A Ship of Your Own - Creating a Limited Liability Company
Charles Carreon
The process of forming an LLC is roughly the same in every State; however, you should at least read all of the information available from the Secretary of State website in your state before incorporation, or obtain specific legal advice on the topic from an attorney in your chosen State of incorporation. The following are the essential steps with which to accomplish LLC formation, and a good starting place to develop questions for your attorney.
1. Pick a good name. A good name describes your business, sounds good with “Limited” or “LLC” attached to the end of it, and hasn't been taken by anyone else. In order to determine whether a business name has already been taken in your state, you should be able to perform a search at the “Business Registry” or similarly described website operated by your secretary of state. Generally, you just type in the name you choose, run a search, and you will quickly be told whether any company exists with that name already. If it has, pick another. Then on to step two.
2. File the articles of organization. In Oregon and California, this is as easy as filing a one-page form that you can download from the Secretary of State's website. If you are the only member of the LLC, you will want to make yourself the “manager” of the LLC, which will give you authority to transact all business on behalf of the company. If you have more than one investor in your LLC, you should seek professional legal advice in order to prepare the next phase of incorporation documents.
3. Draft an operating agreement. An LLC is like a zombie until you create the “operating agreement.” I can provide you with a simple form of operating agreement for use in California or Oregon, which provides a basic outline of required legal provisions for a member-managed LLC with only one member. You do not have to file the operating agreement with anyone; however, it is a requirement that you adopt one, and your banker may very well want to see it before he or she will open a bank account for you in the name of the LLC.
4. Obtain an employer identification number from the IRS. Before you will be able to open a bank account for an LLC, you will have to get an EIN from the Internal Revenue Service. This is not very difficult. You can obtain an EIN number almost instantly, over the telephone, at a phone number that is kept current by the IRS at their website, IRS.gov.
5. Open your bank account. Go down to your local bank and tell them you have an LLC and would like to open a bank account in the name of the company. They will ask you for your EIN number, your articles of organization, and probably, your operating agreement. Provide them with all of these things, sign the signature card, and you'll have a bank account in the name of your very own company.
Now that you have formed an LLC and gotten a bank account, you can fill it up with money. There is no special bookkeeping associated with paying taxes on LLC money. When you fill out your EIN application form, you will designate the LLC as an “exempted” entity. That means that you pay taxes on LLC income personally. If there is more than one LLC member, the bookkeeping will get a little more complicated, but the bottom line is each individual will have to pay taxes only on the amount of funds that they draw from the LLC as revenue.
The process of forming an LLC is roughly the same in every State; however, you should at least read all of the information available from the Secretary of State website in your state before incorporation, or obtain specific legal advice on the topic from an attorney in your chosen State of incorporation. The following are the essential steps with which to accomplish LLC formation, and a good starting place to develop questions for your attorney.
1. Pick a good name. A good name describes your business, sounds good with “Limited” or “LLC” attached to the end of it, and hasn't been taken by anyone else. In order to determine whether a business name has already been taken in your state, you should be able to perform a search at the “Business Registry” or similarly described website operated by your secretary of state. Generally, you just type in the name you choose, run a search, and you will quickly be told whether any company exists with that name already. If it has, pick another. Then on to step two.
2. File the articles of organization. In Oregon and California, this is as easy as filing a one-page form that you can download from the Secretary of State's website. If you are the only member of the LLC, you will want to make yourself the “manager” of the LLC, which will give you authority to transact all business on behalf of the company. If you have more than one investor in your LLC, you should seek professional legal advice in order to prepare the next phase of incorporation documents.
3. Draft an operating agreement. An LLC is like a zombie until you create the “operating agreement.” I can provide you with a simple form of operating agreement for use in California or Oregon, which provides a basic outline of required legal provisions for a member-managed LLC with only one member. You do not have to file the operating agreement with anyone; however, it is a requirement that you adopt one, and your banker may very well want to see it before he or she will open a bank account for you in the name of the LLC.
4. Obtain an employer identification number from the IRS. Before you will be able to open a bank account for an LLC, you will have to get an EIN from the Internal Revenue Service. This is not very difficult. You can obtain an EIN number almost instantly, over the telephone, at a phone number that is kept current by the IRS at their website, IRS.gov.
5. Open your bank account. Go down to your local bank and tell them you have an LLC and would like to open a bank account in the name of the company. They will ask you for your EIN number, your articles of organization, and probably, your operating agreement. Provide them with all of these things, sign the signature card, and you'll have a bank account in the name of your very own company.
Now that you have formed an LLC and gotten a bank account, you can fill it up with money. There is no special bookkeeping associated with paying taxes on LLC money. When you fill out your EIN application form, you will designate the LLC as an “exempted” entity. That means that you pay taxes on LLC income personally. If there is more than one LLC member, the bookkeeping will get a little more complicated, but the bottom line is each individual will have to pay taxes only on the amount of funds that they draw from the LLC as revenue.