You have come here, which means you are looking for guidance in starting your LLC. You have come to the right place. In this article, we will introduce you to all the necessary steps required to form an LLC.
LLC, or you can say Limited Liability Company, is a type of business structure. It is one of the easiest ways if you are starting your business. LLC comes with several benefits that we are going to take a look at. The formation of this company requires very little paperwork, and it is easy to set up. Due to its flexible structure, it is one of the best choices for the start-up.
You have decided to start your company in Montana, which is fantastic news as Montana comes in the Top 10 of best states to start a business. The cost of creating the enterprise is also meager. Early fees are as high as $70, and after that, the yearly fees are $20. It will not cause a hole in your pockets and is less expensive.
Let us look at some of the advantages of LLC
- Private asset protection
The best thing about the LLC is that the personal and professional assets are separate. The limited liability of the owners is protected. That means in case your company gets into financial trouble, then your private investments, such as your home, car, jewelry, etc., will not be affected, which is a great relief for the owners.
- Less paperwork
The paperwork is less and straightforward. You have to file the Articles of Organization to make your company authorized, and that’s it. Apart from some additional requirements, the forming of an LLC is quite simple.
- Pass-through entity
The LLCs are known as pass-through entities; they pay the taxes through their income tax returns. They don’t have to pay double tax. The owners show the profit and loss of the business on their return. So, they are exempt from double taxation.
- Management structure
We have told you that LLC has a flexible structure, be it taxes or as management. You can manage your LLC as a member-managed, where members take care of the LLC, or manager-managed, where a manager is appointed to look after it.
Your personal information is very well protected. Your information will not be in public records unless you are the registered agent. If you are the registered agent, then your details will be in the Articles of Organization.
Step 1: Select a Name for your LLC
The first step in creating your LLC is the naming. You have to select a name for your company. You might think how hard that might be. But be careful because it is not that simple as it sounds as the name will be your company’s identity. It should be unique, different, and intriguing. Your name should represent your company, your work. However, while naming, bear in mind that there are some rules that you have to follow. The first one is that the company’s name must include the words Limited Liability Company or its abbreviations. It should not be similar to any other names out there. It would be best if you did not misinform the public through your name. Also, do not use vulgar or abusive terms.
After you have come upon a name, it is time to check whether it is available or not. You can check your name’s availability by looking at it on the Secretary of State’s official website under the Business search. If your name doesn’t come up, that means it is unique. However, if it does pop up, you have to make some changes to make it different.
After selecting the name, there is also a province for name reservation. Yes, in Montana, you can lock the name if you want so. There can be many situations, such as you don’t want to start your company immediately, or maybe legal formalities are causing the delay. In that case, you can reserve the name if you think someone might use it before you. For 120 days, you can keep your name secured. For that, you have to go to the State’s ePass Montana online portal to submit a request along with $10. In 2 to 5 days, your request will be processed. However, you can also expedite the processing time to 24 hours for a price of an additional $20, and for $100, you can speed up the process to one hour.
Step 2: Decide upon the Management Structure
We have mentioned above that the LLC has a flexible management structure. At this point, you should be sure what format your company will follow. You can either be Manager-managed or member-managed. A manager is hired to take care of the business, or the members (owners) do it themselves. The difference might look minor, but in member-managed, each member can decide for the company. And in manager management, the manager has that power. So, be thoughtful in what structure you prefer.
Step 3: Appoint a Registered Agent for your Company
After you have selected your name, the business structure, it is time to appoint a registered agent for your company. Setting an agent is compulsory as the law mandates it. So, you cannot avoid it. A registered agent is an individual, business entity, or service which takes care of the correspondence on behalf of the company. All the State’s mail, the legal notices, etc., goes through the registered agent. That is why the registered agent should be present in the office to accept the mails during business hours. They will make sure that all the critical paper should reach the owner and nothing gets missed. There are requirements for a person or an entity to be a registered agent. If it is a person, he/she should be 18 years old or above and must be a resident of Montana. Similarly, if it is an entity, it should be legalized to do business in Montana and have a street address.
