4 Easy Steps to Forming an LLC
If you’re thinking about forming an LLC for your business, it is essential that you know what steps to take.
You have finally decided to make the leap and start your own business. You have chosen to form as an LLC, but aren't sure of how to go about making your entity official. Here's what an LLC is, and the process of getting yours started.
Articles of Organization
The first step to getting your business filed is to draft your articles of organization. In some states, it may be called a corporate charter. This document is like the birth certificate of your business, and filing it can be a complicated process since the rules for doing so differ from state to state.
You can visit your secretary of state's website to find out what information they need to get this document filed. They will start recording your documents as soon as they receive your paperwork along with the filing fee.
Operating Agreement
The next step is to draft your operating agreement , which is the internal legal document that indicates how you will govern your company. Since this is an in-house document, it typically does not have to be filed with any government entity.
You must make sure to draft this document correctly and free of errors. One common mistake that people make when writing an operating agreement is failing to match the text to the tax designation of the LLC.
Something as simple as electing to have your LLC taxed as an S-Corporation when the operating agreement includes provisions that would violate the laws to which S-Corporations are subject can cause issues with the IRS. For this reason, it's best to have a licensed attorney draft this document for you.
Federal Identification Number
Also known as the employer identification number (EIN), this is the number that the IRS will use to identify your business. It is similar to a Social Security number. You can obtain one by contacting the IRS or filling out a form on its website.
Licenses and Permits
The last step is to obtain any licenses and permits required to operate your business legally in your state. Visiting your local county office is a good start to figuring out the authorizations expected of your business. A local attorney or an online database can steer you in the right direction.
Regardless of the method you use, it's important to make sure you get all the necessary licenses. What may seem like a minor oversight can cost you a lot of money in penalty fees, so it's best to get it right the first time.
Starting a business is not easy, but with sufficient safeguards and efficient execution, you can avoid a lot of stress. Enlisting the services of a corporate attorney and tax professional can help you navigate this process safely.
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