There are clear benefits of setting up a LLC in advance of a launch
If you’re an entrepreneur preparing to launch a new brand, you may be wondering: what are the advantages of an LLC? And is this the right move for your business?
The fact is, there are a number of distinct advantages to creating a Limited Liability Company (LLC) and beginning the process well in advance of your official launch. Some good news is that in most states you don’t have to wait until the new year to actually file your paperwork to create your entity.
Here we’ll explain how filing works, outline some of the key benefits of an LLC, and provide reasons to start early!
Filing for your Limited Liability Company (LLC)
When you file to set up an LLC, the approval process normally begins right after you submit the paperwork. However, the effective date of incorporation, or the official start date of your business, can be difficult to predict. Often, this depends on state processing times, which can take anywhere from a few days to several weeks.
However, with a delayed effective filing, you gain control over the date when your LLC formally comes into existence, and you can file the paperwork weeks, or even months, before that official start date and not have to wait until the new year.
Here’s how it works- to register your new company with the state, you must:
- Choose a business name and registered agent to be the official LLC’s correspondent (this can be someone within the business).
- File your articles of organization with the state in which you plan to do business.
- Get an employer identification number (EIN).
- Draw up an operating agreement that essentially defines management structure, control, ownership, etc.
When you file the documents above, you’ll typically be able to choose whether the state should approve your entity when they receive the document or at a future date specified by you.
To have your Limited Liability Company start in the new year, you simply designate your company’s effective start date as January 1, 2023 (or any other date during that year) within your articles of organization. When the state receives the filing, it will be processed in the order it was received. This secures the exact date you want your company to start officially and minimizes the chance of a bureaucratic delay if you wait until the new year to file.
While filing these documents is relatively simple, mistakes or omissions can result in a delay in the documents getting processed and even additional fees. Moreover, a small handful of states do not allow businesses to use future effective start dates, so if you live in one of those states, this process won’t be available to you.
It’s generally wise to consult a business lawyer to both ensure that your documents are filed correctly and to help you instate legal safety measures for your business (e.g. legal agreements).
The Meaning of Limited Liability
What exactly are the advantages of limited liability? It essentially means that your personal assets are protected from being impacted by your business. If your business runs into loss or other financial/legal repercussions, your personal assets as the owner will not be in jeopardy from creditors.
While this may seem like a worst-case-scenario that you don’t expect your business to experience (after all, no one starts a business believing it will fail or run into financial trouble), it’s crucial to keep yourself safe. Unforeseen hardships are much worse when they cascade into every part of your life.
LLCs are Simpler & Safer than Other Start Up Methods
With the exception of a sole proprietorship, forming a Limited Liability Company is the simplest and most straightforward way to launch a new business. And while forming your brand as a sole proprietor may be an option (if you’re the only member/owner/employee of your business), it doesn’t have the liability protection that an LLC provides. By contrast, a sole proprietor’s assets within AND without their business could be vulnerable to liability and creditors.
The formation of an LLC requires relatively minimal paperwork, minor fees, and can be completed swiftly, making it a good option for most young businesses.
Pass-through Federal Taxation on Profits
Most LLCs are pass-through entities, which means that the profits go directly to the LLC’s members. Limited Liability Companies are not taxed as a company, rather you as the owner will pay taxes on the profits you receive as income.
Not only does this make the tax process simpler, but it also allows you to use business losses as a write off on your personal Federal income taxes.
LLC Maintenance to be Aware of
Once formed, LLCs have to adhere to a number of administrative formalities in order to remain in compliance with state law and maintain the personal liability protection offered by its structure. If you fail to adhere to the formalities, a court could remove the protective barrier shielding your personal assets, known as “piercing the veil,” leaving you personally liable to creditors in the event of a judgment.
Although the formalities required vary depending on the state, some of the most common requirements include filing an annual report and paying filing fees. In most states, annual reports typically are not due until the year following business formation.
Planning well in advance for these filings and consulting a business attorney can help mitigate extra fees, mistakes, and the risk of being late.
Don’t Go it Alone with Your Business Paperwork
Filing your initial paperwork and getting your Limited Liability Company launched at the most advantageous time is an important first step for your new business, but it’s just the start. There are a number of additional steps involved with getting your LLC set up and maintaining it properly- and these tasks are better left to a specialist. From creating an effective operating agreement, to holding regular member meetings, to keeping detailed meeting minutes, there are numerous other responsibilities that come with running a successful LLC.
The good news is that Artisan Law specializes in assisting business owners with all of these tasks. We provide guidance to ensure your LLC meets all of its initial and ongoing legal requirements, so you have the maximum liability protection for your personal assets, and your business is able to reach its true potential.
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