When Should You Get an LLC?

Written by Wesley Henderson

December 9, 2023

young female entrepreneur at computer

One common concern new entrepreneurs have is when to get an LLC. The answer to this question is clear: immediately. An LLC (limited liability company) provides many advantages, so it’s highly recommended for businesses of all sizes.

Let’s explore why getting an LLC should be one of the first steps in your entrepreneurial journey.

Why Should You Get an LLC?

An LLC offers numerous benefits for entrepreneurs, particularly for small business owners. An LLC separates personal assets from business liabilities, protecting owners from legal actions or debts incurred by the company. It’s also easy to form and manage compared to other business structures.

Since an LLC is not a separate tax entity, profits or losses can be passed through to the owners’ personal tax returns, resulting in significant tax savings. It also adds credibility and professionalism to your business, making it more attractive to potential clients, partners, and investors.

How To Establish an LLC

Since forming an LLC should be an immediate step for entrepreneurs, it’s crucial to understand the process and requirements. Here are the general steps to follow when forming an LLC.

Choose Your Business Name

The first step is selecting a unique and memorable business name that reflects your brand’s identity and reputation. Research and ensure that your chosen business name is not already trademarked. This early diligence can save you from potential legal disputes.

Form an LLC

LLC processes and requirements vary by state, but here’s a general overview:

  • File Articles of Organization: This legal document outlines fundamental information about your business, including its name, address, and members’ names.
  • Draft an Operating Agreement: While not mandatory in all states, it’s best to have an operating agreement to set out the LLC’s ownership, management, and operational guidelines.
  • Obtain Permits and Licenses: Businesses may need various permits or licenses at the state, federal, or local level, depending on their type and location.
  • Apply for an EIN: An employer identification number (EIN) is required for tax purposes and is obtained through the IRS.

Secure Contracts and Agreements

An LLC streamlines the contractual process, minimizes confusion and potential disputes, and contributes to positive relationships with clients and collaborators. Contracts and agreements can also help protect your business interests as they lay out the terms and conditions of your transactions with other parties. Whether a client contract or a vendor agreement, having an LLC adds an extra layer of legal protection for your business.

Ensure Compliance With Licensing

Running a business involves various legal obligations, such as obtaining licenses and permits. As an LLC owner, you must ensure your business complies with all applicable state, federal, and local regulations. Failure to do so can result in penalties and potential legal consequences.

Conclusion

An LLC is an essential and immediate step for any entrepreneur starting a new business venture. Now that you know when to get an LLC and how to establish one, you can confidently take the necessary steps to protect your business and thrive on your entrepreneurial journey.

Drafted Legal helps entrepreneurs establish their LLCs quickly and efficiently. From legal templates to expert advice, we’re here to support you every step of the way. Contact us today to get started!

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