You have decided to start your company. It is an exciting experience but can be intimidating too. But forming an LLC is a simple process. You have to file the Articles of Organization, and that will authorize you to start your business. But there are some essential steps that you have to follow. It is better to get every detail before opening your company; it will make the process much easier if you are aware beforehand. LLC is known as a Limited Liability Company. Due to its several benefits, it is one of the most preferred business structures. It comprises the services of the corporation along with the partnership. LLC gives limited liability protection to its members. It means that the members’ assets are protected if they are in debt or face a lawsuit. The members’ personal assets will not be used in any case to pay off the company’s debts. Also, the owners can decide how to distribute the profits among themselves. It can be according to the contribution of each member. However, it is possible if you have an operating agreement. Well, we will learn more about it in this article. Without wasting time, let us take a look at all the steps required to form an LLC.
Step 1: Select a name for your company
The first step is to pick a name. It is not as easy as it sounds. The name is what your company will be known by. So you have to put in efforts to make it memorable. The title will be present in the documents, company’s website, cards, and many more. So, it should be something that will represent what your company does. A unique name will increase the curiosity of the customers. The prime goal of any business is to increase its customer base. But there are some state rules you have to follow. The first one is that the name must contain the words Limited liability company or its abbreviations. Also, the name must not have any vulgar words. It should also not give an idea that it is related to the government or its authorities. The most important rule is that the name should be distinct. It should not be similar to any other names out there to check that you can go to the state’s business name online availability portal. Here you can check whether the selected name is available or not. If it is not available, then you have to make some changes to make it different.
After you have come upon a suitable title, you can also reserve it if your business is not opening soon. If there is a delay, you can lock the name so that no one can register it before you do. With a payment of $25, you can do that for 120 days. You have to send the form for the name reservation along with the fee to the following address:
Secretary of State Office
500 E Capitol Ave
Pierre, SD 57501
It will take around 3 to 5 days for your request to get processed. But if you want the process to be faster, you can accelerate it. With the additional payment of $50, you can speed up the process.
You should also register your domain name. Eventually, you have to create a website for your company. So, to save time, it is better to select the URL now. Later you only have to design it; there will not be any hassle to decide upon the domain name and register it.
Step 2: Appoint a Registered Agent
It is compulsory for every LLC to appoint a registered agent. It can be a person or an entity. Working in the absence of one is illegal. A registered agent is so vital because they take care of the correspondence on behalf of the company. All the critical, legal correspondence goes through the registered agent. The agent accepts the mail, whether it is a notice, reminder, lawsuits, etc.; As we said, the agent can be a person and a business entity. There are some rules regarding the appointment of the agent. The agent must be available during office hours. If you hired an individual, then he/she must have an address in the state. If you appoint a business entity as your agent, then they should have the authority to do business in the state.
Also, a time may come when the registered agent resigns or needs to change them, but make sure that the transition is smooth. Also, change the name of the agent in the documents that are submitted with the state. Let us take a look at that in the next step.
Step 3: Submit the Articles of Organization
After deciding upon the name and selecting a registered agent, it is time to recognize your company officially. For that, you have to submit the Articles of Organization. Only after submitting this document, your company will be authorized. Some things are present in the article:
- The address of the company. You have to mention your office address; if your office is your home, you have to add your home address.
- The registered agent’s name and address
- The organizer’s name. It means that you have to mention the name of all the members of the LLC. And every member mentioned in the Articles of the Organization has to sign it.
- The management structure of your company: A LLC can have two types of system: member-managed or manager-managed. So, before filing your documents, you have to decide upon the structure. In a member-managed organization, it is the members who make decisions for the LLC. Whereas in the manager-managed design, the members appoint a manager who is responsible for making a decision.
- The date you want to start your business.
There are different ways in which you can file your documents:
Submission via online
For the fastest method, you can submit your documents online. You have to pay $150. You don’t have to wait long as the application is processed instantly.
