The act of forming a limited liability company (LLC) is quite simple. Just file the Articles of Organization and your business will be on record with the state.
But the Articles of Organization isn’t a magic form that lines up all of your business requirements for the rest of your LLC’s life. It’s actually just the first step on your compliance journey.
You still have the rest of your LLC’s life to go. And throughout your business life cycle, you’ll need to consider tax and financial requirements, handle permits and licenses, file annual reports, and more ― and that doesn’t even include everything you’ll need to do if you want to hire employees.
But we don’t say all this to scare you. We’re here for the long haul, directing you every step of the way. So we’ve created this guide as a step-by-step discussion of the most important things you’ll need to do after forming your LLC.
None of these tasks are terribly complicated, but it’s crucial that you complete them properly, or you’ll risk falling out of good standing with your state. You could even rack up some hefty fines, or have the state dissolve your business! Peruse this list, then write down each requirement on your LLC to-do list, and you’ll be good to go.
1) Get Your Business Domain Name
Your company’s digital presence is just as important as its physical one. Like it or not, most potential customers will find your business online, and if you don’t exist online, you’re missing out.
But don’t worry, you don’t need to be an HTML or web design expert to build a website. Sites like GoDaddy make it easy to secure your domain and construct an elegant and responsive website, no coding necessary.
To get started, simply search on GoDaddy and get the domain for just $4.99.
2) Write a Business Plan
Jumping into this endeavor without goals, directives, or a sense of direction can lead to a scattered, unproductive business.
A business plan lays the groundwork for your future success. It helps you analyze key elements of your business and forge pathways to achieve your goals. Here are a few things you should consider including in your business plan:
- Executive Summary (a separate document that gives a complete overview of your business’ purpose, plans, goals, competition, opportunities, etc.)
- Company description
- Market Analysis (opportunities, competition, etc.)
- Managerial or organizational structure
- Products and/or services
- Marketing strategies
- Funding goals
- Financial projections
Business plans aren’t just great for internal operations, but they give your business legitimacy in front of potential investors, customers, partners, and more.
That said, if you anticipate on acquiring funding, there are a lot of options out there. Check out Cayenne Consulting’s guide for a look at the various forms of financing for your startup. (Tip: If you need help planning your business, they offer some of the most comprehensive planning assistance we’ve seen online.)
3) Get an EIN
This is one thing you absolutely don’t want to forget. Even though an LLC’s tax requirements are flexible, there are still numerous reasons why you would need to acquire an employer identification number (EIN). If you answer “yes” to any of the following questions, get one ASAP:
- Does your business have employees, or do you plan on hiring employees in the future?
- Are you required to file an employment, excise, or “alcohol, tobacco, and firearms” tax return?
- Do you withhold income taxes (not including wages) paid to a non-U.S. resident?
- Do you have a Keogh plan (a tax-deferred pension plan for self-employed individuals and small businesses)?
- Is your business involved with a trust, estate, real estate mortgage investment conduit, non-profit organization, farmers’ coop, or plan administrator?
It might seem intimidating but don’t worry, obtaining an EIN couldn’t be easier. Head over to the Internal Revenue Service’s EIN Assistant, which will guide you through the application process. Once you’ve finished filling out the forms, the IRS will validate your application, and if you’ve completed the process accurately, they will immediately provide your EIN.
At this point, you’re able to download, save, and print your EIN confirmation notice. You can complete the entire process in one sitting.
As soon as you receive your EIN, you can put it to work, opening business bank accounts, applying for licenses and permits, and filing mailed tax returns. However, if you want to file a tax return electronically, make an electronic payment, or pass an IRS Taxpayer Identification Number matching program, you will need to wait until your EIN is included in the IRS’s permanent record, which can take up to two weeks.
4) Open a Business Bank Account
When running an LLC, your business and personal finances should be like oil and water, completely separate.
