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Business Planning

Starting An LLC: What Are The Benefits & How to Get Started

How to Start an LLC

“Should I start an LLC?” If you’re ready to start your entrepreneurial adventure, then the answer is almost certainly yes! You will benefit from starting your limited liability corporation, or LLC for short.

There are several legal and tax reasons for which you need the protection of an LLC. We’re here to lay it all out for you in this post. But don’t worry, it’s easier than you think.

LLCs are a boon to small business owners, who find them much easier to set up than S-Corps or other traditional corporate structures. If you’re asking, “what is an LLC and how does it work?” then read on.

LLC meaning and implications 

An LLC is a limited liability corporation. The LLC is a corporate structure that combines the best features of the sole proprietorship—the business form that is the default for private individuals—with the liability protection of traditional, standard corporations. 

In a regular corporation, legal and financial liability for owners is limited to the amount initially invested into the corporation. In many cases, an LLC structure allows individuals to claim similar benefits.

The owners of an LLC are referred to formally as “members.”

Why set up an LLC?

The LLC framework provides important protection for the property and assets of small business owners, since their personal assets cannot generally be targeted in a lawsuit. Only the assets of the LLC can be targeted in a lawsuit. 

There are a few exceptions to this rule, such as in cases of lawsuits related to personal wrongdoing, debts and obligations you personally guarantee, and back payroll taxes, etc. 

The good news is that there are many creative solutions available to LLC’s to further protect your assets.

How does it work?

You create an LLC with what are called “articles of organization.” This lays out the structure of the LLC. Articles of organization are a set of statements that define the organizational structure of the LLC and the roles of its various officers, as well as multiple procedures for the governance of the LLC and it’s day-to-day operations. 

These articles typically list who the officers are, who the registered agent is, a description of the business, and procedures on how the business conducts day to day affairs. The articles also describe how the business can be dissolved.

LLCs do not issue shares of stock. Instead, membership interest or ownership is expressed by “member units,” which for most practical purposes act like stock shares, including ownership control.

Instead of bylaws, an LLC has an “operating agreement that acts like bylaws for other corporate forms. These are usually included as part of the Articles of Organization. This document outlines the LLC’s ownership structure, who the members are, and sets out the financial and ownership relations between members.

Why start an LLC?

What are the pros of LLCs? Starting an LLC has several benefits. Firstly, LLCs have their own separate tax ID numbers in the US and file their taxes separately from owners, which makes filing taxes simpler than it would be to file under a sole proprietorship.

If you are involved in a business lawsuit, and a representative of the LLC signed the contract, it’s the LLC that is legally liable. In bankruptcy proceedings, it’s the LLC that is subject to creditor demands.

LLCs are invaluable for protecting personal assets from legal action directed against the LLC. In effect, LLCs are a legal person that can sign contracts, take on debt, and make payments out to members. When starting a business LLC, you decide which of your assets will be devoted to the LLC and stay under your control, determining how much you invest in a small business. These are only a few of the benefits of an LLC.

The cons of starting an LLC

However, starting an LLC isn’t always a bed of roses. There are real responsibilities and issues connected with setting up an LLC:

  • It can be challenging to raise funds for an LLC, as opposed to regular corporations and S-Corps, due to the smaller and simpler nature of LLCs.
  • You can’t issue shares of stock in the same way you can for a regular corporation.
  • Different states have different laws governing LLCs.
  • LLCs don’t have boards of directors. After a certain growth point, an LLC must become a more traditional corporate structure so that a board can be appointed.
  • Revenues and compensation are subject to self-employment tax rates, including Medicare, FICA, and Social Security.
  • LLC’s don’t offer 100% protection of your assets, so it is advisable that you seek professional help, to avoid issues down the road.
  • You will most likely need a tax professional’s help to ensure you are compliant with tax law and maximizing the tax benefits of an LLC.

How to start an LLC

LLC services are available online to help you get your LLC started with varying costs. Here are the most common steps in starting your LLC:

Review your state regulations

Your state of residence will most likely have its own rules concerning LLCs. You should review them and make sure you follow them as you go through the process.

Name your LLC

This is related to how you want to carry out your branding. Each state has its own rules about LLC naming, and the title must include “Limited Liability Company” or the initials “LLC.” You should also research trademarks, and if you are conducting business under a different name, such as if “Sanford Foods LLC,” was planning to run a hot dog cart called “Sanford Dogs,” there may be more paperwork and tax implications.

Get a registered agent

A registered agent is a person or business that can accept business correspondence and legal paperwork on your behalf. This can be your corporate counsel but is more likely to be one of the many agents that offer this service in your state.

File your LLC with your state

This is where you file your articles of organization with your state. You’ll state whether your LLC will be “managed by members” or “managed by manager.” If this is an LLC just for you, it will be “managed by manager” as a matter of course.

Create your LLC operating agreement

This goes along with your articles of organization. All members sign this agreement, and it determines how your LLC runs from day today.

Get an EIN

This is an Employer Identification Number from the IRS. It’s like a social security number for your business. You need this to file taxes and hire employees.

What is my next step after forming an LLC? Funding.

Starting an LLC is both daunting and exciting. At L3 Funding, we work with small businesses of all types to help them with their capital needs via innovative merchant funding solutions. You can apply online today or reach out to us if you have any questions!