Protect Yourself from Your Business’s Mistakes

For most Americans, running a small business or side hustle is commonplace. Rental properties, selling on Etsy, landscaping, and photography are a few common businesses people will manage on the side to make extra money. Although all these categories of additional income may not require a “business entity” to be ran, there are benefits to organizing an LLC within your state. Today we’re going to learn about this wonderful business entity. Enjoy!

What is an LLC?

An LLC is a Limited Liability Company. This is a business entity registered within a specific state. The purpose of an LLC is to protect the personal assets of the LLC members. Imagine your name is John Smith and you run a baking company in your community. If your baking company were to be sued, only the assets of the baking company may be affected, not your personal John Smith assets.

Protecting yourself and your personal assets is extremely important especially if you deal with highly litigious businesses like rental properties. If you own 20 rental properties without putting them in an LLC, all 20 may be affected if just one property were to be subject to a lawsuit. However, if the property in question were in an LLC, only the assets within that LLC may be affected. LLCs were created to protect individual people from suffering the mistakes of an entire business.

What are the Benefits of an LLC?

Registering an LLC has a handful of benefits. They are as follows:

• Protecting personal assets from business debts or lawsuits

• Simple entity to set up

• Taxation Options that may be beneficial

  • I won’t speak on the taxation benefits since I’m not a CPA, but know there are some taxation benefits of running an LLC.

• Greater business credibility

• Exclusive right to use your business name within your state

What are the Disadvantages of an LLC?

• Cost money to upkeep LLC status

• May not contain as many tax advantages as you have seen on social media

• Not ideal for companies who wish to go public one day

• Operating Agreements are necessary but often forgotten about creating future business problems

How do I Form an LLC?

Forming an LLC is a simple process. You can do it yourself although you may want to hire an attorney or business formation company to do it for you to ensure it is done right.

1. Determine a Business Name

Every state has specific requirements for your LLC name. You’ll need to make sure your business name isn’t being used by another company within your state. Having “LLC” at the end of your name is likely needed as well. Most states have a “business name look up tool” to check beforehand. In South Carolina here is the tool: Business Name Search - Business Entities Online - S.C. Secretary of State (sc.gov)

2. Choosing a Registered Agent

A registered agent is an individual who is responsible for receiving and handling important legal, business, and notice documents related to the operations. Registered agents are usually the business owner in a single member LLC. If you choose to be your business’s registered agent, just know that your name and address will be public information.

3. Preparing, Completing, and Filing Articles of Organization

A copy of your state’s articles of organization will need to be filled out and sent to the secretary of state’s office. Check your state’s requirements because step 3 will differ from state to state. Usually, you’ll need your business name, registered agent, purpose of business, contact info, and address of the business on these articles.

4. Create an Operating Agreement

An operating agreement describes how the business will be run, how profits are to be distributed, how members pay for business expenses, and so on. Operating agreements are commonly forgotten documents for many small businesses. It’s important to have an operating agreement because if business relationships sour, the operating agreement will determine how the business will continue to run even if someone refuses to hold up their end of the bargain. Some banks and other accounts may require a copy of your operating agreement prior to doing business together.

5. Have an LLC Filing Business Handle Your Paperwork

This step is optional but anytime I formed my own LLC’s I used IncFile (now called bizee) to do so. There is an additional cost for them to handle the paperwork, but they often have discounts and other free services if you use them. Here is their website if you’re interested: Register Your LLC, S-Corp, C-Corp, or Nonprofit | Bizee

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