Registering your Limited Liability Company (LLC) establishes your business as a formal legal entity, but it does not fully prepare it for operation. Completing the state filing is the first of several actions required to ensure your business is ready to transact and compliant with legal and financial regulations.
Obtain Your Employer Identification Number (EIN)
After your LLC is formed, you must obtain an Employer Identification Number (EIN) from the Internal Revenue Service (IRS). This nine-digit number is your business’s federal tax ID, similar to how a Social Security number functions for an individual. It is necessary for filing federal tax returns, hiring employees, and opening a dedicated business bank account.
Applying for an EIN can be completed online directly through the official IRS website. The application is free and provides you with the number instantly upon completion. Be cautious of third-party websites that charge a fee for this service, as there is no cost to obtain an EIN from the IRS. Even if you are a single-member LLC with no employees, an EIN is required by most banks to open an account and helps separate your business and personal finances.
Draft an LLC Operating Agreement
An LLC Operating Agreement is an internal document that governs how your business will function. It details the operational and financial decisions of the company, outlining the rights, responsibilities, and ownership percentages of its members. While not always required by state law, having an agreement in place is a standard business practice for both single-member and multi-member LLCs.
For companies with multiple owners, this agreement is a roadmap for preventing and resolving internal disputes. It should clearly define how profits and losses are distributed, the roles and duties of each member, and the protocols for voting on major decisions. The document should also establish procedures for admitting new members or for when a member chooses to leave the business. For a single-member LLC, an operating agreement reinforces the company’s status as a separate legal entity, which helps preserve personal liability protection.
Open a Business Bank Account
Opening a dedicated business bank account is a necessary step for protecting your personal assets. An LLC creates a liability shield between business debts and your personal finances, but this protection is compromised if you mix funds in the same account, a practice known as co-mingling.
A business bank account formally establishes the LLC as a separate financial entity. Courts can “pierce the corporate veil” and hold you personally liable for business debts if your finances are not kept separate. To open an account, banks require your articles of organization, EIN, and LLC operating agreement. Once the account is open, you can make an initial deposit, known as a capital contribution, to officially fund your business operations.
Secure Necessary Licenses and Permits
Business license and permit requirements are not uniform, varying significantly based on your industry and geographic location. Your business may need certifications from multiple levels of government, including federal, state, county, and city agencies.
Federal licenses are required for businesses in federally regulated industries, such as broadcasting or commercial fishing. At the state level, many professions, from cosmetology to construction, require specific occupational licenses. Your local government—either county or city—will likely require a general business operating license, and you may need additional permits like health department permits for food service or zoning permits for your business location. To identify what your business needs, consult resources like the U.S. Small Business Administration (SBA) website, your state’s Secretary of State office, and your city hall.
Understand Ongoing Compliance
Maintaining your LLC’s good standing with the state involves recurring obligations to ensure legal compliance and keep liability protections intact. Failure to meet these requirements can result in penalties, fines, or even the administrative dissolution of your company by the state.
File Annual Reports
Most states mandate that LLCs file an annual or biennial report to update records with current information, such as the business address and member names. These reports include a filing fee. Missing the deadline can lead to late fees and place your LLC in poor standing, which can jeopardize its legal status.
Understand Your Tax Obligations
By default, the IRS classifies an LLC as a “pass-through” entity for taxes. The business’s profits and losses are passed through to the members, who report them on their personal tax returns. Members are responsible for paying federal self-employment taxes (Social Security and Medicare) on their share of the income. Your business may also have state-level obligations, such as a franchise tax or the requirement to collect and remit sales tax.
Maintain Good Records
Maintaining detailed financial records is a continuous process. This includes tracking all income and expenses, organizing receipts, and keeping copies of contracts and legal documents. These records provide the clear financial evidence needed to prove the LLC operates as a distinct financial entity, which reinforces its liability protection.
Consider Business Insurance
While forming an LLC provides personal liability protection, this shield does not extend to the business entity itself. Business insurance protects your company’s assets from claims and lawsuits that can arise during operations. Without it, a single accident, lawsuit, or property damage event could pose a substantial financial threat to your business.
Several types of insurance are common for new businesses:
- General Liability Insurance: Covers incidents such as customer injuries or property damage that occur on your premises.
- Professional Liability Insurance: Also known as errors and omissions insurance, this protects against claims of negligence or mistakes if your company provides services or advice.
- Commercial Property Insurance: Covers losses from events like fire or theft for businesses with a physical location or valuable equipment.
Consulting with a qualified insurance agent is the best way to assess your specific risks and determine the appropriate types and levels of coverage for your business.