Behind the concept of forming a limited liability company (LLC) lies a fairly simple process. To create an LLC, the entity organizer must file the Articles of Organization after which the state may revise and approve them, declaring the company legally valid.
Beyond the registration itself, the government expects an operating LLC to fulfil a series of business requirements in order to keep its good standing. Some of these requirements include such vital points of maintenance as:
- permits and licenses;
- tax specifics;
- annual reports;
- financial requirements et al.
This article is more of a step-by-step discussion detailing the 9 important aspects of maintenance that should be your prime point of focus after forming your LLC in order to remain compliant with state laws.
All of these should be taken into consideration when organizing your LLC to-do list, especially if you’d rather avoid state fines or damaging your company’s reputation and good standing. If you keep ignoring these legal requirements, be fully prepared to see the state dissolve your business.
1. Get Your Business Domain Name
Considering the ubiquity of IT integration in all facets of modern life, securing your company’s digital presence is no longer a form of indulgence but rather a necessity of running a business.
The first thing the majority of your potential customers and business partners will do is look you up online, either to find more information about your services or check whether you are legit.
And if there is virtually no trace of your business online, you could risk losing a significant portion of potential profits which, in turn, could see you falling behind your main competitors.
To keep up with the times, it’s strongly recommended you build a website for your LLC and keep it relevant through regular updates regarding your business.
Web development has come a long way since its inception as a separate industry, so this isn’t that hard to do as it may appear at a first glance. There are 2 possible ways to do it:
- hire a professional web developer: the easiest way to get your business website up and running is to hire a specialist, whether it’s a web developing firm or a freelance professional; this may not be the cheapest option but it’s by far the most efficient;
- create a website on your own: creating a website doesn’t mean you have to learn coding from scratch; there are plenty of reliable web development services out there that allow you to build a website using the drag-and-drop method or pre-existing templates; website builders like GoDaddy are easy to use, so even a complete novice can create a business website, both desktop and mobile version, without knowing how to code; even so, they still allow you to use custom HTML and CSS codes to edit your web pages;
2. Write a Business Plan
Creating an LLC is best done when you have a thorough business plan in place to guide you. Doing business in any state can be far from predictable, so it only makes sense to plan for every contingency if you want a smooth startup.
To ensure a business plan is effective, you might first need to analyze key elements present in the industry of your intended operation. Even a simple plan would help you organize the internal structure of your future company and clarify its goals.
This approach can also attract potential investors or business partners in the future. Plus, a well-thought-out business plan also gives your business legitimacy, making it more attractive to future investors.
It might seem like too much trouble at first, but creating a business plan may actually save you the much-needed time and effort in the future while also minimizing financial risks.
The contents of this internal document are naturally determined by the business owner, so it can really cover anything you deem necessary. That being said, there are a few important aspects you should think about including in the business plan. Let’s look at each of them individually.
- Market analysis: make a detailed assessment of your chosen industry and your specific segment of the market; this includes analyzing the benefits and drawbacks of the current dynamics within the industry, its size, value, and existing competition; other aspects like customer engagement patterns and macroenvironment should be taken into the account to fully determine how well you will fit within your market segment;
- Company description: here you will detail the strongest points of your company, its benefits, the qualifications of its staff and select industry specialists etc;
- Service or product line: provide the description of the type of goods and services your company will be offering in order to satisfy the customer demand in your market segment;
- Marketing and sales strategies: outline the main approach to marketing and distributing your goods and services as well as retaining your client base;
- Funding goals: plan out the investment plan for your initial capital, including the source of your funds, their allocation, and even the credit plan you will be using to pay back your startup loans;
- Financial forecasts: make informed estimations regarding the future performance of your LLC in terms of profits and losses; the forecast should ideally include your income statement with its operating income or EBIT;
- Management team and personnel: describe the hierarchical structure of your company, whether the LLC will be operated by its owners or a group of managers, who will be assigned acting executive director, and the ownership allocation within the group of several business partners; this segment can also define the roles of every member and how their individual strengths could be applied to the successful development of the LLC;
- Executive summary: this is a separate document from the general business plan designed to briefly outline the nature of your company, its integral specifics, goals, vendible capabilities, and more.
3. Get an EIN
To register your company with the IRS, you must first acquire an employer identification number (EIN) which is similar in purpose to your SSN. Despite the well-known fact that LLC’s tax requirements are flexible, most owners apply for an EIN for tax-paying purposes.
