How to Safely Form Your Own LLC


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There are hundreds of companies who will help you form your LLC for little money. Plus, the paperwork is readily available on Secretary of State websites and on the Internet. But is it safe to do it yourself?

There is no clear “always do this” answer. It really depends on the situation.

For example, how much experience have you had in setting up your own businesses? If you’ve had multiple businesses over the years, you’re probably fairly familiar with the LLC process. You know that you need to get your Articles filed properly, and the importance of having an Operating Agreement. Plus you understand whether or not you take the risk of acting as your own resident agent, or paying a 3rd party company to take that role, and preserve a little privacy for yourself.

On the other hand, if you’ve never set up an LLC before, the process can be a pitfall to the unwary. For example here are some questions you may run into, that don’t always have easy answers:

  1. Are you creating a manager-managed or a member-managed LLC? If you’ve got a manager-managed LLC, you’ve got flexibility to have some members participate in the daily business, while others stay passive. On the other hand, a member-managed LLC means that everyone can participate in everything, including signing checks and entering into contracts. Which is best? That will depend on your needs and what you anticipate doing with your LLC.
  2. What state are you forming your LLC in? Do you need to form it in additional states? There’s not always a benefit to forming an LLC in Nevada, Delaware or Wyoming. You may be able to receive some benefits, but it all depends on what your business is going to do. In many cases you’re better off forming your business in your home state. How do you tell the difference?
  3. What tax classification do you need, and how do you get that filed with the IRS? LLCs are so flexible they can be taxed however they want – from a one-owner LLC that reports on Schedule C or E on your personal return, to a partnership, or even one of the Corporation choices. As a rule of thumb, if the business generates earned income, you’ll want a corporate designation. If it’s generating passive income, you’ll want a passive designation. This is something you want to get right, or you’ll wind up paying more in tax than you need to.
  4. Will the Members be personally responsible for the debts of the LLC? As an owner of an LLC, you are not typically responsible for the LLC’s debts, unless you specifically choose to do so. Yet many states offer you a choice when filing documents. This is a “gotcha” that we’ve seen some states use. Get this one wrong, and you’ve blown your asset protection before you even begin!
  5. What name are you going to use for your LLC? Can you be sure that it won’t impact your ability to gain business credit? It’s hard out there for business owners and consumers alike to get credit. Using certain words can actually diminish your chances of receiving business credit. For example, anything real estate-related can be a trigger to an automatic denial of a credit application.

These are all questions that we address in our product, 2011 Operation Guide for LLCs. Not only that, we also provide you with accurate and complete documentation that you can use in a variety of tax and business situations. This “how to” guide contains thousands of hours worth of work and years of experience, distilled into an easy-to-read and understand format. And, best of all, the 2011 Operation Guide for LLCs is part of our limited-sale package this week! You’ll get two other practical, hands-on products, the 2011 Operation Guide for Your Corporation, and the 60 Minute Handbook. Each of these products comes with an explanatory eBook, and dozens of forms for you to customize and tailor to your exact needs.

A business structure is an essential part of your asset protection and wealth-building strategy. Getting it right the first time can save you thousands in potential legal fees, taxes and other issues.



2 Comments

  1. Megan Hughes says:

    Hi Barbara,

    Thanks for your comment. I’m not sure if using a South Dakota company gains you anything except a 3rd state to maintain the entity in. If you are working in CA and AZ, then you’ll need to have the entity registered to do business in both of those states. If it’s not costing you a lot in SD, then you can leave the PC there, but if the renewal fees are high, you can also look at moving the PC to either CA or AZ, and cutting SD out of the loop entirely.

    Also, you’ll want to make sure you track your income and expenses in each state separately, too – because you’ll be reporting income/expenses in both states and will want to properly apportion your income between the two. The goal is to pay CA tax on CA income, and AZ tax on AZ income — rather than paying double state taxes!

    We have a program that can help with that – if you’re interested, drop Richard@USTaxAid.com an email and ask about our monthly accounting/bookkeeping assistance programs.

  2. Barbara Fong Gress says:

    Hi!

    I am in the medical profession and I just started to do “locum” work. A friend suggested that I form a South Dakota Corp (PC type). So I contacted a registered agent in South Dakota in November and started doing my locum work. My first location was in Ca and now my second site is AZ. As far as I can tell I think the necessary paperwork was filed. I have not yet deposited any income but I want to open a checking account in the PC name. I have 2 credit cards that I have used for my corporation but just under my name. I plan to change the credit cards to the new corporation asap. I am hoping to be a south dakota corp doing business in CA and AZ. I am the only member. I am keeping tract of every expendature and reimbursement. Help.

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