Setting up an LLC has Several Steps
Setting up an LLC has a number of steps. You can get your documents off the LegalDoom websites, at your lawyer’s office, or off the state websites. Whatever you do, go all the way. Just getting a couple of documents will only get you half way there.
One of the most common questions I get form those setting up an LLC, is how to set up a LLC company. The answer is easy; file your articles of organization with the state, and technically you’re an LLC.
The states all have the “form” for those setting up an LLC on their state website. The state websites are by far the cheapest and easiest “set up LLC online” system you can find. Unfortunately, it’s just the form and there isn’t a lot of “how to.”
But, in the LegalDoom sites there isn’t any “how to” either. You just answer three easy questions, click the mouse three times, fork over your money, set up LLC, and cross your fingers.
There are considerations you need to take into account when you first think about when setting up an LLC. One I like to point out is, “Do you trust your partners?” If you don’t trust the guys you’re going into business with, use a corporation, and don’t set up a LLC.
That’s not the case in a LLC set up. The profits/losses don’t have to be distributed pro rata based on stock (membership interest) ownership. That means the other guys could get a distribution of profits and leave you out in the cold.
Once your articles of organization are filed with the state and your fees are paid, you’re an LLC. The thing you’ve got to know is how to set up LLC operating agreement documents.
The operating agreement is the heart of your LLC. I’ve had a lot of people come into the office for help, and they have their articles of organization, but the website didn’t give them any operating agreement.
The operating agreement is the part of your LLC setup where you can be creative. It’s neat, because you get to write the rules for your LLC, and the courts will live by your rules, as long as they aren’t something illegal, etc.
Next, you’ve got to issue the stock (membership interests) in your LLC. Keep a membership certificate ledger with all the information on it. You shouldn’t just “issue” membership interests.
Membership interests are traded for something of value. When you give IBM your money, you expect stock in return. The same is true when you are setting up a LLC. It’s called a 351 exchange, and everybody ignores the fact that something of value has to be given for the membership interests.
Setting up an LLC has Tax Aspects
If you transfer property into the LLC without considering the tax aspects, you’ll be in big trouble later on down the road.
When setting up an LLC, you need to decide how your LLC is going to be taxed, and have all of your paperwork filed with the IRS. This is one of your most important “setting up LLC issues.” It will mean a lot of money to you, if you make the right decision.
Make sure you don’t “over estimate” you potential success when you file your SS4 or any other papers with the IRS. If you state that you will have employees and be paying salaries next week, the IRS is going to want payroll taxes next week.
If you don’t really know when you’ll pay your first wages, you should set the date on your initial IRS filings way out in the future. The IRS will be happy to anticipate your payroll taxes at the earliest possible date.
When setting up an LLC, your attorney will just assume you want to have your LLC taxed as a Subchapter S corporation. Your how to set up a LLC guru never talks about the tax aspects. You really need to discuss the issue with your CPA, not your attorney.
There are a lot of other things you have to do to set up an LLC, but this many will get you started. Good luck. Please drop me a note, if you have specific questions.
When setting up an LLC, you need to set up LLC bank accounts. Be very careful not to comingle LLC money with your personal money. The comingling of money is probably the number one way an attorney can “pierce the corporate veil” of the LLC asset protection shield.