Apart from its tax application, the EIN is also needed in the following cases:
- when hiring employees;
- if you need to file an employment, excise, or “alcohol, tobacco, and firearms” tax return;
- pay income taxes;
- establish a Keogh plan which is a tax-deferred plan with a defined-benefit/defined-contribution structure accessible for self-employed people and unincorporated entities;
- becoming involved with a trust, estate, real estate mortgage investment conduit, non-profit organization, farmers’ coop, or plan administrator.
All this only reinforces the importance of the EIN and how vital it is for most LLCs. The good news is, obtaining an EIN is not that difficult or time-consuming—you will only need to either pass an IRS Taxpayer Identification Number to get a matching combination or submit an application with the help of the Internal Revenue Service’s EIN Assistant.
Once your application is processed and approved, you will receive your EIN confirmation notice. This email attachment can be downloaded and printed out for convenience. After you get this notice, you can provide your EIN in the following cases:
- when obtaining licenses and permits;
- opening business bank accounts;
- filing mailed tax returns etc.
Other business-related activities may require you to wait for your EIN to enter the IRS’s permanent record which could take a few weeks. Until then, you won’t be able to use the EIN to:
- make an electronic payment;
- file a tax return electronically;
- pass an IRS Taxpayer Identification Number matching program etc.
4. Open a Business Bank Account
One of the main benefits of running an LLC is enjoying the limited liability protections this structure provides in order to shield owners’ personal assets when the business faces litigation.
Making sure your business retains its LLC status and all its benefits involves following a set of requirements such as the clear separation of the individual and business assets.
Unlike sole proprietors who cannot divorce their identities from those of their business entities, LLC is a separate legal entity in itself. This means that as a limited liability company, this entity is solely responsible for all its debts and other business activities conducted on its behalf.
To isolate the identity of your LLC from yours, it’s important to keep your company’s finances separate from your personal capital and other possessions.
If you keep your assets intermingled but still expect to be exempt from personal liability, be fully prepared to lose it since the state can easily prove you and your LLC are one and the same by checking your bank statements.
Once you establish an EIN, you can easily set up a business bank account with any bank in your state. To open a business bank account, you would normally need to provide the following information:
- articles of organization;
- proof of business licenses, permits, etc.
Having a business bank account not only allows you to keep the assets of the LLC completely separate from your own personal funds but also gives you a few significant benefits like:
- raising reputability: many customers and potential partners tend to view an entity as more reputable if they conduct transactions with an official business rather than the owner’s personal bank account;
- convenience: having a business bank account also means the ability to delegate banking duties to your staff, shifting a portion of your responsibilities and making more time for other business activities;
- facilitating better credit: trying to apply for good credit for your business is not exactly easy where new companies are concerned, whereas opening a business bank account might significantly increase your chances with loan approval, especially if you need to approve a line of credit as soon as possible.
5. Register for State Taxes
The LLC structure is by default a pass-through entity, meaning that any company with this designation is exempt from filing a corporate return or separate federal taxes in general. Instead, all profits and losses are filed by the LLC owners with their personal tax returns.
It’s also possible for the owners to get their LLC taxed as a corporation by applying with the IRS to change their company’s taxation type.
Some states also impose additional business taxes for any business entity running operations in their jurisdictions. Even though every state has its own legal specifics regarding taxes, they tend to include the most common forms of taxation like:
- business income tax: the rate of this tax is directly tied to the company’s profits;
- employment tax: this one is mandatory for all entities that employ regular staff;
- unemployment insurance, temporary disability insurance, and workers’ comp: while all states require to pay for workers’ compensation insurance based on the payroll, unemployment insurance follows state-specific programs, albeit in compliance with federal law, and short-term disability insurance is even less common and only available in the states of New York, New Jersey, California, Hawaii, and Rhode Island.
- DOR sales tax: if a company provides any form of goods and services, it is required to pay sales and use tax in 45 states, excluding only:
- New Hampshire;
- franchise tax: some states require business entities to pay a franchise tax in exchange for the privilege of doing business; this levy does not depend on the entity’s income but rather on its assets or net worth; as an LLC owner, you will be required to pay a franchise tax in the following 15 states:
- New York;
- North Carolina;
- West Virginia.
The main takeaway here is the inherently localized nature of taxation, with every state setting up their own regulations regarding the types and rates of mandatory taxes. All information concerning business taxation in your state is provided by local agencies on their websites and should be studied before you go ahead with the formation.
6. Take Care of Licensing & Permit Requirements
Even though it’s enough to simply file the Articles of Organization to create an LLC, this step won’t be sufficient to run the company.
In most states, you will also need to obtain certain licenses or permits. It largely depends on the industry and jurisdictions of your primary operation, but licenses can be required on any government level that implements relevant policies.
