You don’t have a real business unless you have a legal business entity. So if you’re in the US, the most common entity is an LLC. So what is an LLC? And how do you set one up for your online boutique? Keep reading to learn exactly what you need to know to get started.
What is an LLC?
An LLC is a legal entity where business owners are not held personally responsible for the company’s liabilities and debts. When you own an LLC, you are a ‘member’. An LLC can have one member, or it can also be composed of other corporations or even several business partners.
What are the benefits of forming an LLC?
There are a bunch of benefits to having an LLC. But we’ll focus on the biggest one. If your company gets sued, goes into debt or has any other kind of legal trouble, your personal assets are protected. This means only the money and property that belong to the business are at risk.
Another big benefit when you start an LLC is its pass-through tax status which means is that your company won’t pay federal corporate tax. Instead, the income will “pass through” to you. That means you’ll report income and losses on your personal tax return which will be subject to ordinary income tax. If your LLC has multiple members, the paperwork is a little bit more complicated.
Keeping Your Finances Separate
Forming an LLC means you should be keeping your company’s finances separate from your personal finances. This can help you build business credit and will help if you ever need a small business loan or other business line of credit. It can also legitimize your company in the eyes of potential clients. But you must maintain corporate formalities — such as keeping a separate bank account and signing contracts in the business’s name rather than your own.
Is an LLC right for you?
Before you make any firm decisions, talk to tax and legal professionals who deal with small businesses. They will be the most helpful in weighing the pros and cons.
How do I form an LLC?
Once you’ve decided to move forward to start an LLC, the exact process to set it up will depend on where you live. You’ll find guidelines and requirements on your state’s Secretary of State or Department of Commerce website. But here are the general steps you’ll follow:
1. Name Your LLC. Your business needs a name, right? Check with your state’s LLC office before you start an LLC to ensure the name you wish to use is available and complies with any restrictions, such as avoiding prohibited words or trademark violations.
2. File Your Articles of Organization. Sometimes called a “certificate of formation” or “certificate of organization,” this document provides basic information about your business to the state. It should include your business name, address, a registered agent to receive legal documents and members.
There is usually a filing fee associated with this paperwork, and some states have a corporate tax on top of that. For example, California has a filing fee of $70 and an annual tax $800 for most LLCs.
3. Submit a Public Notice. If you form an LLC in Arizona, Nebraska or New York, you must place a notice of your intent in a local newspaper. The amount of time your ad runs for will vary, as will the cost to publish.
4. Write Your Operating Agreement. This document is like your company’s bylaws. You don’t have to file this with your state office. And you may not need it on day one if you are the sole member of your LLC. But it’s a good way to formalize how your business operates from a legal standpoint.
If you have multiple members, it also helps establish who owns what percentage of the LLC. And how big each member’s share of the profits or losses are. It’s probably easiest to get an attorney to help you draft one up. That allows an independent third party to formalize the agreement so you don’t have any issues in the future.
5. Set Up Your Business. Once you’ve legally established your business, you’ll want to get any licenses and permits required by state and local governments. And you’ll also need a federal employer identification number (EIN). It’s like your business’ Social Security number. That will allow you to then open a business bank account.
When it comes to filing and start an LLC, you don’t have to go it alone — sites like IncFile (by the way, when you click this link we earn a commission at no cost to you 😉 which helps us to continue creating new content every week so that you can start and grow your online boutique 🙌) offer quick and easy service to file for your LLC. Click here to get started.
While you can save money with a DIY approach, managing the process can bring more headaches. Forming an LLC can have long-term consequences for your company’s legal and financial well being, so it’s a good idea to let the pros walk you through the process.
Click here to file your LLC with IncFile.
This article is not intended as legal or tax advice. Please seek advice regarding your particular circumstances from an independent legal, accounting or tax professional.