Forming an LLC is a relatively easy process. Still, there are several things you need to do after you’ve filed your Articles of Organization and before you can start signing contracts, hiring employees, and running your business.
If you’re asking, “what to do after the LLC is formed?”, here are seven critical steps you should take after the initial filing.
Step 1: Complete any additional formation requirements
Some states require additional filings or steps at the time of incorporation, such as a county-level filing, publishing notice of the LLC formation in a local newspaper, or an initial report filing.
For example, New York requires LLCs to publish notice of the incorporation for six consecutive weeks in two newspapers as assigned by the county clerk in the county of the LLC’s legal address. A Certificate of Publication should then be filed with the Department of State upon completion of the publication requirement.
If you're creating your LLC in California, you're required to file a Statement of Information (Form LLC-12) with the California Secretary of State within 90 days of your LLC's registration date, and every two years thereafter. Missing the due date triggers a $250 penalty. While there is a grace period, continued non-compliance can lead to suspension of your LLC.
Step 2: Create an LLC operating agreement
Even if your state doesn’t require you to have an LLC operating agreement at the time of formation, it’s still vital that you have one. An operating agreement can protect your company’s status, ensure that members abide by the rules, and help prevent or resolve misunderstandings and issues, even for single-member LLCs.
What should you include in your LLC operating agreement? Here are some key areas it should cover:
- Whether the LLC will be managed by its members (owners) or by designated managers (read more on LLC management in LLC members vs. LLC managers.)
- How the management team will be selected
- How key business decisions will be made
- Which actions require a member vote, and what percentage is needed for approval
- The duties and responsibilities of the members
- How profits, losses, and tax items will be allocated among members
- The process for transferring ownership interests or admitting new members
- Your succession plans
- Events that could trigger the dissolution of the LLC (such as a member's death or bankruptcy)
- The dissolution process, including the percentage of member approval required and the steps for winding down the business
Consider consulting a lawyer to help draft your LLC operating agreement. If you choose to draft it yourself, have a lawyer review it before distributing it to the members to sign.
Step 3: Fulfill other LLC internal requirements
In addition to your LLC operating agreement, it's a good practice for members and managers to maintain other internal records. Although commonly overlooked, these records can be valuable to have on hand and may need to be presented if you sell the company or become involved in a lawsuit.
It’s recommended that your LLC do the following:
- Issue membership certificates to members and record the action in the membership transfer ledger
- Hold and document an initial meeting of members and managers
- Hold and document an annual meeting of members and managers
Step 4: Obtain an EIN
Before you can pay business taxes, you’ll likely need to register your business with the IRS and obtain an employee identification number (EIN). An EIN functions like a Social Security number for your business and is used on state and federal tax filings.
LLCs with two or more owners are required to obtain an EIN, since the IRS treats multi-member LLCs as partnerships for tax purposes by default. A single-member LLC without employees is not required to obtain an EIN and can file taxes using the owner's Social Security number instead.
Still, there are compelling reasons to get an EIN. An EIN is often needed to open a business bank account, which helps keep your business and personal finances separate.
Step 5: Open a business bank account
Opening a business bank account and obtaining a business credit card helps to maintain the separation of business and personal assets. This helps to prevent “piercing the corporate veil”, which is a legal phrase that describes when the owners of a corporation lose the limited liability that having a statutory entity (like a corporation or LLC) provides them.
Limited liability means the owners aren't personally on the hook for the LLC's debts and obligations. An owner only risks the amount they invested in the business. If the corporate veil is pierced, the owners' personal assets can be used to satisfy business debts and liabilities.
Maintaining a business bank account helps preserve your LLC’s liability protection and helps keep your personal assets secure if your business is ever sued or found liable.
A bank account and credit card also help build business credit, something that suppliers and vendors will verify before transacting business with you. For this reason, consider opening your business accounts as soon as you start incurring business expenses or accepting money.
Step 6: Obtain necessary licenses, permits, and registrations
The licenses, permits, and registrations you'll need depend on your state, business location, and business activities. Many states require your business to register with the department of revenue and obtain a state tax ID (separate from your EIN). If you have employees, you'll also need to register for state employee taxes and report new hires to your state's department of labor.
Business licenses are issued by federal, state, and local governments. Depending on the industry and jurisdiction in which your LLC operates, you may need to obtain licenses from multiple government levels. Below is a list of the common licensing and registration requirements for most businesses.
- State tax ID number. Issued by your state’s department of revenue or taxation, the state tax ID number is also called a tax registration number.
- DBA/fictitious business name registration. If you operate under a name other than your LLC's legal name, you'll need to register that "doing business as" (DBA) or fictitious business name with the appropriate state or local agency.
- Basic business operation license. Issued by the city where your business operates, or by the county if you're located outside city limits.
- Zoning and land use permits. Local zoning laws may restrict certain business activities in specific areas, so check whether your location is zoned for your type of business.
- Building permit. Required if you plan to remodel or construct a commercial space.
- Sales tax license (seller’s permit). This license/permit has many names, and those names vary by state. But it is required for the selling of almost all products and services.
- Workers’ Comp Insurance. The name varies by state, but this is required if you sell physical goods that are subject to sales tax to customers. It may also be required for certain services depending on your state's tax laws.
- Employer registrations: These include registering for payroll taxes, reporting new hires to the department of labor, and securing workers’ compensation insurance.
Step 7: Maintain LLC compliance
A final important step after forming an LLC is to maintain good standing with your state. Staying in good standing helps preserve the limited liability protection an LLC provides, makes it easier to expand into other states, and lets you quickly obtain a certificate of good standing when lenders request one.
Here are some things to keep in mind as you maintain LLC compliance:
- File an annual report: Most states require domestic LLCs and foreign qualified LLCs to file an annual report or statement. Some states only require filing every other year.
- Pay franchise tax: Some states also have a franchise tax, a fee paid to the state for the privilege of operating an LLC in that state. The formula for calculating this tax varies by state but is typically based on business revenue or the number of shares and par value.
The due dates for filing an annual report and paying franchise tax differ in each state. Some states connect the date to the anniversary of the LLC’s formation or qualification. Other states set a specific date for all LLC annual statements.
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When it comes to starting an LLC, there is a lot for small business owners to think about beyond the initial LLC filing. LLC owners should rightly ask, “I have my LLC, now what?”
Learn moreabout creating an LLC in a few simple steps and get trusted guidance from BizFilings to make sure the process and compliance with ongoing requirements are done right.