The Best Way to Set Up an LLC
It's important, when setting up an LLC, to take all the steps necessary to ensure asset protection and proper taxation.
Yes, you can get LLC forms off of legal websites, your own state's website or from a lawyer, but just filling out a couple of documents is not enough.
There's a lot more to setting up an LLC than finding some LLC guru's website and filing the articles of organization on the state site.
Also, the state site will not offer any specific advice on management or taxation choices.
While you are legally registered as an LLC once you've filed your articles of organization with the state, you shouldn't stop there.
There are certain things that you must take into account.
The first question to ask yourself is if you really trust your partners.
If you don't trust your partners, then set up a corporation and not an LLC.
In an LLC, the profits and losses don't have to be distributed evenly.
Your partner could get the profits and you could be stuck with the losses.
The most important step is creating an operating agreement.
The courts will usually honor your operating agreement, no matter how well or how badly, it is written.
So, make sure that it is written well.
Most of the trouble that people get into is because they have a poor operating agreement.
The second biggest problem is that people don't keep their money and the company's money legally separated.
That's the fastest way to lose your asset protection.
Be sure and don't co-mingle your funds.
The next step is to issue membership interest in your LLC.
It's smart to keep a detailed membership ledger when you issue membership interests.
It's also important to remember that membership interests aren't just given away.
They are traded for something of value i.
e.
, a percentage interest in the business.
So, decide what that something of value is before you issue memberships.
After the operating agreement and the issue of memberships comes taxation.
Be certain that you don't overestimate your tax liability when you file with the IRS.
Remember that the IRS is going to expect you to file tax returns once you establish your company, even if you haven't started the actual business or made any money.
There are serious penalties for not doing this, so don't get trapped.
It's important to discuss your tax situation with a CPA who knows his business.
Attorneys are fine for certain aspects of setting up an LLC, but you really should discuss financial matters with a CPA.
And the LLC should have its own bank account.
A little business can be your best tax saver if it is set up and run properly.
Check out these 10 Tax Tips for more information.
Remember that it takes time and a little research to set up an LLC properly.
When done properly it is not only a great business tool, but a great asset protection and tax savings tool.
Yes, you can get LLC forms off of legal websites, your own state's website or from a lawyer, but just filling out a couple of documents is not enough.
There's a lot more to setting up an LLC than finding some LLC guru's website and filing the articles of organization on the state site.
Also, the state site will not offer any specific advice on management or taxation choices.
While you are legally registered as an LLC once you've filed your articles of organization with the state, you shouldn't stop there.
There are certain things that you must take into account.
The first question to ask yourself is if you really trust your partners.
If you don't trust your partners, then set up a corporation and not an LLC.
In an LLC, the profits and losses don't have to be distributed evenly.
Your partner could get the profits and you could be stuck with the losses.
The most important step is creating an operating agreement.
The courts will usually honor your operating agreement, no matter how well or how badly, it is written.
So, make sure that it is written well.
Most of the trouble that people get into is because they have a poor operating agreement.
The second biggest problem is that people don't keep their money and the company's money legally separated.
That's the fastest way to lose your asset protection.
Be sure and don't co-mingle your funds.
The next step is to issue membership interest in your LLC.
It's smart to keep a detailed membership ledger when you issue membership interests.
It's also important to remember that membership interests aren't just given away.
They are traded for something of value i.
e.
, a percentage interest in the business.
So, decide what that something of value is before you issue memberships.
After the operating agreement and the issue of memberships comes taxation.
Be certain that you don't overestimate your tax liability when you file with the IRS.
Remember that the IRS is going to expect you to file tax returns once you establish your company, even if you haven't started the actual business or made any money.
There are serious penalties for not doing this, so don't get trapped.
It's important to discuss your tax situation with a CPA who knows his business.
Attorneys are fine for certain aspects of setting up an LLC, but you really should discuss financial matters with a CPA.
And the LLC should have its own bank account.
A little business can be your best tax saver if it is set up and run properly.
Check out these 10 Tax Tips for more information.
Remember that it takes time and a little research to set up an LLC properly.
When done properly it is not only a great business tool, but a great asset protection and tax savings tool.
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