Everything You Wanted To Know About Becoming An LLC
You've probably heard the term “LLC” get kicked around in your networking circles.
LLC or “limited liability company” is a trending business buzzword for a great reason. It allows you to reap the benefits of incorporating without wading in too much legal muck.
There are myriad benefits to becoming an LLC, and we’ll get into them in detail a little bit later on. First, let’s talk about why some entrepreneurs procrastinate when it comes to taking the leap.
Many small-business owners flirt with the idea of becoming an LLC, and some even look into the preliminary steps, but the thought of legally incorporating can be daunting. Most of us tune out when legalese enters the conversation. It's tempting to put off looking into becoming an LLC because it seems boring, tedious and overwhelming. But it doesn’t have to be.
You can become an official LLC by checking off the following five steps:
• Choosing the state you’ll be operating in
• Naming your LLC
• Selecting a registered agent who acts a third party for your business
• Filing the official paperwork
• Establishing an official operating agreement
That’s it. Five simple steps will give you a tremendous boost in credibility and legal protection.
Still not convinced that you should take the plunge?
LLCs offer what is known as limited liability protection. Essentially, what this does is protect you from any liabilities that your business incurs. This means that your personal assets are not in danger of vaporizing if the business goes belly-up. We love being optimistic, but the hard truth is that many startups do not succeed. Being able to protect yourself through your LLC makes smart business sense.
Also, LLCs boost your credibility. Anyone can claim to be an entrepreneur these days, but if you’re an LLC, it shows that you take yourself seriously and have real skin in the game. You’re invested in yourself and your company, and that gives you a huge boost when it comes to asking for money, finding partners and making those first few critical sales. It’s a competitive world out there. Being an LLC will give your company a serious advantage.
But operating your business as an LLC does come with some new rules.
Primarily, you need to keep your business and personal finances separate. Set up an independent bank account for your company’s expenses and do not mix the two under any circumstances. I have seen many promising companies flounder and fail because their owners dipped into the company bank account to plump up their own finances.
Secondly, keep meticulous records. You’ll probably want to look into getting a bookkeeper or accountant to help you. Filing your taxes will be a nightmare if you fail to keep detailed records with receipts. The last thing that you want to do is raise red flags with the IRS, so make sure those records are transparent, detailed and as accurate as possible.
If you’re serious about your business, make it official. Becoming an LLC doesn’t need to be scary. There are plenty of resources available as well as entrepreneurs who have gone before you and reaped the rewards of redefining their company.