Submission via Paper-form
For this process, you will have to download the application, take a print out and fill it. After that, you have to send the form to the following address:
Secretary of State Office
500 E Capitol Ave
Pierre, SD 57501
Along with the form, you have to send a payment of $165. Also, you hand-deliver the form if you want at 215 E. Prospect Ave., Pierre, SD 57501.
Step 4: Draft an Operating Agreement
Now, your business is registered. It means that you are ready to go on the floor. But before moving forward, it is essential to set rules. Most don’t like rules, but these rule in the form of the operating agreement is a boon for your company. It is not mandatory like the registered agent or the articles of organization, but it doesn’t mean it holds any less value.
An operating agreement is a legal document in which you write down all the rules and regulations for your company. It mentions the terms for the operation of your LLC. You can cover three things in the agreement: operational, functional, and financial. Some details that should be present in the operating agreement are:
- the responsibilities of each member
- how the profit is going to be shared
- rules for dissolution
- how will the inclusion or removal of a member takes place
The operating agreement is flexible. You can add any details you want. It depends on what your business is and how you want to pursue it.
Why is operating agreement vital?
Working without an agreement is not ideal. While running a business, a little bit of dispute is bound to happen. If you have a deal, you just have to look at that, and boom! Conflict solved. If you have all the rules drafted in the operating agreement, it would be easy to take a look at that. All the members sign the operating agreement. So that means they agreed with the details mentioned in the document. If you do not have an operating agreement, you will fall under the default rules of the government. Let us explain. Without the operating agreement, you do not have a set of defined rules for your company. In that case, your company will run on the powers of the government. Since these laws are not company-specific, they might not be in your favor. For example, one of the members is demanding a high share of profit. But you have decided to distribute the gain based on the monetary contribution of the member. If you have an operating agreement mentioning that, then that member’s demand is nullified. But if you do not have one, then the decision will be taken based on State laws. Most of the states have the law of equal distribution of the profit. Another example we can take a look at. Suppose one of the members sells his/her share to another party. If there is no operating agreement detailing the rules of the claim or transfer of power, then that person is good to go. That is why it is essential to have an operating agreement.
There are two ways in which you can draft an operating agreement. You can write the contract for your company. As the owner, you know which rules should be implied. You know your company better, right! And don’t worry, it is not intimidating at all. You do not need any special training to write one. In today’s world of technology, things are getting easier. For writing an operating agreement
Step 5: Get an EIN
Employer identification number or EIN is a nine-digit number. You can obtain EIN from the IRS- internal revenue services. EIN is mainly used to pay off the taxes. And with its help, the IRS keeps a record of your tax activity. However, the use of EIN is not limited to these; you can use it to open a bank account, appoint an employee. And so on. Also, if you do not have EIN, it might cause a delay in some of the work. If you are not required to have an employer identification number, you should also apply for one. As in its absence, you will have to use your social security number. For every business purpose, you have to enter the SSN. It is not recommended as it can cause a privacy breach or identity theft. These three methods through which you can get EIN. You can select whichever way suits you.
If you want to apply for EIN online, you have to go to the official website of the IRS. You can apply from Monday to Friday. The time limit is between 7 pm and 10 pm. The advantage of this method is that it is the fastest method. Immediately you will receive your number.
The second way to obtain EIN is through Fax. You have to download Form SS-4. After downloading the form, fill it and fax the form to (855) 641-6935. It will take around four working days for your application to get processed.
The third method is via postal mail. For this method, also you have to download the form and complete it. After filling the form, mail it to the following address:
Internal Revenue Service Operation
Attn: EIN Operation
Cincinnati, OH 45999
This method is not widely used as it can take three to four weeks to process your application.
Step 6: Business taxes and Business license
Federal Income taxes
The LLC does not directly pay the taxes to the federal government. The members include the business loss and gains in their income tax returns. If you work as a sole-proprietorship, you also must include the business income and damages in your tax returns. It goes for the partnership as well, meaning you have more members. In this situation, you must obtain EIN. You have the liberty to decide how you want your LLC to be taxed: as an LLC or a Corporation. If you chose the latter, then you have to pay a separate corporate tax return.
