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I Have My LLC — Now What?
You’ve just formed your limited liability company (“LLC”) and you’re finally able to breathe a big sigh of relief. The paperwork is complete, and you can finally get started with your dream business, right?
While it may feel like the big stuff is out of the way – the articles of organization, the operating agreement, the selection of a registered agent – don’t be mistaken. Before you can get down to the nitty-gritty of selling your product or offering your services, there are a handful of important tasks that come first. Though understanding what to do next can feel overwhelming, reviewing the steps below will help put you and your LLC on the path to success.
Though your LLC is officially formed, you’ll want to make sure you have the proper state and federal permits and licenses to start conducting business. Depending on the nature of your LLC, these might include a seller’s permit, zoning permits, a permit for conducting business out of your home, or industry-specific permits for businesses involved in food and alcohol sales, agriculture, radio and telecommunications permits, or other industries, depending on state and local laws.
Another crucial step for new LLC owners is obtaining an employer identification number (“EIN”). Also called a Federal Tax ID, an EIN is your business’s social security number. You can apply for one online or by mail. There are a few exceptions to the EIN requirement – such as business owners who don’t have employees – but more likely than not, you’ll need to obtain one from the IRS. Acquiring an EIN is a crucial step for managing your business’s finances; most banks and credit unions require an LLC to have an EIN before a business bank account can be opened in the LLC’s name. A bank account for the LLC is recommended for keeping business expenses separate from personal expenses, tracking finances, and preparing taxes. You can also get a business credit card, which will help your business form its own line of credit. With a business bank account, you can easily delegate financial tasks to employees and maintain professionalism with customers.
You also will need to register with your state tax agency to pay income, employment, and sales taxes. In Kentucky, registration with the Kentucky Department of Revenue can actually take place through the Kentucky Secretary of State’s “One Stop” Business Portal for convenience (information on Kentucky tax registration itself can be found on the “State Tax Registration Requirements” page). Tax requirements vary from state to state – some even require a “franchise” tax, which taxes the business for operating in that particular state. Check the information available on your state’s Department of Revenue, Department of Treasury, or Department of Taxation to clarify requirements applicable to your LLC.
In Kentucky, for example, the standard LLC is considered a “disregarded” or “pass-through entity,” meaning that it is not subject to corporate income tax but the income “passes through” to the owners. Kentucky does implement a limited liability entity tax (LLET), however, for LLCs, LLPs, and LPs. The LLET is based on the yearly gross receipts for the business. To file taxes in Kentucky, LLCs, LLPs, and LPs will file form 765, while single member limited liability companies whose single member is an individual will file form 725. By default, LLCs are classified in Kentucky as partnerships – or disregarded entities for single-member LLCs – but if you elect to classify your LLC as a corporation, it will be subject to corporate income tax. Complex requirements such as these differ between states and even localities.
The good news is that, in general, LLCs are not required to pay separate federal corporate taxes. If your LLC has more than one owner and is taxed as a partnership, the LLC will need to file a partnership tax return. The LLC will not pay federal taxes based on that return. Instead, LLC members report their earnings on personal taxes. Once again, however, you’ll need to double-check that this is the case for your business before tax season rolls around, as exceptions to this rule exist for certain LLCs, and nothing pertaining to taxes is ever without nuance.
Even if your business is just starting out, it’s never too early to obtain insurance. This is a great next step for new owners, as Business Owner Plans (“BOPs”) and liability insurance can provide protection from unforeseen mishaps. Most BOPs provide coverage for accidents, negligence claims, and injuries. Product liability is important for LLCs engaging in the sale of goods, while professional liability policies are better suited for LLCs offering professional services like consulting.
Last but not least, you’ll want to ensure you understand how your business can stay compliant. What requirements do you need to follow when hiring employees? What reporting requirements does your state enforce? When will quarterly taxes be due? When starting a new business, it’s easy for tasks like these to slip through the cracks. Make sure they are on your radar from day one. (And, we humbly suggest, it never hurts to hire an attorney to help you sort through these.)
Getting an LLC up and running is no simple feat. But with the right preparation, new LLC owners can effectively manage all the moving parts. For assistance planning your business’s next steps, contact your McBrayer attorney today.
Keeana Sajadi Boarman is a Member of McBrayer law. Her practice centers on all facets of business and corporate law, including business formation and planning, entity governance, business operations, and corporate finance. Ms. Boarman can be reached at email@example.com or (859) 551-3666.
Services may be performed by others. This article does not constitute legal advice.