I Have An LLC… Now What?
You’ve taken your business to the next level by registering as an LLC—congratulations! Take a moment to catch your breath, but don’t park it for too long. There’s still plenty of paperwork to do, including getting a federal tax ID from the IRS, writing an operating agreement, opening a business bank account and more. Below are 8 steps to get your newly-formed LLC ready to conduct business.
Step 1: Get a federal tax ID
As a freshly incorporated business, your business will probably need its own tax ID number (instead of just your personal social security number). This ID is called a federal employer identification number (FEIN or federal EIN), and the IRS requires this ID for some tax filings. You can get your ID by submitting an application on the IRS website. There’s no filing fee, and the turnaround time is pretty quick.
Even though many LLCs are pass-through entities that don’t file corporate returns, LLCs will still need their federal tax ID for specific situations, such as if they have employees or file certain excise taxes. Also, you’ll likely find that a federal tax ID is on the list of requirements for opening a business bank account.
Step 2: Write an operating agreement
An operating agreement is exactly what it sounds like—a document that explains how your LLC actually operates. What kind of information does an operating agreement typically include? Some common points are:
- members and their initial contributions
- any additional contributions
- how new members can be added
- members’ voting rights
- how profits and losses will be allocated
- when distributions will be made
- powers of members and managers
- what happens if a member dies
- how records will be maintained
- how shares can be transferred
- how the LLC can be dissolved
There are plenty of free templates available online (such as this one) for drafting an operating agreement if you’re not sure where to begin. This isn’t a document you file with the state—it’s just a part of your business records. However, that’s not to say that operating agreements don’t deserve your full attention. Your operating agreement will prove to be an essential document the moment any kind of problem or change arises in your LLC. And, much like a federal tax ID, an operating agreement is a common requirement for opening a business bank account.
Step 3: Open a business bank account
One of the advantages of an LLC is its limited liability. In a sole proprietorship, there’s no separation between you and your business—essentially, you are your business. In an LLC, however, your business is a distinct, separate entity. It has its own liability and assets that are separate from your personal liability and assets. For instance, if someone sued your business and won damages, those damages would typically be limited to your LLC’s assets—not your personal assets.
As such, you need to keep your business assets and your personal assets clearly separated. This is why one of the first steps you take after registering an LLC is opening a business bank account. You’ll usually need your tax ID and operating agreement to open an account.
Step 4: File reports
Most incorporated businesses have some sort of state reporting requirement where they regularly confirm or update essential business information such as the LLC’s members and registered agent. A few states, such as Alaska and Washington, require LLCs to file initial reports after forming their business—so it’s possible you may have a report due right away. Additionally, you’ll likely have to file annual, biennial or at least periodic reports.
Step 5: Meet any newspaper publishing requirements
Some states require certain business entities to publish a notice of their formation in local newspapers. Only a handful of states have these requirements, and most target corporations instead of LLCs. However, New York, for instance, requires LLCs to publish a notice in two different newspapers within 120 days of formation. Publication can cost hundreds of dollars, depending on which county you have to file in. Arizona also requires LLCs (except those in Maricopa County or Pima County) to publish a notice in a local newspaper.
Step 6: Apply for business licenses or permits
Some states, like Nevada and West Virginia, require state-level business licenses. It’s also very common for counties and municipalities to have their own licensing requirements. Whether or not you’ll need a business license or other permit will depend largely on where exactly you’ll be doing business and what kind of business activities you’ll engage in.
If you’ve been operating as a sole proprietor or general partnership, you may already have business licenses and permits. However, you’ll likely need to update your information with your new name and entity type—and you may need to pay the fees again as well.
Step 7: Gear up for taxes
One of the biggest mistakes many businesses make is ignoring taxes until Tax Day. It’s possible your LLC may need to register with your state’s taxation or revenue department soon after formation. If you’re subject to state taxes—like franchise taxes, sales taxes, gross receipts taxes, or withholding—you’ll most likely need to register and set up an account sooner rather than later. Also, note that you may be subject to estimated tax payments. Generally speaking, if you anticipate a tax liability of more than $1,000, you’ll need to pay federal (and most likely state) estimated taxes throughout the year.
Step 8: Prepare to hire employees
Hiring employees for the first time can be a surprising amount of work. In addition to internal processes, such as sifting through resumes and developing an employee handbook, there are state and federal processes to follow. You’ll need to report new hires, set up withholding, pay for unemployment insurance, distribute required documents and notices to employees, and display required wage and safety information in the workplace. Most states have guides for hiring employees, often available from the state’s taxation or revenue department.
These 8 steps may sound overwhelming, but all the steps together really just amount to a stack of paperwork, some of which only needs to be done once. Luckily, getting started is usually the hardest part. After successfully clearing these initial hurdles, it’s just a matter of maintenance—meaning you can devote more of your time to running, improving and growing your LLC.