It is easy to set up LLC (Limited Liability Company.) LLCs are not only easy to form, their liability protection rivals that of the corporation. LLCs are also easy to manage and give their owners great tax advantages. The important thing is to make certain make the LLC documents are made to give you the benefits after you set one up. That is what most people miss. The following is a quick summary of the step by step procedures on how to set up LLC.
Steps to Set Up LLC
1. Decide which state you want to set up LLC in. There is no “secret” state that has more benefits than others do for the LLC. It is a good idea to set up your LLC in the state where you are conducting business. Go to the state website and get the LLC “Article of Organization” documents Fill them out. The forms are only a couple of pages long. Most of the information is simple personal information. If you have a hard time with this step. This site has the state links to all fifty state websites and Course 2 of the LLC Wizard goes through the form line by line.
2. Next choose how you want to have your LLC taxed. Many folks who set up LLC don’t realize that it might be able to qualify to be taxed as an S Corp. Often being taxed an S Corp can offer some big advantages. For instance you can reduce your self-employment tax liability, and you can still qualify for pass through taxation. If none of the members are partnerships, corporations or non-resident alien shareholders and there are no more than 100 shareholders and only one class of stock, your LLC can elect to be taxed as an S Corp. Simply file Form 2553 with the IRS, “Election by a Small Business” signed by all the shareholders.
3. The next step in set up LLC is to make an operating agreement. The operating agreement is the rule book for your business. What you write in the document determines such things as the asset protection you get out of your LLC and how to run it. It is a good idea to modify standard boiler plate LLC forms to meet your specific company needs. Course 4 in the LLC Wizard goes through what you need to include when set up your LLC and what might be nice to include in your LLC operating agreement. For example, you need to restrict the members’ ability to transfer their membership interests.
4. Once you set up LLC documents with all of the steps necessary, then you have to “maintain” the LLC. You must do your “window dressing.” Issue membership interests. Yes, you should take the time to fill out those membership share forms and give them to the members. Also, the LLC form log book needs to be filled out. You should also open bank accounts as part of your LLC formation. Never commingle money. These steps will help prove to the judge that the LLC is not merely your alter ego if your LLC is ever sued. Otherwise, the LLC “corporate veil” will be set aside when you get to court. You will be held liable for the debts, liabilities, and creditor problems of the LLC. LLC formation will have been a meaningless exercise for you. Course 5 in LLC Wizard goes through the formalities you need to follow in order to maintain your LLC.
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