One of the most important decisions to make when starting a business is what type of business entity to form. The limited liability company (LLC) is one of the most popular business structures because it offers a level of flexibility and legal protection that is attractive to many people who are starting their own businesses. The LLC is attractive because it offers moderately easy maintenance to retain legal protection for personal assets. The following six steps should help you get started if you are interested in forming an LLC.
- Choose a name. To form an LLC, you must select a business name that complies with state regulations. The name you select cannot be the same as or even too similar to any other LLC's name; it must be unique to avoid consumer confusion. Next, states often require that the name of your LLC include one of the following at the end: “limited liability company,” “LLC,” or “Limited.” In North Carolina, the name of a limited liability company must contain the words "limited liability company" or the abbreviation "L.L.C." or "LLC," or the combination "ltd. liability co.", "limited liability co.", or "ltd. liability company." This requirement gives the public notice of your business structure. As simplistic as this step may seem, it is critical to successfully establishing an LLC and being able to take advantage of the legal protections this business structure provides.
- Select a registered agent and registered office. In addition to selecting an appropriate name, you must select a registered agent and registered office. A registered agent, also known as a statutory agent, has the duty to forward to the LLC any notice, process or demand that is served on the registered agent. Registered agents must provide an address where the notice, process or demand can be sent. When deciding who should serve as the registered agent, keep in mind that the registered agent will typically be the first person to whom the state reaches out if any issues arise with your LLC. As a result, it is important to ensure that your registered agent consistently checks incoming correspondence and relays that information to you as the business owner.
- File documents. Perhaps the most important step in creating your LLC is filing the required documents. The articles of organization are filed with the Secretary of State and include such information as the company's name, the registered agent's name and address, and the business's purpose. This information becomes public record, so be mindful of what information you are comfortable sharing with the world. Keep in mind that there is a fee to file these documents. In North Carolina, the filing fee for the articles of organization is $125. Remember, any start-up costs and filing fees you incur are tax-deductible.
- Get a tax identification number. Another essential step in starting an LLC is obtaining a Tax Identification Number. Your LLC's Tax Identification Number, also known as an Employer Identification Number or EIN, is provided by the Internal Revenue Service (IRS). After completing a successful application, the IRS assigns a unique number that links the identity of the responsible party to the business for income tax purposes.
- Open a business bank account. After you have filed your LLC's formation documents with the state and obtained a Tax Identification Number, you will be ready to open a business checking account. This step must not be overlooked in order to enjoy the benefits of an LLC. Maintaining this separate business checking account prevents you from commingling your personal funds with the business's funds. Failure to maintain this separate business account could result in losing the business's limited liability status because of a legal concept called “piercing the veil.” If this happens, you could be held personally liable for the LLC's debts and liabilities.
- Draft an operating agreement. Finally, to form an LLC, you must create an operating agreement. The operating agreement is an agreement where the LLC and interest owners are parties to the agreement. This document outlines the rules and regulations governing the LLC. In some states, business owners are required to file this document with the articles of organization.
Once your LLC is formed, it is critical to remember and adhere to the compliance requirements to keep your LLC in good standing. These requirements vary by state but often involve some form of annual reporting. In some states, for example, North Carolina requires an annual fee with the annual report. Failure to comply with these requirements will result in the suspension of your LLC and put your personal assets at risk.
We Can Help
The process of properly structuring, forming and protecting your business can be complicated and may involve complex legal documents. If you need assistance forming an LLC or any other type of business structure, our experienced team can help. Call (704) 230-0466 or CLICK HERE to schedule a meeting with an experienced business attorney who can help you with forming an LLC. The Brewington Law Firm, PLLC meets by telephone conference, in office or web conference (Zoom/Google Duo/Microsoft Teams).