Industries and distribution practices that require licensing on the federal level:
- maritime transportation;
- nuclear energy;
- transportation and logistics;
- alcoholic beverages;
- fish and wildlife;
- mining and drilling;
- radio and television broadcasting;
- commercial fisheries.
Additional state licenses may be required for any LLC that works in/with:
- vending machines;
- dry cleaning;
- retail businesses;
- food and beverage service.
License and permit requirements are typically more extensive on a state level as opposed to the federal government requisites, so it’s best to check with your state before you could start the LLC formation process.
Apart from fulfilling state requirements, you can also expect additional provisions for licenses or permits from your local county and municipal governments. As always, you can contact your local government agency to learn more about this step.
But how do you make sure you understand the differences between different jurisdictions and regulating boards that issue licenses or permits? There are two ways to handle this process:
- by conducting in-depth research on your own;
- by hiring a professional formation service provider;
The current online marketplace is rife with service providers who offer business license research packages at more than reasonable rates that even modest startups are likely to afford.
If you choose to go with the option, the only thing you’ll need to do is fill out the necessary forms and send them to your online service provider. They will compile the list of licenses and permits required in your jurisdiction, provide the necessary forms, and take care of the application.
7. Understand Requirements for Hiring Employees
All LLCs that have regular staff are required to follow specific rules regarding their payroll practices. If you plan on hiring employees, you will first need to understand the federal income tax policy and acquire your EIN.
Employers are also tasked with checking the legitimacy of their staff members before hiring them and determining if they are legally able to work in the United States. To do this, an employer needs to fill out the I-9 form for employment eligibility verification and provide the following documents for said verification:
- driver’s license;
- social security card.
Your state labor agency also needs to be informed if your company employs regular staff. Keep in mind that if you employ workers, you are legally required to display information about employee rights and employer responsibilities. The information has to be easily accessible on your work premises.
LLC owners are also responsible for sufficient compensation for their workers’ labor. To do this, you must set up a payroll system and adjust it according to the internal structure of the company.
A lawful payroll system should include:
- payment for labor;
- taxes and wages;
- relevant tax form filing.
It’s possible to keep track of payroll on your own, but managing your own accounts can take too much of your time and effort. A viable alternative is to hire an accountant or acquire a payroll service to do your accounting.
8. Determine Your Ongoing Compliance Needs
One of the most crucial steps of maintaining an LLC involves careful consideration of your state’s ongoing compliance requirements. Failure to do so could lead to:
- losing your status of good standing;
- fines and other penalties;
- compulsory dissolution.
The severity of punitive measures varies on the state, but it’s better to avoid learning the structure of these sanctions first-hand.
Plus it’s pretty easy to keep with the compliance requirements—most states won’t impose severe fines as long as businesses file annual reports.
The contents of an annual report depend on the state of operation, but most states ask LLC owners to include the following:
- the LLC’s physical address;
- registered agent’s name and address;
- ownership group makeup etc.
Annual reports can be annual or biennial, meaning that you would need to file them once a year or once every 2 years.
9. Follow Income Reporting Rules
The specific set of income reporting requirements depend directly on your LLC type. In this regard, the single-member LLC structure is a little luckier as their owners need to file the 1040 tax form to inform the IRS of their profits and losses.
The multi-member LLC structure is somewhat more complex. Here, calculating the income tax for each owner is based on the profit distribution rules established in the company’s operating agreement.
This is why your operating agreement should be as detailed as possible and cover the profit allocation and other related arrangements. At the end of the fiscal year, every multi-member LLC must file Form 1065 with the IRS to describe its financial situation.
This document also informs the IRS about LLC’s total revenue and its distribution between the members. Additionally, all members are required to file the Schedule K-1 form to detail their personal profits and losses.
LLC owners should not be considered employees of the company, and in the eyes of the law, they are not part of the staff. This means that all members must pay self-employment taxes in addition to their income taxes.
The self-employment tax covers social security and Medicare that add up to the 15.3% rate calculated from your net revenue.
Starting an LLC requires tremendous effort on your part, but it requires even more dedication to sustain it. A huge part of the immediate maintenance process starts after you form an LLC and involves remaining compliant with the state law.
All compliance rules mentioned in this article should not be neglected as each of them is vital to retain and improve your LLC’s reputability.
Registering a federal tax ID number, for instance, is mandatory if you want to pay business taxes and hire employees while opening a business bank account allows you to keep your personal and business assets separate and preserve your corporate veil.
Obtaining the necessary licenses and permits ensures that your LLC is fully compliant with state law pertaining to your chosen industry. And by following employment law to a T can help establish a strong employer‑employee relationship.
Add to this the correct filing of taxes and annual reports, and your LLC can operate much more smoothly as well as always remain in good standing with the state.