December 18, 2014

10 Things You Need To Do After Forming An LLC

after forming an llc

If you recently formed a Limited Liability Company (LLC) or incorporated, you have taken an important step toward setting the legal foundation for your business and protecting your personal assets. While you may have had several questions leading up to the decision to form an LLC, you probably have even more on what to do after.

Is creating an LLC enough to let you legally open your doors for business? Not exactly. Here are 10 things to consider before you’re ready to do business.

What You Need To Do After Forming An LLC

1. Obtain Any Necessary Business Licenses and Permits

Many new business owners think that forming an LLC or corporation is the same as getting a business license. Then unfortunately, some realize this isn’t the case when they are fined for operating without a license. Think of it this way: getting an LLC is the first step and creates a legal foundation for the business. A business license gives you the right to operate.

Depending on what kind of business you have and where you live, you may need to get business licenses from your state, county, or town. Examples include: zoning permit, permit from the health department, professional licenses, a general business operation license, and home occupation permits. Most licenses are relatively inexpensive and getting one upfront will save you money and keep your business legit. Check with your local board of equalization offices, or find a service to determine which permits your business needs to legally operate.

2. Get a Seller’s Permit

Many states require what is called a seller’s permit (or a similar name). This permit is required for sole proprietors, LLCs, partnerships, and corporations that sell taxable goods and services. For example, in California, a seller’s permit must be obtained by any business that sells or leases property that’s subject to the state’s retail sales tax. Make sure you get this permit before you start selling.

3. Get an Employer Identification Number (EIN)

An EIN, also known as a federal tax ID number, is a way for the IRS to identify your business and track its transactions. Think of an EIN like a social security number for companies. If you plan on having employees, an EIN is mandatory. However, getting an EIN is good practice even without employees. That’s because you can give the EIN, instead of your personal social security number to clients and vendors.

4.  Apply for S Corporation S Treatment (If Applicable)

An LLC has “pass-through” tax treatment, meaning that the business’ profits and losses are passed along and reported on the business owner’s tax return. As the owner of an LLC, you must report all profits (or losses) of the business on a Schedule C with your personal tax return. LLC owners who are active in the business must also pay self-employment tax on the profits.

In some cases, it may benefit you to elect S Corporation status. This enables you to split your business’ profits into salary and distributions. You’ll pay self-employment tax (or Medicare/social security tax) on the salary portion, but not on the distributions. To elect S Corporation status, you need to file form 2553 with the IRS (it’s free) within 75 days since forming the LLC, or 75 days from the start of the current tax year.

5. Open a Business Bank Account

Once you have established your LLC, you can open a business bank account under the LLC. This will allow you to accept checks made out to your business name. In addition, owners of corporations and LLCs are legally obligated to keep their personal and business finances separate – so having a dedicated business bank account is a must.

6. Apply for a Business Credit Card

In addition to opening a separate bank account, using a business credit card is a smart idea. By putting all your business expenses on the business card, you’ve got an instant audit trail of your year’s expenses when tax time rolls around. In addition, having a business-specific credit card will help you maintain your “corporate veil”…that’s what protects your personal assets.

7. Insure Your Business

While forming an LLC or incorporating does help protect your personal assets from any liability of the company, it doesn’t protect the business itself from losses. That’s why you should consider getting a general liability insurance or a Business Owners Policy (BOP). These policies will broadly cover your business against accidents, injuries, and negligence claims. In addition, if you’re selling a product, you’ll need product liability insurance. And, if you provide a professional service (i.e. lawyers, accountants, notaries, real estate agents, insurance agents, hair salons, consultants), you’ll need to take out a professional liability policy.

8. Foreign Qualify in Other States (If Applicable)

If your LLC will be doing business in a state other than the state where you formed the LLC, you will need to register in the new state(s). Examples of “doing business” can include: Opening an office or store in another state, when a significant portion of your company’s revenue comes from another state; when you have employees working in another state; and when you frequently conduct in-person meetings in a state.

9. Get a Doing Business As (DBA)

If like most businesses you are going to be operating under any variation of your official company name (i.e. Company vs. Company.com vs. Company, Inc…), you will need to file a Doing Business As (DBA) for each of the variations. You should have your LLC file the DBAs so they operate underneath the LLC.

10. Make a Plan to Keep Your LLC Compliant

Once you become a corporation or LLC, you’ve got to operate your business at a higher administrative level than you’ve been used to as a sole proprietor. Both LLCs and corporations often need to file an annual report with their state, as well as keep up with their quarterly tax payments. Mark these important dates on a calendar ahead of time, or sign up for a service that will automatically send you alerts ahead of key state and federal filing deadlines.

Working from Home Photo via Shutterstock

12 Comments ▼

Nellie Akalp


Nellie Akalp Nellie Akalp is CEO of CorpNet, her second incorporation filing service based on her strong passion to assist small business owners and entrepreneurs in starting their business. Free guides, advice and videos on small business legal topics are available at her Small Biz Corner.

12 Reactions

  1. It will even help if you have someone who is knowledgeable in all these permits to handle everything. As a small business owner, I like to focus more on my business and these things can often add to the confusion. I wouldn’t mind paying someone to process everything for me.

  2. How many LLC are they in the U.S? Is this often the best option for a small business start-up?

    • Hi Martin –

      LLCs are very popular for small-business owners, because they avoid many of the formalities corporations have. Corporations require stock, shareholders, a board of directors, regular meetings, etc. Many small business owners don’t want to have to worry about those things and just want to focus on growing their business, so they often opt for the LLC.

      Thanks for reading and commenting on my post!
      Nellie

  3. I agree with the actions suggested by the author here. However, before taking these actions, the first step I do as a business attorney is to have the members hold their first meeting and adopt resolutions authorizing the taking of all these actions. For example, when opening a bank account, many banks will want to see that the person filling out the paperwork is authorized to do so and that the LLC has approved the taking of such action. The corporate resolution will have the necessary language that gives the bank the assurance it needs. The same goes for just about all of the other actions in the list.

    This is part of the service that I provide when setting up an LLC so that, as Aira stated, the business owner can go about doing what he or she does best!

  4. Great business tips. I have an LLC myself. LLC is the best option for small business owners. Getting an attorney can save lots of time.

  5. Hi Neillie,
    It is interesting to read about LLC formation in the states. I am providing a similar services in the UK. The process is slightly different than here. For example, bank account and credit card. These are usually included in the company formation package you buy. Also point 8 shows me how big the USA is. Does every state has a different tax regulation? How much does a LLC formation cost?
    Cheers,

    • Hi Graeme,

      I would definitely recommend speaking with an accountant in order to get your tax-related questions answered. Filing an LLC has a different fee in each state, so it really just depends on how much the state you’re looking to file your LLC in charges.

      Thanks for reading and commenting!
      -Nellie

  6. In some states like New York, where the law is a bit tricky, it’s very important that you consult a knowledgeable attorney BEFORE you form your LLC. Failure to do so could cost you thousands of dollars in unnecessary fees and expenses.

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