Whether an individual is running a small business from home or a sole proprietorship, the topic of becoming an LLC has likely come up. An LLC — or limited liability company — provides the home-based business owner with many benefits.
Contrary to what a person might believe, becoming an LLC isn’t more costly or time-consuming than it’s worth. The benefits far outweigh the efforts involved in registering a business as an LLC. In addition to providing the business owner with protection, an LLC can also contribute toward building business credibility.
Certain steps must be taken to register an LLC, but none of them are as overwhelming as the small business owner might imagine. The cost varies per state, but is an investment that quickly makes itself worth the while. Home-based business owners considering an LLC can follow these steps to get started.
There are no surprises when it comes to registration process or benefits of an LLC.
1. Obtain the Necessary Paperwork.
Necessary paperwork and a registration filing fee can be taken care of at the business person’s Secretary of State’s office. Obtaining this gets the ball rolling on the entire process.
2. Decide on a Business Name.
An appropriate LLC name is unique from other business names in the state, indicates that the business is an LLC, and doesn’t contain state-restricted words, such as “insurance” or “bank.”
3. File Necessary Articles of Organization.
Although it sounds complicated, this is a simple document containing the business name, contact information, and anything else necessary to legitimizing the business.
4. Determine Whether or Not an Operating Agreement Is Needed.
Not all states require an operating agreement, but it’s recommended for multi-member LLCs to ensure the business runs smoothly, with rules and regulations in place.
5. Apply for Permits and Licenses.
Upon registering as an LLC, the business must apply for required licenses and permits necessary at the local, state, and federal level. An attorney or the US Small Business Administration can help a small business owner determine which permits and licenses are necessary.
6. Announce the Formation of an LLC.
After the process of forming an LLC is complete, the business owner may be required to formally announce the formation in the newspaper. This requirement varies from state to state, and information regarding it can be obtained during the filing process.
An attorney can provide assistance in working through LLC paperwork.
More About LLCs
When it comes to tax time, there are typically three different ways an individual or LLC group will file: as a Single LLC, an LLC Partnership, or an LLC that files as a Corporation. At the time of formation, those involved in forming their limited liability corporation will determine which best suits the business.
The United States Government doesn’t view LLCs as separate tax entities, which means that taxes are still paid through each LLC member’s personal income tax and not by having to pay taxes on the business.
Although each state does not require businesses to have an attorney participate in the formation of an LLC, it’s beneficial for home-based business owners to have their attorney read through the paperwork. An attorney can also clarify many of the benefits, such as asset protection, taxes, and the ability to avoid many of the regulations that corporations must comply with.
Legal jargon and paperwork may make it seem overwhelming to form an LLC, but taking it one step at a time makes this a worthwhile effort for sole proprietors and small-business owners.
Mary Ylisela is a writer and small business owner with a passion for helping other business owners succeed, from sole proprietors to CEOs such as Gary Crittenden.