You've started a business, or you're thinking about starting a business, and you want to know how to get an LLC, great you're in the right place!
In this episode, you'll discover the
3 STEPS TO GET AN LLC
How To Know When To File An LLC
LLC Vs. Sole Proprietor vs. S-Corp Vs. C-Corp is suitable for you right now.
Over the years, I've started various businesses and have registered them as LLC and S-Corp. I want to share with you lessons learned and mistakes to avoid. *Note: I'm not a tax professional, just a tiny business owner sharing what I know. Be sure to consult your local tax professional to know the best move for your unique business.
LLC Vs. Sole Proprietor
We're talking about operating your business as an Informal business vs. formal business.
An informal business (sole proprietor) might make sense if you're testing a business idea and you haven't yet acquired a steady client base or consistent revenue.
A Formal Business (LLC) might make sense if you're acquiring new customers, expanding your business, or bringing in a significant amount of money into the business.
By changing your business from a sole proprietor to LLC, you will:
Protect your savings, car, and house
Increase your peace of mind
Protect your privacy
Increase business growth
Allow for greater profit
Allow for accelerated growth
A critical difference between LLCs vs. sole proprietorships is tax flexibility. Only LLC owners can choose how they want their business to be taxed. They can either stick with the default—pass-through taxation—or elect the LLC to be taxed as an S-corporation or C-corporation.
I made the mistake of thinking that I didn't need to establish an LLC until I hit a certain revenue threshold, which might be true for some. But what I didn't factor in was my enthusiasm to prematurely invest in a business deal that went south and then plummetted my credit score.
A benefit of setting up an LLC from the beginning so that you can get that EIN and immediately separate your personal and business finances so that you can cover your assets. *I'll be breaking down how I handle my business finances in an upcoming episode, so be sure to subscribe
LLC Vs. S-Corp Vs. C-Corp
As you move from an LLC up into an S-Corp and C-Corp, potential tax benefits are involved, and so are additional fees and paperwork.
When I set up my most recent Cali business, I had high-earner hopes and thought I'd save myself some work and establish an s-corp upfront.
Unfortunately, that year I heavily invested in higher education courses, production equipment, operational expenses and paid myself little to nothing.
I didn't make the target net income of $45,000+ to justify filing fees and franchise tax spending.
At the end of it, I was upside down.
Little did I know that I could've just registered as an LLC, and later if I needed to, I could have filed my taxes as an S-Corp.
Start with an LLC. You can always file as an S-Corp if need be. You can go up to an S-Corp, but not down to an LLC.
Confirm That Your Business Name Is Available
To confirm if your business name is available, go to your state's secretary of state website ends in.gov. If someone has your name, then choose a different one. Your legal business name and brand name do not have to be the same. This can be an intelligent move because having your business name as one thing and your public brand name as another could further help to protect your identity, especially for those of you, like me, who use your full name.
Do your business name research before starting the LLC filing process.
File Your Articles of Organization
You may need to select a registered agent, physical address, when filing doesn't use punctuation (periods and commas) LLCs are required to pay self-employment taxes on net income 15.3%.
No payroll system is required, no payroll tax paid, no double taxation.
Choose an LLC Registered Agent
Your LLC registered agent is responsible for receiving legal documents and tax notices on your LLC's behalf. They must have a physical address in the state that you're filing. A P.O. Box doesn't work. A service fee of $50-$100 is associated with this. If you value privacy, flexibility, and organizational assistant, it's easily worth the cost. When you file your LLC's Articles of Organization, you will list your registered agent.
Submit Your Operating Agreement
Your operating agreement outlines how will you run your business, who's on your team, how will you pay yourself?
To quickly recap on how to get an LLC as a single-member small business owner:
Step 1. Confirm That Your Business Name Is Available
Step 2. File Your Articles of Organization
Step 3. Submit Your Operating Agreement
Now tell me in the comments below, did you find this helpful?
Curious to know how to pay yourself as an LLC, then tune into this episode next.