When you are asked to file an IRS Form 1040, the question often asked is "How to start a LLC." The confusion stems from the fact that most people do not know what an LLC really is or what it requires to be considered an LLC. An LLC is just a form of company for filing federal tax returns. It does not itself qualify as a company for IRS classification as a tax entity or tax exemption. In some states, a Limited Liability Company can be formed without meeting any requirements.
The idea behind How To Start An Llc is easy, but there are actually eight steps involved in the process. There are also different ways of forming LLCs. Some use templates, others research the market and then follow their own instincts. Here we will focus on how to start an llc using the simplest method possible.
If you use a template for how to form an LLC, all you have to do is fill in the blank and send in the completed form. Most templates allow for the names of the business owners, the type of businesses and length of time for which the Limited Liability Company is registered. Most allow for percentages to be paid by the owners of the LLC for the operation and management costs of the LLC. This percentage is usually 10%.
How to Start an LLC - Key Takeaways
Forming an LLC is easy when there is only one member and that member is the person filing the paperwork. If more than one business owners must sign the document then the filing should go to one person and the paperwork placed in the appropriate places. Some basic steps are:
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Step number one is to choose the name of the Limited Liability Company. This name should be similar to the name of the business structure that will be set up. This would be: Bob's Business, Inc. After selecting the name, one must then choose the tax identification number, or what is known as an IRS identification number, for the LLC. This is typically a 15 digit number.
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The second step in the process is to choose the business name. Again, this should follow a name choice that relates closely to the llc. After all, if the paperwork is not filed properly the IRS may not give the necessary approval for the LLC to get started.
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The third step in the process is to select the registered agent. A registered agent serves as the actual individual who will be authorized by the LLC to handle legal affairs on behalf of the owners. In addition to this the registered agent also registers the LLC. After all of these steps are complete then all paperwork should be sent to the IRS. It is important to note that if the owners must file federal income tax returns they will have to file all federal forms themselves, and not the LLC.
Once all paperwork has been filed with the IRS then the owners will need to apply for Operating Permits. All Operating Permits are issued by the state department of revenue. These permits allow the business owner to operate the business as a sole proprietorship or corporation. To obtain an Operating Permit all that is needed is to fill out the proper forms and to pay the appropriate fee.
The next key takeaway for how to start an LLC is that all LLCs are at risk for tax liability. As with most businesses, the more business operations that take place, the higher the level of liability the business needs to be. Therefore, the very first step in starting an LLC is to determine how much liability the business needs to be assumed. This is an estimate of the taxes the business will need to be liable for. All LLCs are required to file an annual report with the IRS on their financial status so it is important to carefully review this information.
The last key takeaway for how to start an LLC involves the selection of the registered agent. All labs must have a registered agent who can act on the LLC's behalf. This is important because the registered agent plays an integral role in the management and operation of the LLC. All LLCs must have a qualified registered agent.
These are just a few of the many dynamics that must be examined when you begin looking into how to start an LLC. There are many complex aspects to consider when forming an LLC. This article does not intend to provide comprehensive information about operating an LLC, but it does offer an intro to the basics that a small business entity should consider when forming. To get more detailed information about the dynamics involved in how to create an LLC for your small business, feel free to contact a licensed attorney experienced in transactional law.
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