Unlike a sole proprietorship, you need some essential business formation documents for LLC. An LLC is a legal business entity formed by one or more individuals.
The distinguishing attribute of an LLC from a sole proprietorship is that LLC has rights, responsibilities, assets, and debts from the owner.
It is considered a separate legal entity from the owner. Therefore, it will shield your personal assets from business debts and liabilities.
Why Forming an LLC is a Good Idea
Being a sole proprietor has its benefits, like minimal legal requirements in establishing and running the business. However, as your business grows, you also need to adjust things to make its operation easy.
With an LLC, you’ll enjoy tax flexibility. Owning an LLC places you in a unique position of being able to choose whether to be taxed as a corporation or a pass-through entity. It will depend on the tax approach you will deem most suitable for your company.
Also, as we mentioned earlier, you have the added benefit of limited liability. It simply means you don't have to worry about your assets being at risk because of the LLC's liabilities.
Lack of limited liability is why sole proprietors avoid taking huge risks with their businesses. The possibility of your personal assets being seized to cover your business liabilities is scary.
So, what documents do you need for an LLC business formation?
1. Internal Revenue Service (IRS) Form SS-4
"Give Caesar what belongs to Caesar." In this case, Uncle Sam needs to get a share of your business earnings. Therefore, you need to register an Employer Identification Number (EIN). For this to happen, you must fill out the IRS Form SS-4.
Think of the EIN as your social security number for your business. You will need your EIN when filing your business taxes.
The easiest option to apply for an EIN is through an online application process. You can complete the process in one session.
You can also download and fill up the IRS Form SS-4. Then send the filled-up form via email and wait for your response within a month.
2. Name Reservation Application
The next step after obtaining your EIN is choosing your entity name. The first step in this process is creating a unique one for your LLC.
Then check the availability of your LLC name by searching for the secretary of state corporation search of the state where your business will be based. Also, ensure that the uniqueness of your LLC name adheres to the state's restricted business name guidelines.
It is not mandatory to reserve your name, but it is advisable to reserve your LLC name. Remember, you invest your time and effort to research and find a name befitting your LLC.
It would be such a waste to learn later someone snatched it from you before you could fully register your business. You will only have yourself to blame, given that it costs you very little to have the state reserve a business name for you.
3. Articles of Organization
You can obtain this from your respective state's secretary of state website. Your articles of organization should include the following important details:
Business name – you can see why reserving your business name in advance is a good idea.
Ownership – your state requires you to provide all business owners' full list and contact information. The information is particularly vital in matters of taxation.
Purpose of your business – depending on your state, you will provide a specific or broad purpose. For example, you can state your business's purpose as "a virtual assistant service business."
Primary business address – you must at least provide the address of your business headquarters.
Management – who will be in charge of running your business? Your state needs to know their names and contact information.
Duration - you have to let your state know if you don't intend for your business to run in perpetuity. You do this by specifying the expected period of business operation.
4. Operating Agreement
An operating agreement is a set of ground rules for running your LLC, including the right and responsibilities of the business members. It is a point of reference when making vital business decisions.
Among the key issues addressed in this agreement is how the owners will share their profits and losses. It is also important to inform business members how the business will operate and handle other issues.
Among the important to include in your operating agreement include:
The business management structure
Profit and loss sharing procedures
Procedure for adding new members
Dissolution of the LLC
5. Initial and Annual Reports
Every state requires you to file an annual report for your LLC. The idea is for the state to have accurate and updated records of all businesses operating within their borders.
In certain states, these reports are filed either annually or perennially. However, in Pennsylvania, you’re required to do it every ten years.
This information is vital for the states in making governance decisions. That includes knowing the stakeholders that need to be consulted before making legislation that may affect your business operations.
The information is also vital in informing the states of businesses that are still a going concern. Failure to file such a report may even mean that your LLC name is now available for another business owner to register a new business. These are conflicts you don't want, especially if you have managed to develop a reputable brand name.
6. Businesses License and Permits
Of course, you need the state's permission to operate your business within its borders. That is why you must apply for the relevant business permits and licenses established by the state.
Business permits and licenses are one of the sources of revenue for your state. In some instances, you will need a federal license, too, if a federal agency regulates your LLC business activities. You can learn more about what licenses and permits your LLC requires by visiting the US Small Business Administration website.
Need Help Preparing Your Business Formation Documents?
Getting all your business formation documents ready is one of the many steps in forming a successful LLC. But having us as your online business manager means you don't have to worry about the hassle of preparing all these documents. Get in touch to learn how we’ll help you get your LLC in operation.