Do You REALLY Need an LLC?

Are you a sole proprietor considering a switch over to become an LLC? You may have some questions you need answers first to like:

How do you create an LLC?

What are the Benefits of an LLC in comparison to a sole proprietorship?

What do you need to maintain your LLC status?

Before we can help you answer these questions, we should explain what an LLC is and how it works as a business entity.

What Is an LLC?

An LLC is a Limited Liability Company, a business structure that provides a business with limited liability protection. Meaning, that it makes your business its standalone legal entity, so you, as the business owner, have protection if someone wants to sue your company. It also protects you from any personal liability for the actions of your co-owners and employees. An LLC provides a business with pass-through taxation for income tax purposes. This means the owner’s tax return will file the profits and losses of the company.

Who Needs an LLC?

Some people think of LLCs as only small businesses, but that’s not true. Without an LLC, if you have co-owners and employees, you can get sued, and your assets would be at risk. Having an LLC would help avoid conflict between you and your business partners. Also, if your business has significant financial and liability risks, an LLC is recommended. However, you will still be personally liable in a lawsuit for your negligence. An LLC does not protect an owner from losses due to fires, floods, or economic downturns. You’ll need business insurance for that.

What Will You Need?

First, you’ll need to choose your business name, which you can search to make sure no one else has it. Most states require that it ends with an LLC designator like First Union Lending LLC.

If you’re converting from a DBA or a sole proprietorship, you must change every account in your DBA’s name to contain the LLC. This includes your bank account, mailing address, and every account registered with any government agency. Everything with your old business entity as its name will need to be changed.

Next, you’ll need to appoint a registered agent. A registered agent is typically one of the owners of the LLC, but you can nominate a registered commercial agent for a fee. This person representing the LLC is designated to receive any legal papers if someone sues the company.

You’ll also need to file articles of organization with your state’s corporate filing office. The document’s name might vary from state to state, but this is the primary document that establishes your limited liability company. The filing fee also varies from $40 to $500 today.

Next, you’ll want to create an operating agreement. Even though most states don’t require it, it is a good idea as it establishes how your LLC will be run and managed. Without it, state law governs how your LLC operates.

The following step is acquiring your EIN, an Employer Identification Number, from the IRS. This number is required to open your business bank account and hire employees. The number identifies your business for tax reporting purposes, so it’s essentially a Social Security Number for your business.

You should open a bank account for your business to make sure your assets and your business stay separate. You should always keep your personal and business funds separate to protect you from losing your liability protection. Never withdraw cash from your business account and use it for personal reasons. Instead, you should transfer the money to your account and keep track of transfers.

What Does It Cost to Maintain an LLC?

There may be mandatory annual and biennial fees to keep your business running, depending on your state. You may also need to file an annual report and pay the cost. If you miss the payment deadline, your LLC may dissolve automatically. Depending on your business type and structure, there are licenses and permits to acquire. For example, if you want to sell alcoholic beverages, you must apply for a permit and pay the fee, which can be steep, depending on your state.

Should You Convert Your Business?

An LLC will be a wise choice if you have employees and one or more partners to deal with. If you think your company is at risk of being sued, protect yourself with this business structure. However, not every sole proprietorship can become an LLC, such as lawyers and insurance companies.

Remember, the fees and requirements of converting a business vary from state to state. It’s best to consult a business lawyer if you have any questions or concerns about forming or converting a business entity.

First Union Lending Can Help!

Whether you’re a sole proprietor, an LLC, or a corporation, if you need business funding, we can help! At First Union Lending, we are invested in small businesses.

We work with businesses across the United States. Our job is to help companies thrive and ultimately grow. We offer short-term loans, SBA loans, and equipment financing, among other funding types. Even for those who do not have an ideal credit score, we might still have a solution for you. With resources ranging from $5,000 to $1 million, we have the funds on hand to help you now.

Call today, and let’s see if we can help you!