A Guide to Forming a Limited Liability Company (LLC)

If you are an emerging entrepreneur, an LLC can present as an attractive option for starting your own business due to its flexibility and personal asset protection. A company’s lack of liability protection can be risky because creditors and stakeholders can seize the owners’ and investors’ assets if the company goes bankrupt. LLC ensures that your personal assets stay safe if the company loses money, protecting entrepreneurs and investors. Continue reading this article to learn what an LLC is and how to set up your business as a limited liability company.

How Limited Liability Works

Limited liability companies have a hybrid business structure that integrates the concepts of a corporation and a partnership. In case of the failure of a business, LLCs allow the owners to bear only part of the responsibility. Like a partnership, the corporation is taxed as part of the owner’s personal assets so that you can avoid double taxation of your company and personal income.

How to Set up an LLC

Here is a step-by-step guide to setting up your LLC:

1. Choose a Business Name

Your business name should be unique and descriptive of your company. You will have to check with your state’s secretary of state office or business registration agency to ensure that another company in your state does not already use the name. Most states also require you to mention ‘LLC’ with the name of your company to indicate the legal structure of your company.

2. A Registered Agent

Knowing how to choose a registered agent in Texas is essential before you start an LLC. A registered agent is responsible for receiving and managing all legal documents for your LLC. You can hire professional registered agent services or even be your own agent if you are older than 18 and have an address you can state in public records. This registered agent address, also called the registered office, can not be a PO box address or a mailbox rental service and must be a physical street address located in Texas. Legal documents you may receive include:

  • Writ
  • Complaints
  • Summons
  • subpoena

3. File Articles of Organization

To officiate your LLC, you must file articles of incorporation: the documents that establish your company’s existence. These include information about your LLC’s name, registered agent, board of directors, incorporators, business contact information, business address, and the purpose of your LLC. You will be issued a license and a certificate of formation from your state declaring your business.

4. Create an Operating Agreement

An operating agreement outlines all the operational details of your LLC, including the roles of all members, voting rights, and the management structure. It is a legal document formed with the help of a lawyer, and a copy is distributed amongst all company owners and is crucial in preventing misunderstandings among members and other legal disputes.

5. Obtain an EIN (Employer Identification Number)

For filing and tax purposes, all members and employees of an LLC must have an EIN. You can apply for one free of cost on the IRS website or by submitting an SS-4 form.

6. Register for State Tax

An LLC will help you evade double taxation for your company and personal income and give personal liability protection for all members. However, you must take steps to separate your business and personal life financially. To do this, you can create a separate business bank account and credit card for your business. Next, you must check in with your state’s Department of Revenue for specific requirements regarding state taxes, such as payroll tax and sales tax.

7. Comply with Ongoing Reporting Requirements

LLCs usually have ongoing reporting and filing requirements that you must keep updated with to keep your company in good standing. These can include:

  • Information about your LLC’s income
  • Filing annual reports
  • Accurate records of business transactions
  • Paying annual fees

Endnote

Limited Liability companies are vital business models with the benefits of personal asset protection and simplified taxation. With proper planning and execution of the above-mentioned steps, you can establish a flourishing LLC for your entrepreneurial journey.

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