Sole proprietors can mingle these finances because the individual and business are one. But as an LLC owner, if you mix up your finances, you risk losing your limited liability protections. So, after you establish an EIN, you’ll need to set up a business bank account.
This makes it far easier to keep your company’s finances separate from your own personal funds, which is a crucial aspect of maintaining the personal asset protection provided by the LLC structure.
Additionally, a business bank account makes your company seem far more professional to customers and vendors. Making payments to an official business seems much more legitimate than writing checks or invoices to your personal name.
Plus, instead of having to handle all of your company’s banking yourself, business accounts allow you to delegate banking duties to your employees.
Another major benefit is the ability to easily acquire credit for your business. If you don’t have an established relationship with a bank, it’s still possible to acquire credit, but it’s far more difficult. Whether you have checking, savings, credit cards, or merchant services accounts, the bank is far more likely to approve a line of credit.
In addition to an EIN, some banks also require formation documents, proof of your business licenses, or other materials to open a business bank account. Ask your desired bank to find out what you’ll need to bring.
5) Register for State Taxes
One of the best things about LLCs is that they don’t pay separate federal taxes. As a “pass-through” entity, an LLC’s income and losses go straight to the owners, who report them on their personal tax returns rather than a corporate return.
This doesn’t mean, however, that LLCs are also exempt from state-level taxes. Each state has its own laws regarding business taxes, so you should never make assumptions regarding your state-level tax responsibilities.
Furthermore, if you elect to have your LLC taxed as a corporation, you aren’t eligible for pass-through taxation on either the federal or state level.
The most common state business taxes are business income tax and employment tax, but there are a few more you might need to pay if your LLC meets certain conditions.
For example: if you sell products or services, you will need to pay sales and use tax in 45 states, excluding only Alaska, Delaware, Montana, New Hampshire, and Oregon. Most often, businesses with employees will also need to pay for workers’ compensation insurance, unemployment insurance, and temporary disability insurance.
There are also 15 states that require businesses to pay a franchise tax, which is an annual fee in exchange for the privilege of doing business in that state.
These states include: Alabama, Arkansas, Delaware, Georgia, Illinois, Louisiana, Mississippi, Missouri, New York, North Carolina, Oklahoma, Pennsylvania, Tennessee, Texas, and West Virginia. In addition, the states of Massachusetts, New York, and South Carolina require business owners to acquire a state business registration number that functions like an EIN, but on the state level.
As you can see, tax requirements are highly-nuanced and different from state to state. Be sure to check with your LLC’s home state to see which taxes you’re required to pay.
6) Take Care of Licensing & Permit Requirements
After you file the Articles of Organization, your business is ready to go, right? Not so fast. Depending on what type of business you operate, you may also need to acquire certain licenses or permits before opening your doors.
The federal government requires industry-specific licenses and permits for businesses operating in the following areas: agriculture, alcoholic beverages, aviation, firearms/explosives, fish and wildlife, commercial fisheries, maritime transportation, mining and drilling, nuclear energy, radio and television broadcasting, and transportation and logistics.
Beyond the federal level, however, things can get trickier.
Most states require licenses for a wider range of business activities than the federal government does. This list of activities varies, so you’ll need to check with your specific state.
Still, the most common state-level licenses are for auctions, construction, dry cleaning, farming, food and beverage service, plumbing, retail businesses, and vending machines.
You’ve got your federal and state licenses, but it doesn’t stop there. Your county or locality might have its own licenses or permits. Of course, these vary significantly from region to region. In general, you should check with your state, county, and city to make sure your business isn’t operating without any necessary documentation.
If you would rather hire someone to research your company’s license and permit requirements, there are plenty of service providers that offer business license research packages.
When you purchase one of these packages, that company will determine which licenses and permits you need from each government entity, then provide you with the applications for each one. At that point, all you need to do is complete and submit them.
7) Understand Requirements for Hiring Employees
If your business has employees, or if you plan on hiring employees at any point, you will need to set up federal income tax withholding. Quite a few states have this requirement as well.