State LLC Taxes
There are no special state taxes; it works the same as the federal ones. The owners pass the income and expenditure on to their income tax returns.
Apart from the federal and state taxes, some taxes are circumstantial. It depends on your business type. For example, if your business deals in selling goods, you have to pay the Sales tax and Use tax at the rate of 4.5%. You can file these taxes on the Department of revenue online portal. Or you can also fill the paper form. Also, there is an unemployment insurance tax, which you will if you have employees.
There are some local taxes, too, that depend on the location of your LLC. For example, you have to pay a municipal tax. So, you have to contact your local government to get the complete information.
you might have to obtain some permits from the federal, state, and local governments to operate. There is no need for a general business license in South Dakota. But you do have to obtain specific permits and licenses. For example, for a restaurant, you will need a food service license and a health permit. For a retro bar, you will need a liquor license. Similarly, for different kinds, there are additional licenses. So, it is better to check with the secretary of state and get the complete list for the varieties of permits.
Some cities, municipalities, and counties have their provisions for licensing. So before setting up the business, get the information from the local body.
Step 7: Annual report
This step comes after the formation of your LLC, that too, after one year. But why are we telling you about this? Because it is very vital. Every year after your LLC is up and running, you have to file an annual report with the state. You also have to pay $50 along with your report. It is better to set this up as a reminder that you will be charged a $50 late fee if you fail to submit. And if you continuously fail to submit it, then your LLC can be dissolved. You can submit the report online. You can also submit it by mailing the paper application. For that, you have to download the form and send it to:
Secretary of State Office
500 E Capitol Ave
Pierre, SD 57501
Steps to take after the creation of the LLC
- For your company, create a business bank account. It’s essential to keep personal and company expenses apart. Suppose you want to ensure that all you have to do is to open a business bank account. One of the most important aspects of a company is financial management. It will be simple to manage if you have a bank account solely for your company. You will keep track of all your expenses. It also aids in the distinction between corporate and personal expenses. Suppose your LLC is in some financial trouble and it has to debt to some of the creditors. Since in LLC, the owners are not liable for the company’s debts, but what if mixed. The personal and business assets are mixed, then how will you prove what belongs to the company.
- For your LLC, you must obtain a credit card. For the same reason as mentioned above: to separate your business expenses from your personal ones. You can keep a record of your work expenses with a company credit card, and you can even apply for a loan for your business. Also, business credit cards come with special offers. You can get a great deal on business loans.
- You must build a website as well as business cards and other promotional items for marketing purposes. These will make it easier for customers and potential clients to contact you. It’s the ideal way for a customer to learn more about your products and services. In today’s world, online marketing is critical for business growth. Any company’s goal is to grow at some stage. As a result, build an appealing website that will entice customers. It will assist you in expanding your consumer base. They’ll learn about what you do, how to get in touch with you, and so on.
- Also, remember to employ an accountant who can assist you with tax matters and ensure that you do not overpay the taxes. When it comes to money, you should be responsible. An accountant will take the loads of keeping track of the finance and taxes off your back. You can focus on growing your business.
- There’s nothing to be concerned about. Because you are operating a company, you will receive notices, lawsuits, and other forms of correspondence. As a result, it is preferable to hire a lawyer who will counsel you on all legal issues and assist you in making the best decision possible. You can quickly contact your attorney if you are in some legal situations.
- You should also apply for insurances. It is a vital step, just like any other step mentioned in the article. Insurance comes with an assurance that your business is protected. Knowing that the company is insured, you can work stress-free. Also, there are various insurances available with different benefits. So, before deciding upon, get the complete information. Choose the insurance which is best for you. But do take one.
This marks the end of the article. Our journey ends but yours is about to begin. You are going on a path of success. And we hope that we have somehow helped you in achieving your dreams. It is time to take significant steps and eventually grow your business—all the best in all your ventures. We hope you reach greater heights.