There is also an option; you can be your registered agent. But it does have some drawbacks, like you have to be present during business hours to accept the correspondence. The critical point is that your information will be public. As the details of the registered agents are mentioned in the public documents, if you are your agent, your details will be up there. So, if you are comfortable with it, then you can go for it. Otherwise, there are other options available too.
Step 4: Articles of Organization
The filing of Articles of Organization will officially recognize your business. After this step, you will be able to start your business legally. You have to submit the Articles of Organization with the State. Some details must be present in the documents:
- The name of your LLC: you have to mention the name that you have selected. Remember, after putting the name in the Articles of Organization, it becomes official.
- The registered agent’s details: you have to mention the name and the address of your registered agent.
- Your LLC’s address: you have to mention the mailing address or your LLC’s operating address.
- The structure: you have to tell whether you have a manager-managed or member-managed
- Signature of the members: the members or you can the owners also have to sign this document.
Now, how can you submit this document?
Unfortunately, there is an online-only way. But don’t worry, the method is simple and easy to follow. You have to go to the ePass Montana filing portal and form an account. After logging infill in the Articles of the organization under the “formation of a domestic LLC” section. You have to make a payment of $70. It will take around 2 to 5 days for your application to get processed. However, there is an expedition method also. You can expedite the process:
- Additional $20 for 24-hour service
- $100 for one hour service
Step 5: Form an Operating Agreement
If there are some rules and regulations in place, some instructions to follow, and a strategy, every organization will run smoothly. Who is responsible for ensuring that all of this is in place? The operating agreement for your company. The contract contains the necessary details: how a business should be managed, what to do in the event of a dispute, etc. Having an operating agreement, on the other hand, is not required; it is an option. However, it would be best if you made this decision because it would be beneficial to you. It will also help to maintain good relations among the members.
What is an operating agreement?
It is a document that binds the members together in an agreement. It is a contract that outlines the company’s work; every member of the LLC signs the deal to be on the same page. So, in times of internal conflict, this operating agreement acts as a piece of evidence. That is why the contract should be inclusive; it should contain details about the structure, financial, managerial, and operational.
An excellent and well-formed operating agreement will make sure the smooth running of your company. It should contain the details about what will happen if a member leaves, or in case of death or miss-happening. So, in this case, you will have a go-to agreement to see what you should do in these situations and sign it, so it is agreed upon all.
You can add any details in your agreement, but the following are the must:
- The name, address of the LLC, the members, and the registered agent
- The purpose of the business
- The management, whether a member-managed or manager-managed
- The tax structure: whether you decide to be taxed as an LLC or a corporation
These are just a few things, and you should add as many important things as you can to cover more ground. There are two ways of drafting the operating agreement. You write your company’s operating agreement if you want to; it is not at all difficult, especially with all the online templates available. Also, if you’re going to be highly diligent and don’t want to miss even a tiny detail, then you can appoint a lawyer. The lawyer will draft your operating agreement with all the details and will not miss anything.
The operating agreement is essential as if any issue occurs, the State will decide for your company if you lack an operating agreement. It is not exactly in your favor because the state rules are not specific for a particular type of company, so they can be vague. So, it is better to draft one than to take chances.
Step 6: Obtain Employer Identification Number
You can get this number from the internal revenue service for free. Even if you have a social security number, you need this number for various reasons. Also, EIN is used for business purposes; if you use a social security number, there could be a security breach. So, always use the Employer identification number for your business purposes. It is a way through which the Internal revenue Service keeps track of your business expenses and records.
Why is EIN necessary?
EIN lets you to:
- Open a business bank account
- Apply for business loans and license
- Pay employees
- Apply for credit cards for business
In the following three ways, you can obtain EIN for your company
Online application is the quickest way to apply. You will obtain the number immediately after completing the form. However, you can apply Monday through Friday from 7 am to 10 pm. If you don’t want to wait, this is the form to use.
Fax is the second method. This method can be used if you are comfortable with faxing your form. You’ll need to download Form SS-4 for this. Following that, complete the form and fax it to the office at (855) 641-6935. You will get the employer identification number within four working days.
