Starting a small business is a dream that many of us hold close to our hearts. It’s a journey filled with exciting possibilities, boundless creativity, and the promise of independence. But as you embark on this thrilling adventure, there are crucial steps to take and decisions to make, and one of the most significant of them all is filing for a Limited Liability Company (LLC).
In this post, it is going to help guide you through the essential process of creating an LLC and putting together some of the legal basics for your small business. Whether you’re an aspiring entrepreneur, a solopreneur, or part of a budding startup team, understanding the significance of this legal structure is so important and can be easily looked over, so don’t miss out.
We’ll unravel the confusion that often can come with the topic of LLC formation, offering you step-by-step insights, practical tips, and invaluable advice to ensure that your business is built on a solid foundation. From choosing the perfect business name to navigating the intricacies of tax obligations, we’ve got you covered.
It’s time to transform your vision into a thriving venture and bring your entrepreneurial aspirations to life.
*Disclaimer* This is not legal advice, Glamour and Guide, Pamela Valdez and this website are not responsible for legal problems. This is the process Pamela Valdez took to launch her business.*
Photo source from cover photo. If you love any of these tips and have gotten inspiration, leave a comment and let us know on our Instagram @glamourandguide!
What is an LLC?
An LLC, or Limited Liability Company, is a legal business structure that combines the limited liability protection of a corporation with the simplicity and flexibility of a partnership or sole proprietorship. In simple terms, it means that the owners of the LLC (called members) are generally not personally responsible for the company’s debts and liabilities. Instead, the company itself is responsible. This helps protect the personal assets of the members if the business faces financial or legal problems.
LLCs are a popular choice for small businesses because they offer limited liability protection while also allowing for more straightforward management and tax flexibility. It’s a way to run a business with less personal risk and administrative burden compared to some other business structures.
Where and How to file an LLC?
Every state has their own rules, laws and regulations that you must follow when it comes to filing with your state. As someone that live in NJ it was about $100-$120 to get that set up. The simple way to do it is by going on the official government website for your state.
For NJ, it looks like this and the registration process begins there. You click the get started button and then search to see if your business name is available. You almost must pick what kind of business you want to form and there is sole proprietorship, LLC, corporation, S corporation and more. LLC is the one that is the simplest to do in terms of taxes and getting up with your state because the process can be done very easily online.
More Filing Information and Registration Process
Some of the things to focus on when you are about to file is the name for your business, your location, what is the ownership, who is the CEO, the type of service, the activity you’re doing, how many workers, a cell phone number, and many other questions like how you’re going to operate.
Once you file, you will receive a PDF with your business registration that will have all this information. You will receive an entity ID number and an EIN number (both are different)
This paper will have everything you filled out and the date you filed. You will also have to register your business afterwards which is different from filing an LLC, this also requires:
- You to do this within 60 days of filing for your LLC and this is for tax and employee purposes
- You will need to file a registered agent with your LLC and for this you can put yourself and your address but make sure for the business address you put a business address like UPS which gives you the option for 3-6 months or a year
You will also receive after you do all of this, a certificate of formation and it will have a legal stamp of your state on it, mine has the stamp of NJ and it has all the information again included the name of my LLC, my registered agent, my registered office, business purpose, when the business became effective which is the day you filed it, signatures and main business address
Your entity ID number will also be on there.
More Paperwork For Your LLC
An EIN, or Employer Identification Number, is a unique nine-digit tax identification number assigned by the Internal Revenue Service (IRS) to businesses and other entities for tax and administrative purposes. It is sometimes referred to as a Federal Tax Identification Number (TIN). Here are some things that can EIN number can be used for:
- Tax Reporting: Businesses use EINs to file federal tax returns, such as income, employment, and excise tax returns.
- Hiring Employees: If a business hires employees, it needs an EIN for reporting employee income, withholding taxes, and other employment-related tax matters
- Opening a Business Bank Account: Financial institutions typically require an EIN to open a business bank account and conduct financial transactions in the name of the business
- Applying for Business Credit: When seeking credit, loans, or financing for a business, lenders often request the EIN as part of the application process
- Legal Structure Change: If the legal structure of a business changes, such as when a sole proprietorship becomes an LLC or corporation, a new EIN is usually needed
- Compliance and Record-Keeping: EINs help the IRS and other government agencies track and manage business-related tax and legal records
It’s important to note that EINs are not limited to businesses. Other entities, such as nonprofit organizations, trusts, and estates, may also obtain EINs if required for tax purposes.
To obtain an EIN, as mentioned previously you can apply directly with the IRS through your state by completing Form SS-4, which can be submitted online, by mail, or by fax. In most cases, the EIN is issued shortly after the application is processed. Having an EIN is a standard requirement for most businesses in the United States, and it’s a crucial part of their legal and financial identity for tax compliance and other official purposes.
Another form you will get is a paper certifying that your business has an EIN number, this is the number that identifies your business and is like the social security number for your business. A “Certificate of Formation” is a legal document used in the formation of certain types of business entities, particularly in the United States. The specific name and requirements for this document may vary by state, but it is most commonly associated with the formation of a Limited Liability Company (LLC).
It’s important to consult the specific regulations and requirements of the state where you plan to form an LLC or another business entity. The Certificate of Formation is a foundational document in the process, and it is essential for establishing the legal structure of the business, protecting the owners’ personal assets, and complying with state regulations. You may want to work with a legal professional or use online resources provided by the state to ensure that you complete the process correctly.
It is also very important to note that you are going to be receiving a lot of scam papers in the mail if you put your house or an address as a business address. Under no circumstances should you send money or information to this account or company that is trying to take advantage of small businesses that have just been formed. Instead, only look for envelopes that are going to have the official seal of your state which then you know are legal.
How To Pay Yourself with An LLC
With an LLC, it is so different from being a sole proprietor because you need to be more careful and aware of the amount of money flowing in and out of your business. The reason why is because when you legally become an LLC and there ever comes an issue with your business and things need to be looked into, seeing multiple money transfers coming in and out is not ideal. Here’s some ways to get set up:
Open a Business Checking & Savings:
With your EIN number, you can go to a bank like Chase and use this information to set up an account. It takes a few minutes to wait for approval. It is also recommended to get a business credit and debit. There may be some issues online trying to do it so you can easily call your local bank or wherever you are setting it up, make an appointment and in less than an hour, you will have all the paperwork for this checking, savings and cards ready to go.
Set Up Payroll:
If you’re treating your LLC as a sole proprietorship or partnership, you won’t have a formal payroll system. Instead, you can simply withdraw funds from the business for personal use. However, if you elect to be taxed as an S corporation, you will need to set up a payroll system. Websites like bill.com and Gusto are great for setting up payroll easily for yourself.
Determine a Reasonable Salary:
If you’re choosing to pay yourself a salary in an S corporation, it should be reasonable for the work you do for the business. It should reflect the market rate for your position. Keep track of this in a spreadsheet so you know when you get paid, the day and how much. This is good for tax records and for yourself.
Consult with a Professional:
The rules and requirements for paying yourself in an LLC can be complex and vary depending on your specific circumstances and the tax structure you choose. It’s a good idea to consult with a tax advisor, accountant, or payroll specialist who can help you set up the appropriate payroll system and ensure compliance with tax regulations.
It’s important to be diligent about following tax and employment laws when paying yourself from your LLC. Incorrectly classifying payments or failing to withhold taxes properly can lead to legal and financial issues. Consulting with professionals with expertise in taxation and business finances is a wise choice to navigate this process effectively
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