How an LLC can help shield your personal assets

Creating an LLC (Limited Liability Company) for your business is a crucial step to protect your personal assets and mitigate financial risks. This is important because if your business gets sued, you’ll want to make sure your personal home and bank accounts are protected. Without this protection, the assets you have acquired for your future and family could be exposed to creditors or predators.

Whether you're transitioning from a creative side hustle to a tech startup or starting a new venture, the process of establishing an LLC involves several important steps. Here's a comprehensive guide to help you navigate the process and ensure the legal foundation of your business.

Step 1: Check Business Name Availability

Choosing a unique and recognizable business name is not only important from a marketing standpoint but also legally. You want to avoid confusion with other businesses, and most states prohibit multiple businesses from having the same name. To ensure your desired name is available, start by searching your state's records. Check your state's Department of Financial Institutions or Secretary's Office, as each state has different record-keeping practices. Additionally, perform a national name search to ensure your name doesn't conflict with any trademarked names in other states.

Step 2: File Articles of Organization

The Articles of Organization, also known as the Certificate of Organization, formally establish your LLC. These documents contain basic information about your company, such as the names of the owners or members, the company's name and address, and the date of formation. When filing the Articles of Organization, you'll also need to designate a Registered Agent. A Registered Agent is the official point of contact who receives mail and legal notices on behalf of your business. You can choose yourself or someone else to fulfill this role, and you can change the Registered Agent or business contact information later if needed.

Step 3: Create an Operating Agreement

One of the most critical yet often overlooked steps in forming an LLC is creating an Operating Agreement. This document outlines how your LLC will be governed and managed. It addresses important aspects such as decision-making processes, ownership shares, voting rights, and procedures for selling or transferring shares. An Operating Agreement is essential for ensuring clarity and avoiding conflicts among members. Additionally, it establishes guidelines for the dissolution of the company and addresses issues such as inheritance of ownership shares in the event of a member's death. Its easy to find a boilerplate Operating Agreement online, but if will likely not have the protection you will be looking for to best protect you and your family members (especially if you have multiple members in your LLC). Hiring an attorney to customize and tailor you Operating Agreement protects your business and its members from potential financial setbacks and legal disputes.

Step 4: Register for an EIN

Obtaining an Employer Identification Number (EIN) is crucial for your LLC. An EIN is a unique identifier similar to a Social Security Number for your business. It is necessary for various functions, including opening a business bank account, filing taxes, and hiring employees. You can easily register for an EIN with the Internal Revenue Service (IRS) online, and the process is quick and free. Once you have your EIN, ensure you keep it secure and confidential.

Step 5: Obtain Required Licenses

Depending on the type of business and your location, you may need to obtain additional licenses or certifications beyond the Articles of Organization. These requirements vary by state and industry. For example, you may need certification of your office's capacity limit, proof of a commercial kitchen rental, health code inspections, or professional licenses. It is crucial to research and comply with all relevant licensing requirements to avoid fines, penalties, or disruptions to your business operations.

Step 6: Establish a Trusted Advisory Team

Building a team of trusted advisors is essential for the success of your LLC. While it may be tempting to use DIY online services, consulting with experienced professionals is highly recommended. An attorney who specializes in business law can guide you through the formation process, ensuring compliance with your state's specific rules and regulations. Additionally, consider working with insurance and tax professionals to address the legal, insurance, financial, and taxation needs of your business. Their expertise will help protect your company, optimize tax strategies, and ensure proper insurance coverage.

By following these steps and working with qualified professionals, you can establish an LLC that provides the necessary legal protection for your business and personal assets. Remember that laws and regulations vary by state, so it is crucial to consult with professionals who are knowledgeable about your specific jurisdiction. With the right foundation in place, you can focus on growing your business and achieving long-term success.

About the Author

Leslie has been practicing law since 2009 and is the host of the estate planning podcast 'Legacy Purse'. She has a long history of representing family members struggling to inherit property and/or wealth from deceased family members through the Probate Courts. Knowing how time-consuming and expensive the probate process is, Leslie takes great pride in helping her clients learn how to plan and protect their families during their lives so they can avoid the probate court process and save their loved ones that additional grief (and expense).