Then there’s the third choice, which is to send a letter. Your application will take weeks (four weeks) to be processed due to the postal service’s slowness. You must print out Form SS-4, fill it out, and mail it to the following address:
Internal Revenue Service Operation
Attn: EIN Operation
Cincinnati, OH 45999
Step 7: Business Licenses
Before you open your doors, you might need to get some permits. This is not the same as the Articles of Organization; the Articles of Organization make your company legal, while these licenses are necessary to run your business. The permits you’ll need, on the other hand, will be determined by the nature of your company. If you sell groceries, for example, you’ll need a business license as well as permits from the agriculture department. Similarly, other types of businesses can require a different license. For more details, you can contact the Secretary of State office. Or you can get the details online on the Licensing page of the Small business development center of Montana. Apart from the state license, there are some local licenses too. Every locality, county, or municipality might have different norms for licenses and permits, so check out with your local government.
Step 8: Taxation and Annual Reporting
It’s time to talk about the taxes. We have mentioned that the LLC has a flexible tax structure. What does that mean? The LLC is taxed as an LLC in which the owners pay taxes on their returns. However, the owners can also apply to be taxed as a corporation. The LLC has to pay taxes at three-levels, Federal, State, and local. Also, there are some additional taxes too.
Federal income taxes
Since they are pass-through units, LLC is exempt from paying federal income taxes. What exactly does that imply? The tariffs are passed on to the owner by his or her income tax. He or she must report the business’s earnings and expenses on their income tax returns. They may also elect to be taxed as a corporation, in which case they must file a corporate income tax return.
Taxes levied by the state and local governments
State and local taxes are similar to federal taxes in several ways. Similarly, the owner must transfer their profits and losses by their returns. The State of Montana does not impose a privilege or franchise tax, which is a plus. However, some LLC might be single members, which has to pay a Montana Disregarded Entity Information Return. You can get more information about this from the State.
All other taxes
If the LLC meets the requirements, it may be subject to additional taxes in addition to federal and state taxes. Let’s say; if you sell goods and services, you must register the Sales and Use tax; if you hire workers, you must pay the Unemployment Benefits and Withholding taxes. There is also a local tax, which is determined by your LLC’s position. These taxes will have to be paid to your municipality, district, or county. Since each local body has its own set of laws, it is best to contact the regional government for more details.
After the successful formation of your LLC, your LLC is running smoothly. But every year you have to submit a report. This report is needed by the State to be updated with your work and get all the business information. It is their way of being informed. You have to file this report online. Don’t forget to submit this report as it might affect your status with the State. You do want a cordial relationship with the State. Also, there is a fine of $15 if you failed to submit the report by April 15. And if till November 28 you didn’t file, then your LLC will be dissolved. So, don’t forget.
This is where the article comes to a close. We’ve covered all of the measures you’ll need to get your LLC up and to run. We hope you found this guide to be helpful. We also hope that you will soon be the owner of your business. While the procedure appears to be lengthy, it is ultimately worthwhile. So, go on your journey, make excellent sales and deals, and progress.
Wait! Before wrapping up, there are a few points that we like to tell you. What steps should you follow after the formation of your LLC. Forming an LLC is one point, but maintaining it is another. We will have a quick look at some of the points that are important for a successful enterprise.
- The first thing you should do is to have a separate account for your business. In this way, you will separate the personal expense from your professional. So, at the time of a business crisis, your assets will be protected.
- Design a unique logo for your company. Three things are essential: the name, logo, website, and business cards. These things will help to grow your business.
- The creation of your website is a vital part. The customer will have a place to look for all the information about your business. An attractive website will attract customers to your services.
- Don’t forget to print out the business cards. They come in handy in promoting your business. If any conversation feels like a good business opportunity, you can hand out your card. It will contain all the details about your company.
- Always have insurance for your company. In times of calamity, insurance works as a backbone for your company. You will be able to work tension-free knowing that your business is insured.
- Last but not least, always try to maintain good status with the government. As in the long run, this will be very helpful to you. You can also get a certificate of good standing from the State.