Successfully registering your Limited Liability Company (LLC) is a significant milestone for any entrepreneur. This business structure provides a foundation for your operations and offers personal liability protection. However, creating the LLC is the first of many steps. To properly establish your business, ensure legal compliance, and safeguard your liability shield, there are subsequent actions that require your immediate attention.
Obtain an Employer Identification Number
After your LLC is officially formed, one of the first tasks is to obtain an Employer Identification Number (EIN) from the Internal Revenue Service (IRS). An EIN is a unique nine-digit number used to identify your business for tax purposes, similar to how a Social Security number is used for individuals. Applying for an EIN is a free service offered by the IRS, and the process can be completed online in a single session.
Nearly every LLC will need an EIN. It is a requirement if you plan to hire employees, file federal excise taxes, or establish a retirement plan for your business. Banks also require an EIN to open a business bank account. Even for single-member LLCs with no employees, securing an EIN is a standard practice that helps distinguish the business as a separate legal entity.
Open a Business Bank Account
An important step in protecting your personal assets is to open a dedicated bank account for your business. This action is central to maintaining the “corporate veil,” the legal separation between you and your LLC. If business and personal funds are mixed in a single account, a court could “pierce the corporate veil” in a lawsuit, making your personal assets vulnerable.
To open a business bank account, you will need to provide the bank with specific documents. These include your LLC’s articles of organization, your EIN confirmation letter from the IRS, and your personal identification. Some banks may also ask to see your LLC’s operating agreement.
This financial separation is an ongoing discipline. All business income should be deposited into this account, and all business expenses should be paid from it. Using a business debit or credit card for all company-related purchases helps create a clean record of financial activities, which is valuable for managing your finances.
Draft an LLC Operating Agreement
An LLC Operating Agreement is an internal document that details the governance and financial organization of your business. It serves as a guide for how the LLC will be run, defining the roles, responsibilities, and ownership percentages of its members. This agreement outlines the rules for making significant business decisions, ensuring all members are aligned from the beginning.
For multi-member LLCs, the operating agreement is important for preventing future disputes. It should specify:
- How profits and losses will be distributed among the members.
- The voting rights of each member.
- Procedures for admitting new members.
- How the business will handle the departure of a member, through sale, retirement, or another circumstance.
- The steps for dissolving the company if necessary.
Even for a single-member LLC, having an operating agreement is a valuable practice. It reinforces the legal separateness of the business from the owner. The agreement can also dictate what happens to the business in the event of the owner’s death or inability to manage it. While not all states legally require an operating agreement, creating one establishes clear expectations and a stable structure.
Secure Necessary Licenses and Permits
Beyond forming your LLC, you must ensure your business complies with government regulations by securing the necessary licenses and permits to operate legally. These requirements are not part of the LLC formation process and vary based on your industry and geographic location. Failing to obtain the correct licenses can result in fines and penalties.
Licenses and permits are issued at the federal, state, and local levels. For example, businesses in federally regulated industries, such as aviation or firearms, will need federal permits. Most businesses will need state-level licenses, like a seller’s permit if you sell goods and collect sales tax. Your city or county government will also have its own requirements, which could include zoning or health department permits.
To determine which licenses and permits you need, a good starting point is the U.S. Small Business Administration (SBA) website. You can also contact your local chamber of commerce or the city and county clerk’s office for specific information about requirements in your area.
Understand Your Tax Obligations
As an LLC owner, you must understand your federal and state tax responsibilities. By default, the IRS classifies an LLC as a “pass-through” entity for tax purposes. This means the business itself does not pay taxes on its profits; instead, the profits and losses are “passed through” to the owners, who report them on their personal income tax returns.
For a single-member LLC, the IRS treats the business as a “disregarded entity,” and the owner reports business income and expenses on Schedule C of their personal tax return (Form 1040). Owners active in the business are also responsible for paying self-employment taxes, which cover Social Security and Medicare contributions. For multi-member LLCs, the default classification is a partnership, and the LLC files an informational tax return (Form 1065), while each member receives a Schedule K-1 to report their share of the income.
An LLC has the flexibility to elect a different tax treatment, such as an S-Corporation or a C-Corporation, by filing the appropriate forms with the IRS. This decision can have significant financial implications regarding how owners are paid and how self-employment taxes are calculated. It is advisable to consult with an accountant or tax professional to determine the most advantageous tax strategy for your business.
Maintain Ongoing Compliance
Forming an LLC is not a one-time event; it requires ongoing maintenance to remain in good standing with the state. One of the most common recurring obligations is the filing of an annual or biennial report. Most states require LLCs to submit this report to update their records with current information about the business, such as its address and the names of its members or managers. This filing is typically accompanied by a fee.
Proper record-keeping is also part of this ongoing effort, ensuring all financial transactions are accurately documented for both operational management and tax purposes.
Failing to meet these ongoing requirements can have consequences, including late fees, penalties, and even the administrative dissolution of your LLC by the state. Staying organized and keeping track of filing deadlines is a fundamental part of running a legally sound business.