An LLC is a type of business structure with the liability-protection perks of a corporation and the flexibility and tax benefits of a partnership. When you form an LLC, you’re taking responsibility for the profits and losses of your company while also shielding your personal assets.
LLC owners are known as members and there can be as few as one member (a single-member LLC) to numerous members. Whether you want to launch an IT firm, marketing agency, restaurant chain, or fitness center, an LLC can be the right choice for your business structure.
Advantages of Forming an LLC
While there are other business structures you could opt for when starting a business, such as sole proprietorship or corporation, here are just a few of the several great advantages of going for an LLC business structure.
As the name suggests, an LLC enables a legal separation between the owners and the business. The LLC is answerable for its own debts and obligations, and if the company is sued, the owners aren’t personally accused.
Whereas, in the case of a sole proprietorship or partnership, you are personally liable for any obligations as you and your business are the same entity.
Less Corporate Formalities
Forming a formal business entity typically comes with a lot of paperwork and formalities.
An LLC has relatively fewer formalities (meetings, filings, etc.) compared to other business structures and demands less paperwork to get off the ground. It’s not necessary to conduct annual meetings, keep comprehensive records, or file annual reports — so it’s easy to get started.
Flexibility in Terms of Management
An LLC is a more agile business structure compared to a corporation, wherein there’s a rigid management structure involving shareholders, a board of directors, and executives.
With an LLC, you have the flexibility to set up a management process in a way that’s best for your business and the way it plans to operate, such as leaving all the decision-making to a single executive.
So you may benefit from the speed of decisions and day-to-day operations, and any growth plans — say, in terms of hiring or scaling across locations — can be charted and executed quicker.
Key Things to Consider Before Starting an LLC
Now that you know why an LLC is a good bet in terms of legal business structure, here are five key pointers to bear in mind when starting an LLC.
Decide on a Unique Business Name
Contrary to the popular quote by Shakespeare, there’s a lot in a name, especially when it comes to your business.
Here are a few tips to come up with a great brand name:
- Keep it simple and memorable: Sure, you can use related words in a creative way, but ensure the name is easy to recall and can be easily translated into your visual branding assets such as your logo.
- Brainstorm with your team: Collaborate with your partners and let everyone throw in ideas, words, and phrases that might eventually lead to a solid business name. List all ideas and shortlist them down to the last name standing.
- Don’t use buzzwords: Trends may come and go. So pick a name that stands to stand the test of time — and save the trendy buzzwords for marketing campaigns instead.
Ensure no other business is operating in your state (or best, anywhere else) under that name.
All states have naming guidelines that LLCs must follow. Check the list of words you cannot use for your company name as these may need additional paperwork. And don’t forget that your company will have “LLC,” “Limited Liability Co.,” or a similar variation included.
Also, make sure to search the domain name availability for your business name because simply put, you cannot survive, let alone thrive, in the modern digital landscape without a functioning and appealing business website.
Pick Your Headquarters Location
While you may plan to run the business straight out of your home, there are some factors you should consider when deciding the location of your business headquarters. One key factor is where your target audience is located and their demographics.
Moreover, different states have different laws when it comes to LLCs. Research these regulations before picking a location that’s ideal for your unique business needs.
Think About Your Business Plan, FEIN, and Bank Account
Figure out your business plan, covering a range of things, such as:
- Your company’s vision and mission.
- Your business’s backstory (why you exist), unique selling proposition, buyer personas, and marketing strategy.
- The company culture you wish to create and values you wish to uphold.
You’ll need to apply for a FEIN (Federal Employer Identification Number) through the IRS (Internal Revenue Service). This is a unique number assigned to a business for easy IRS identification for tax reporting purposes.
Also, you need a separate bank account for your business. This will help you keep your personal and professional finances separated for tax and organizational purposes.
Have All the Proper Licenses and Permits
Another crucial aspect of starting an LLC is to make sure you have all the necessary licenses and permits, whether you’re operating at a local, state, or federal level.
That is, when forming an LLC, you must complete state license registration. Though you likely won’t need a local business license, it’s a good idea to check anyway.
You’ll require a federal permit if the business you’re launching is planning to:
- Provide investment advice
- Manufacture drugs or meat products
- Do any kind of broadcasting
- Provide transportation
- Deal alcohol, tobacco, or firearms
If you plan to buy and sell goods, see to it you charge the appropriate sales tax for your state and obtain a Trader’s License or Seller’s Permit.
Ensure a Grip on Management Style and Accounting
Last but not least, it’s vital to clearly define roles and responsibilities in your operating agreement so there are no hiccups in the day-to-day operations later on.
The operating agreement is a legally binding contract that defines the decision-making processes, financial distribution, and how members can part ways if they want to in the future. Consider using an online legal services provider to get all your legal work done without hiring an expensive lawyer.
Next, think about the various types of insurance coverage you’ll need for both you and your workforce, such as:
- Workers’ compensation insurance
- Professional Liability Insurance
- Business insurance
Also, to ensure timely bill payments, automate invoices, inventory management, payroll, etc., take some time to research the right accounting tool for your business.
Over to You
Launching a new business can be daunting, but with the right preparation and knowledge, you can start off on the right foot. Keep the above key points in mind when you’re planning to form an LLC.
Hazel Raoult is a freelance marketing writer and works with PRmention. She has 6+ years of experience writing about business, entrepreneurship, marketing and all things SaaS. Hazel loves to split her time between writing, editing, and hanging out with her family.