Important Legal Considerations when Starting an LLC

At present, there are approximately 21.6 million LLCs in the USA compared to only 1.7 million regular closed corporations. IRS statistics have also indicated a steady annual increase in the formation of domestic LLCs since 2004. There are many reasons why an LLC is the preferred business structure of so many aspiring business owners. In addition to the limited liability an LLC enjoys and the various tax advantages, LLCs are also generally easy to set up. Despite these advantages, there are a number of legal factors that need to be considered. By giving each of these factors the attention it requires, it becomes increasingly easy to set up and run a legally-compliant business entity.

Fine-Tune Your Business Plan

The first thing you need to do to ensure the LLC you are planning to form, is legally compliant, is to fine-tune your business plan and ensure it covers everything that is required including the vision and mission of the business, the unique selling points, marketing strategy, and buyer persona analysis of the proposed LLC. It is essential to apply for a bank account for your business to effectively separate your personal finances from those of your business. Find the best bank account for your business by comparing transaction limits, banking fees, ATM access, and interest rates offered. As an LLC owner, you will also have to apply for a Federal Employer Identification Number (FEIN). These numbers are an important legal requirement and are assigned to businesses for hassle-free IRS identification and taxation purposes.

Put Thought into Your Name

Choosing the right name for your LLC is essential both from a marketing and legal perspective. Although the naming guidelines for LLCs may differ from one state to the next, the basics remain the same. Start by obtaining a list of words that are restricted in terms of business names. Once you have a shortlist of potential business names, make sure that no other businesses are trading under the same name in your state (or country if possible). Don’t forget that the company name has to include ‘LLC’, ‘L.L.C.’ or the words ‘limited liability company’. It is also important to remember that you should file for a ‘Doing Business As’ (DBA) if you are planning to use various variations of the same name or different names for business purposes. The application for a DBA should be made after the LLC is fully registered. As indicated by a LegalZoom LLC review, it can be beneficial to seek out assistance in forming your LLC, especially if you have never started your own business before. Such an accredited entity will ensure that all the necessary documentation is filed and that you meet all legal requirements.

Make Sure All Licenses and Permits are in Place

Regardless of whether you are operating at federal, state, or local level, it is important to make sure you have all the required permits and licenses in place. There are many factors, such as the type of business and your location, that determine what type of license (if any) you require. You will require a federal permit if you are engaging in operations such as aviation, fishing and wildlife, alcohol manufacturing and imports, mining and drilling, and nuclear energy. If the business you want to open is not listed as one that requires a federal license, chances are good that you will require a license from your city or state. Businesses that require a license to trade in all states include insurance agencies, childcare centers, mechanics, plumbers, electricians, and restaurants. Even if your business does not require a general trading license, there is a possibility that it may require another type of license in order to be deemed a legal business entity.

Finalize the Operating Agreement

When forming an LLC it is essential to very clearly define the various responsibilities and roles of the relevant parties in the operating agreement of the business. This legally binding document will also, in no uncertain terms, define the financial distribution, decision-making procedures, and in which manners the partners will part ways should that situation ever presents itself. If the LLC has only one member, it might not be necessary to draw up an operating agreement from the get-go as all decisions and responsibilities lie with one person. If any new members are admitted to the LLC at a later stage, however, it will be necessary to draw up a suitable agreement. A very important component of the operating agreement is the management style of the LLC. As stated, in the case of a single-member LLC, the sole member will have full operational control. If there are multiple members, however, the decision needs to be made whether the LLC will be member-managed or manager-managed.

There are many benefits to forming an LLC. It is, however, important to make sure your business is legally compliant to ensure all benefits can be maximized.