When you have a great business idea, it is hard to resist the urge to jump right in and start doing business. Be prepared to follow these nine steps to ensure you meet the federal and state small business requirements for all start-up LLCs.
And before you sign a lease or accept payment from a customer, use these tips as a guide to set your business up for success and protect your personal assets from a business liability, as well as ensure your business legal documents work in harmony with your overall estate plan.
1. Decide on a business name, search availability, and ensure the business name doesn't violate another business' trademark. In most states, "LLC," "Limited Liability Co.," or a similar variation must be included in the LLC's business name. Check on the Secretary of State’s website for the availability of your business’s name in your state.
And you can do a simple search on the U.S. Patent and Trademark Office (USPTO) website, as well as a search for similar businesses using internet search engines such as Google or Yahoo! You may have already picked a business name, but because of the potential waste of time and money related to marketing a name that you ultimately can't use, you should take these few precautionary steps before plunging in.
2. File Articles of Organization with the Secretary of State and create an operating agreement. The legal document forming your LLC is called the Articles of Organization, which in most states can be submitted online at the Secretary of State's website with a small fee. Then create an operating agreement to provide legal structure to how your business will operate (even if you have a single-member LLC).
One of the primary reasons for organizing your business as a limited liability company is to gain the limited liability status that comes with this business structure. Having an operating agreement in place can protect this status when and if your business is in a lawsuit and a court looks at what assets are available to satisfy an obligation of your business. If you run your business properly, your personal assets are protected from business liabilities.
3. Obtain a federal identification number for the LLC. An employer identification number (EIN) is typically required of all businesses. An EIN is used by the IRS to identify a business entity for purposes of tracking the business and determining what taxes it and the parties related to the business (employees, suppliers, and so on) owe the government. You can now apply for an EIN online and obtain the number immediately. You will need basic information such as your address and social security number to finish the online process.
4. Obtain business licenses.
Federal. In addition to the requirement of obtaining an EIN, businesses in certain industries are required to apply for federal licenses and permits to do business. While a majority of businesses don't have to register with the federal government (but do with state agencies), if your business falls into the following categories, you should consult with the governing federal agency to determine whether you need a license or permit: agriculture; manufacturers, wholesalers, importers and retailers of alcohol beverages; aviation; environmental (buying or selling land that is contaminated); firearms, ammunition and explosives; fish and wildlife; investment advising, mining and drilling; radio and television broadcasting; interstate ground transportation; and maritime transportation.
State. Contact your state’s department of revenue or tax to obtain a sales tax license for your LLC and set up an online account to pay sales and use tax. State permitting and licensing may be required as well. In Colorado, contact the Colorado Department of Regulatory Agencies. In other states, normally the Secretary of State can provide guidance as to what state departments or agencies issue licenses and permits.
Local. Check your local or county-level government for any additional licensing requirements. If you are in the City and County of Denver, determine your general business activity type at Denver's Excise and Licensing Department to determine whether you need a special business license. All counties have a similar agency, and be sure to check with that department for each county in which you do business. Also check and register with Denver's Treasury Division or the comparable agency in your county. Finally, determine zoning requirements prior to signing any lease or contract.
5. Protect your intellectual property. If your business has any intellectual property, whether patents, copyrights, or trademarks, protect it by registering it with the USPTO. Before registering, you will need to show the USPTO that you have used the applied-for mark "in commerce," although you can register your business name with the USPTO even before you start using the name in business with an "Intent to Use" application.
After registering, vigilantly protect your intellectual property by using "TM" or the appropriate indication on your advertising and products. The USPTO isn't an enforcement agency so it’s imperative to keep an eye on competitors to ensure no one else is trying to steal your intellectual property.
6. Be prepared to comply with federal and state law governing employees if you intend to hire. A business that employs others must pay additional taxes; withhold, match and submit employee withholdings; obtain worker's compensation insurance; and adhere to employee eligibility regulations. Familiarize yourself with requirements of an employer before hiring any employees.
7. Ensure your business legal documents work in harmony with your overall estate plan. Your business is an asset, and yet it is often overlooked when it comes to estate planning. But if you don’t address what happens to your business when you pass away, your family will have to go to the probate court to get access to your business and what the business owns, which is a headache at best and a nightmare at worst. Ensure your business legal documents, including your operating agreement, include key provisions to work in harmony with your estate plan.
8. Obtain financing. Financing the initial expenditures is one of the most important steps in starting a business venture. Bring your business plan to your local bank or credit union to secure funding. Most financial institutions will not consider a deal without it.
9. Operate like a business. Use your business name on everything, from advertising to client agreements to vendor contracts. If you use a DBA, include both the legal name and DBA on all legal documents such as agreements and real estate deeds. When you sign on behalf of your LLC, always sign "By: [your signature]" and handwrite your title next to your signature. Keep your corporate records up to date, and open an LLC bank account into which all checks and credit card payments are deposited and out of which all business bills are paid.
To maintain the limited liability shield, the driving factor is making sure that those you do business with know that they are doing business with an LLC, not with you personally.