By: Anthony Brister, Attorney, Tax LLM
Starting a business can feel overwhelming, especially when it comes to making the right decisions about how to legally structure your company. One of the most popular options is forming a Limited Liability Company (LLC). An LLC offers personal liability protection, tax benefits, and flexibility that other entities often don’t. However, if you want to maximize these benefits, the process isn't as simple as filling out a few forms—there are many steps you should consider.
In this guide, we’ll walk you through the LLC formation process and emphasize the importance of working with professionals, such as the Brister Law Firm, to ensure you get it right from the start. Whether you’re a new business owner, an experienced entrepreneur, or an investor, this article will cover everything you need to know to protect your business and your personal assets.
Why Choose an LLC?
Forming an LLC separates your personal and business liabilities. This means if your company faces lawsuits, debts, or other financial issues, your personal assets—like your home and savings—are shielded. For many entrepreneurs and investors, this peace of mind is invaluable.
Beyond liability protection, LLCs also offer tax flexibility. A LLC ALONE DOES NOT GET YOU EXTRA TAX BENEFITS. You can choose to be taxed as a sole proprietor, partnership, or corporation (S-Corp or C-Corp). This allows you to choose your tax strategy that best fits to your business and personal facts.
Common LLC Mistakes Business Owners Make
Many first-time business owners and even experienced investors make these mistakes when forming their LLC. The allure of inexpensive online filing services often leads people down the wrong path. And overlooking Here are some of the most common pitfalls:
Overlooking the Operating Agreement: Even if your state doesn’t require one, an Operating Agreement is crucial for clarifying each owner’s role and responsibilities.
Choosing the Wrong Tax Election: Picking or not picking the wrong tax status can leave you paying more than necessary. It’s critical to get this right from the start.
Ignoring State-Specific Requirements: LLC regulations vary by state. A cookie-cutter approach can result in non-compliance and penalties.
Failing to have a separate bank account or commingling expenses: You should always have a separate bank account for any business or entity to separate personal and business expenses.
So, What Do You Need to Do to Form Your LLC?
1. Select Your LLC Name
Your LLC’s name must comply with state laws, which typically require that it be unique and include “LLC” or “Limited Liability Company.” A good name not only fulfills legal requirements but also establishes your brand identity. Your name should also be unique. If the name is already taken in the state, you will likely not be able to use it. Additionally, if you are using a LLC for privacy purposes, you shouldn't readily identify yourself in the LLC name. For Example, John Smith shouldn't form the John Smith Holding Company, LLC and expect someone not to link that LLC back to him.
2. File the Articles of Organization
Filing your Articles of Organization is the official process of creating your LLC with the state. This document includes essential details like the business name, location, and management structure. However, you’ll want to make sure this form is filled out correctly to avoid costly delays. Each state has a different set of costs, requirements, and procedures sorrounding this.
3. Appoint a Registered Agent
A registered agent is someone who can accept legal documents on behalf of your business. You can act as your own agent, but hiring a professional service ensures you never miss important notices and could also add a layer of privacy. If you have an LLC in Texas and need a registered agent, the Brister Law Firm can serve in your place.
4. File Your BOI Report
The Beneficial Ownership Information (BOI) report is an important step for LLC formation. This report identifies the individuals who own or control the company. The U.S. government is cracking down on businesses trying to obscure their true ownership, and failure to file this report can result in fines or penalties. The Brister Law Firm can help you file this to ensure full compliance send an email to admin@bristertaxlaw.com and say BOI, and one of our team members will reach out.
5. Draft an Operating Agreement
Although not always technically required, this document outlines how your business will be run, who’s responsible for what, and how profits and losses will be distributed. It’s especially crucial for multi-member LLCs but beneficial for single-member LLCs as well. Think of it as your LLC’s rulebook. I always recommend having an operating agreement and following terms as this is an easy factor to follow when trying to protect against piercing the corporate veil.
6. Apply for an EIN
An Employer Identification Number (EIN) is essentially a Social Security number for your business. You’ll need it to open a business bank account, hire employees, and file taxes. It’s a quick process, but it’s critical to complete it right after your LLC is formed.
7. Comply with State and Federal Requirements
Each state has unique requirements for LLCs, such as publishing notices or paying annual fees. On top of that, your business may need specific permits, licenses, or insurance depending on your industry. Make sure you stay compliant, or you could face fines or even lose your LLC’s good standing.
Understanding LLC Taxation
LLCs offer a unique advantage when it comes to taxation because they are considered “pass-through” entities, meaning the profits and losses pass through to the owners’ personal tax returns. However, if you want more favorable tax treatment, you can opt to have your LLC taxed as an S-Corp or C-Corp.
The Brister Law Firm can help you make an informed decision about the best tax election for your business, ensuring you’re not paying more than you should be. This is where expert advice can make a real difference and save you thousands in taxes.
Why You Shouldn’t DIY Your LLC
Forming an LLC might seem straightforward, but the details matter—a lot. Many entrepreneurs turn to DIY services because they appear cheap, but cutting corners during formation can lead to costly mistakes down the road. Missed deadlines, incorrect filings, and overlooked state requirements can leave your LLC and your personal assets vulnerable.
When you work with the Brister Law Firm, you’re getting more than just a service that files paperwork. You’re getting peace of mind knowing your LLC is formed correctly, with all legal requirements met. We take the guesswork out of the process and offer expert advice tailored to your specific business needs.
Get the Brister Law Firm’s Free LLC Formation Checklist
Not sure where to start? Download our free LLC Formation Checklist from the resources tab on our website. This comprehensive guide ensures you don’t miss any critical steps during your LLC formation. And when you’re ready for expert assistance, contact the Brister Law Firm to handle the entire process for you. Schedule a consultation with Brister Law Firm today and let us help you form an LLC that’s built to last.
Conclusion: Protect Your Business and Your Future
Forming an LLC is one of the most important steps you can take as a business owner or investor. It protects your personal assets, provides tax advantages, and adds a level of credibility to your company. But the process is far more nuanced than it appears. Don’t leave it to chance—work with the Brister Law Firm to ensure your LLC is set up for long-term success.
FAQs
What’s the difference between an LLC and an S-Corp? An LLC offers flexibility in taxation, and is a state formed entity. Whereas an S-Corp is a federal tax election. It may provide tax savings by reducing self-employment taxes. However, S-Corps have more stringent requirements.
How does the BOI report affect my LLC? The BOI report identifies the true owners of an LLC. It’s mandatory and failure to file it can result in penalties. The Brister Law Firm can help ensure this requirement is properly filed.
How long does it take to form an LLC? The process typically takes 1-2 weeks, but timelines vary by state. Consulting with Brister Law can help expedite the process and avoid delays.
Can I form an LLC on my own? While you can form an LLC on your own, legal and tax complexities often make it beneficial to work with a professional service like the Brister Law Firm.
How much does it cost to form an LLC? Costs vary depending on the state and any additional services you might need, such as filing fees, registered agent fees, or consulting services. Contact the Brister Law Firm for a detailed quote.
Schedule a consultation with Brister Law Firm today and let us help you form an LLC that’s built to last.
By: Anthony Brister, Tax Attorney
Comments