The good news is that this is a fairly simple step that doesn’t change much from state to state. Still, you should still make sure you understand your state’s regulations so that you don’t incur any penalties.
Further, it’s your responsibility as a business owner to determine whether your employees are legally able to work in the United States.
To make sure your employees are indeed eligible to work in America, you will need to have them fill out the I-9 form for employment eligibility verification. In addition, your employees will need to show you documentation like their passport, driver’s license, social security card, etc.
You posted your jobs, did the interviews, and hired the right candidates. Now, you need to report the hirings to your state labor agency.
A related requirement is the displaying of employee rights and employer responsibilities in conspicuous locations at your place of business. You can acquire posters with this information on them for free, which are sufficient for complying with this aspect of federal and state labor laws.
Okay, we’ve made it to the final step, where you’ll need to set up a payroll system. You have the option to keep track of payroll on your own, but you can also hire an accountant or acquire a payroll service to assist you.
No matter which option you choose, your payroll system will need to include employee payments, payroll taxes, and relevant tax form filing.
8) Determine Your Ongoing Compliance Needs
Once your business is running at 100 miles per hour and you’re taking care of every little detail, it’s easy to get tunnel vision on the day-to-day operations.
But be careful not to overlook your ongoing compliance requirements. Fail to complete the necessary tasks and you can lose your good standing with your state, incur significant fines, or even see the state officially dissolve your business.
The vast majority of states require that all businesses file annual reports to keep the state updated on several crucial aspects of your company.
The information you’ll need to include on this report varies depending on your state, but in general, you’ll need to supply the LLC’s physical address, ownership group makeup, and your registered agent’s name and address.
Not all states require a report every year – some require biennial reports instead of annual ones.
While annual reports can seem like a hassle, LLCs have much fewer compliance requirements than corporations, so they’re much simpler to maintain.
9) Follow Income Reporting Rules
Remember earlier when we mentioned that there are some income reporting requirements? Well, here they are.
Owners of single-member LLCs have it easy – they report all profits and losses on their 1040 tax form. For multi-member LLCs, on the other hand, the process is a bit more complex.
Each member is required to report their share of the business income, as outlined in the company’s operating agreement. Be sure to outline your profit distribution in your operating agreement so that each member knows how much they will receive and report.
Unlike the single-member LLC, a multi-member LLC needs to file Form 1065 with the IRS. This document outlines the company’s financial situation over the past year and helps the IRS make sure everyone paid their allocated portion of the shared tax burden.
The LLC needs to give each member a Schedule K-1 form, which indicates that member’s share of the profits and losses, and the member must appropriately report this info on their 1040.
Because LLC members aren’t considered employees of the company, they must also pay self-employment taxes, which include the employer and employee portions of both Medicare and Social Security.
Each member is required to pay 15.3% of their net income from the LLC, up to the Social Security threshold of $128,400, after which that individual only needs to pay the 2.9% Medicare portion.
When you’re getting an LLC off the ground, there are a lot of moving parts. Your startup process doesn’t start and end with the formation documents.
It’s tempting to be off and running with your business activities, but don’t forget about your continuing legal responsibilities.
While LLC formation (no matter if you DIY or hire an LLC service) is obviously an incredibly important step in the business life cycle, it’s really just the beginning of your company’s compliance journey.
Each step outlined in this guide serves a vital purpose in keeping your business compliant.
Acquiring a federal tax ID number (EIN) registers your company to pursue several crucial business activities, opening a business bank account helps keep your personal and business assets separate, licenses and permits allow you to operate in accordance to federal and local laws, and following employment law helps you and your employees stay on good terms with the government.
Finally, correctly reporting your income, adhering to all tax requirements, and filing reports at the appropriate time are all factors for ensuring your business remains in good standing.
Keep this page bookmarked so that you can occasionally refer back to make sure that you’re maintaining your LLC compliance requirements. Stay on top of each one and you’ll ensure your business’ health and stability for years to come.