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.
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