There are many concerns when first opening a business. Capital investment, hiring trustworthy people, finding a suitable office or workspace, getting into accounting etc. Though all of those things are manageable for most people who know basic maths and have people skills, the legal issues surrounding opening a company are daunting to many.
The legal nature of your company can determine the way you make business, and for you to have the best working experience while also feeling safe about your personal assets, let us discuss the legal benefits of a limited liability company.
What Is an LLC?
LLC is an abbreviation of “limited liability company”, a legal term describing a type of business where owners are not personally held responsible for the company’s liabilities. A similar form of business exists in most countries in the world (GmbH in Germany, Ltd. in the UK etc) and is one the most common types of incorporation in the world.
When forming an LLC the company itself becomes a legal entity and the owner is only a shareholder. This also means that the company has to have a legal representative, or registered agent, to act on behalf of the company when dealing with tax forms, legal documents etc. But the owner is still free to operate the company as they please as long as it’s within legal limits.
How to Secure Your Personal Assets With an LLC?
In other forms of business, a sole proprietorship for example, the company itself is legally a part of the owner, that is – their personal asset. If the company were to lose money by whatever means (doesn’t matter if it’s poor management or being swindled) the loss has to be made up from the owner’s assets. This can potentially ruin them as in the case of a greater minus even their house can be at risk.
The limited liability aspect is important here – it restricts the owner’s liability for the company, restricting also a part of the profit, and the company becomes liable for itself. The company may go down under but it will only go with the capital it owns itself. An LLC offers more protection for the owners than any other form of business and that is why even some big names, like Nike, Sony and Anheuser-Busch InBev opt for this choice. The owner is free to pursue other entrepreneurial challenges while not worrying if the bad business of one company can put everything to a halt.
Opening a Limited Liability Company
The route to opening, or transforming to, an LLC in the US will differ from state to state but in general there are four steps you need to make:
Choose an original name
A company’s name cannot be the same as any other in the state it’s operating. Sometimes if a name you were thinking of is already taken, it can be changed to something very similar and still be accepted.
Though this is regulated by state law, as long as it is not profane, taken or made in another writing system – it will be accepted.
Find a registered agent
As discussed above, a registered agent is needed as a legal representative of the company to act between it and the state it is registered in. They have to have a physical address in said state and will receive an answer to government correspondances, legal notices, tax forms etc.
Even though the owner can act as an agent for their own company it is beneficial to pay a third party entity to do it instead. Not having to worry about legal nuisances and responding to officials on time is a great relief from the stress that comes from running a business in the first place.
File the Certification of Formation
This is the official name for the documents you need to fill in and hand over in order to get your company registered. With it the business entity becomes recognized by the state and you define the ownership of its members.
Depending on state laws you might have to submit at the same time what are the locations you are operating on, that is where is your production and/or office.
Contact the IRS
Any business in the US has to come in contact with the IRS sooner or later. When starting you should apply for the EIN (Employer Identification Number), especially if you will have more than one employee.
Doing your own taxes is another crucial part of having a successful business so make sure that you or your accountant are up to date with what is going on. Using accounting software is also a great way to keep everything organized and can be much cheaper than hiring someone else to do it.
It all narrows down to how you envisioned to run your business. Not everyone is open to the idea of having to separate themselves from the company that represents them, but for those who need a bit more wiggle room and security an LLC is the right choice.