Three things you need to determine before you file your LLC.

Business 101

Jun 14

Are you considering setting up a Limited Liability Company (LLC) for your business? For many small businesses, a Limited Liability Company entity structure makes the most sense for their business. So let’s dive in and talk a little bit more about LLCs!

There are many benefits to filing a LLC. One key benefit to filing a LLC, versus running your business as a Sole Prop, is the liability protection owner(s) receive. When a LLC is managed property, the owners’ are protected from the business’ obligations, debts, and liabilities. Meaning, the owner’s personal assets are generally going to be seen as separate from any business assets, and protected from creditors of or judgments against the business. LLCs offer liability protection for the owner(s), without the burdens and difficulty of the corporate formalities needed in both setting up and managing a Corporation.

LLCs are relatively easy to set up, and they can be run by one or multiple owners (called “members“). Most states require the filing of Articles of Organization (also called “Certificate of Formation”, or “Certificate of Organization” in some states). This is the main document that proves the existence and registration of the LLC. For most states this filing process usually consists of filling out a standard short form article of organization document with business information, and filing it with the appropriate state entity (usually your state’s Secretary of State). Most states do not require an Operating Agreement to file your LLC, but an Operating Agreement is strongly recommended if you have more than one owner!

While different states have different filing processes and requirements there are three basic things that you will need to establish before you actually file your LLC.

1) Determine your operating state.

It usually makes the most sense, and is generally the best way to file, within the state in which you live and are generally conducting your business. Ever hear that you can just register in a different state to avoid tax liabilities? It’s not that simple. Your business should have an actual business presence in the state in which you register your LLC.

This seems to be a simple a straight forward question…Where do you conduct most of your business? However, in today’s world with the rise of digital nomads and online business, this can add a potential layer of complexity in trying to determine your operating state. If you have an online business and/or work as a digital nomad you can think of the following questions to help you determine your operating state. Do you meet with clients; if so, where? Do you ship physical goods (a store front, warehouse, or home shipping center where the goods ship from); if so, where? If neither of the previous questions apply, consider, what is your state of residency (think about things like driver’s licenses, voter registration, permanent addresses, the state you file taxes in, etc.)? The state you answer to these questions is generally the state that qualify as your operating state.

Even if you only provide digital products or services, if you working from and run your business out of your home, it generally makes sense to have your home state be your operating state as a small business!

2) Determine the names of the owner(s) AND of the business.

Both single member and multi-member LLC’s will need to have the owner’s legal name and address for filing. Yes, this might seem obvious, but it’s important to include each owner (ie. “member“) of the LLC. So, if you are starting a multi-member LLC with another person, their information will be listed on your Articles of Organization as well.

The second name you will need to determine prior to filing your LLC is your business name. This is where some initial research is important. It’s important to do your due diligence to make sure that not only is your name available, you are not infringing on anyone else’s intellectual property rights. The very first place you can look to see if you name is available is through your operating state’s corporate operations entity - such as the Secretary of State, Department of Financial institutions, Department of Corporations, etc. Most states have an online search engine through these departments where you can search for businesses. So, start there and search for the business name you would like to use.

It is important to check into your business name to ensure you can actually use it before you attempt to file your LLC or invest in anything related to that business name, such as branding, domains, social media accounts, etc.

(If you’re interested in a comprehensive guide to help you research and vet your business/brand name, I’ve created a Brand Name Knockout Guide to help you research and vet your new brand name!)

3) Decide if you want or need a registered agent/registered address.

Most states require a registered address for your business. This address has to be a physical street address, not a PO Box, where the listed agent will be present during normal business hours to receive physical copies of legal mail for the business.

So what if you’re working from home? You can list your home address as your registered address, but some people do not feel comfortable having their home address listed on the State’s public site. Further, you should be available during normal business hours every week incase you receive any type of legal mail. Say you miss the service of a lawsuit because you were not at your address when it was attempted to be delivered. If you miss the deadline to respond to a lawsuit, a judge can issue an automatic default judgment AGAINST your business.

Did you know that there are companies that you can hire to act as your registered agent for your business? Generally, for a small annual fee (usually around $100), these companies will act as your registered agent. They will give you an address and the contact information to use on your state filing, and will be able to accept legal mail on behalf of your business. If they receive legal mail for the business, they will forward it directly to you.

(Want a further detailed guide to help you set up your own single member LLC? I created guide for that too! Check out the LLC Start-up Guide!)