the service. ZenBusiness operates professionally, and the interface on the website is really intuitive. It definitely took the stress out of forming my LLC. There are cheaper options available, but opting for a reliable service is worth the money in my opinion.