Congratulations! You have submitted the articles of association, appointed a registered agent, paid the required fees, and you are the proud owner of your own limited liability company!
Now is the time to make sure you maintain it.
You may have chosen the business structure of a limited liability company to obtain tax and liability benefits, but if it is too weak to withstand scrutiny, your limited liability company will not be able to help you. In this article, we will introduce some methods to ensure that your LLC remains strong enough to provide the protection it deserves.
Why maintaining your limited liability company is so important
As a business structure, limited liability companies are particularly attractive to small companies because of the legal protection they grant companies and the tax benefits of sole proprietorships or partnerships.
Not sure what exactly this means? Let’s take a closer look.
If you are a sole proprietor or partnership, there is no legal separation between your business and personal assets. This means that if you are sued by a client or unable to repay creditors, your personal assets (your savings, retirement accounts, and even your home) may be confiscated to pay off debts. A limited liability company protects your personal assets by limiting business-related liabilities to your corporate assets-hence the name “Limited Liability.”
On the other hand, if your company is a company, both your business and the money you pay yourself are taxed-basically, your profits are taxed twice. However, unlike companies, limited liability companies do not levy taxes. Instead, the money is “passed on” to the owner’s personal tax return (the so-called “pass-through tax”), and the owner pays personal income tax on any profits.
The nuances of taxation and liability vary, so it is worth consulting a tax advisor and/or lawyer about your specific situation. However, the important thing to understand is that LLC is a different legal entity from its owner. Owning a limited liability company is a good start, but maintaining it is equally important. For example, in the event of bankruptcy, tax audits, or litigation, you need to be able to prove to the court or IRS that you treat the company as a formal business and not as a personal bribery fund.
If you cannot prove that your LLC is a real business, you may lose the benefits it should provide. If your limited liability company is dissolved, you will also lose these benefits, which may happen if you fail to submit an annual report and pay related expenses.
Fortunately, maintaining a limited liability company is not difficult. Here are some quick tips to ensure that your LLC maintains a good reputation.
Quick tips for starting to maintain your limited liability company today
Registering your business as a limited liability company is a crucial first step in establishing your business-but it is not the only step. The following steps are not always required by law, so they are sometimes ignored. However, they are essential to maintaining the good reputation of your LLC.
Even if your LLC is already established, please perform these operations as soon as possible, preferably before you start working with clients or clients. Each of them contributes to the strength of your LLC and will help it meet any challenges. Bonus: They are good business practices that you should do anyway.
Set up a separate bank account
Especially if you are a solo show (aka, a single member limited liability company) with a simple business model (such as freelance or consulting), it may be tempting to continue using your personal bank account for corporate purposes.
However, while mixing your personal finances with your LLC is not technically illegal, it is not a good idea.
After all, the whole point of a limited liability company is to separate your personal assets from your business. If you mix personal funds with corporate funds, the court may rule that your limited liability company is not a separate legal entity after all. This puts you at risk of losing the liability protection provided by the limited liability company, which in turn puts your personal assets at risk.
A separate bank account also simplifies record keeping and tax compliance. If you have ever been audited, a separate and well-maintained corporate account will save you a lot of time and save you a lot of time when dealing with IRS.
Fortunately, opening a business account is easy.Most banks and credit unions will let you open a company as soon as you have a company name and EIN (you can get EIN from IRS Apply one online now). Once set up, it’s up to it to treat your business bank account as your job-because it does.
Here are some tips for good business account maintenance:
- Reimburse business expenses and keep receipts
- Record your transactions and be able to record the reasons for business purchases
- Don’t use your business account to pay personal bills
- Do not withdraw cash for personal use
- Obtain a business credit card and use it only for business expenses
Create LLC Operating Agreement
Some (but not all) states require a limited liability company to sign an operating agreement, but whether it is needed or not, this is a wise move, especially when you do business with one or more people.
The operating agreement stipulates the responsibilities of each member, the assets that each person contributes to the company, the structure of ownership, the method of raising and distributing funds, the process for you to add and remove members, and under what circumstances and how your company will be dissolved.
It has three basic functions:
- It clarifies and formalizes the verbal agreement between you and your partner to avoid misunderstandings in the future;
- It allows you to set your own rules. Without it, your limited liability company will default to the rules governing limited liability companies in your state, which are usually vague and may not be suitable for your company;
- It protects your company’s limited liability status by emphasizing that your business operates as a limited liability company rather than a sole proprietorship or partnership.
Your business agreement is a legally binding document, so it is a good investment to ask a lawyer for help during the drafting process.
Queuing permits and permits
The exact requirements for licenses and permits required for your business vary depending on your region and industry, but it is your responsibility to understand what you need, ensure that you have them, and keep them up to date.
If you don’t have the correct and valid license or permit, you risk losing LLC status, and you will face fines and even legal charges-so don’t start working until you have everything you need!
Get your DBA
If you have established a limited liability company but want to conduct business under another name, you need to submit a “business name” (DBA), sometimes called a “fictitious name”.
For example, the owner of Agnes Johnson Media LLC may prefer to conduct business as a “happy wedding photography”. However, if she does business under this name without a registered DBA, she may invalidate her LLC.
Fortunately, the process of registering a DBA is usually simple and cheap. The exact requirements vary, but in most cases, you can find out what steps you need to take from the state agency where you registered the LLC. Don’t forget that you must update your DBA regularly (usually annually).
DBA also allows you to run multiple businesses without having to apply for a brand new LLC. For example, assuming she has the correct license and permit, Agnes Johnson can create a “Happy Wedding Cake” and “Happy Flower Arrangement” company by registering more DBAs.
Maintain the long-term strategy of your limited liability company
Looking to the future, you need to perform some regular maintenance to maintain the good reputation of your limited liability company. These ongoing tasks help keep your LLC in good standing and ensure that it is neither disbanded due to carelessness nor weakened to the point of uselessness.
Submit your annual report
If you have just created a limited liability company, you do not need to submit an annual report for at least a year-but now is the time to make sure it is on the calendar.
Most states require limited liability companies to submit an annual report, sometimes called a statement of information (SOI). A few states only require an SOI to be submitted every two years. If you are registered in Pennsylvania, you may only need to submit it every 10 years.
Regardless of whether it is annually or not, your report will be submitted to your Secretary of State. It can usually be done online, but the cost and exact requirements for submission vary from state to state. Some states will send reminders before your report is due, but in the end, you are responsible for ensuring that it is submitted. If you miss the deadline, you may have to pay late fees.
If you miss too much, your limited liability company may be dissolved automatically.
If you hire a company to form your LLC, please confirm whether they will submit a report for you (and ask how much they will charge), or whether you need to do it yourself. Either way, now, when you think about it, find out when your next report is due and put the date on your calendar to ensure it is submitted on time.
This sounds very formal and intimidating, but your annual report is not like a letter to shareholders detailing everything your business has done in the past year. This is really just an opportunity to confirm or update the following:
- Your main business address
- The names and addresses of your members and managers
- An important identification number for your business, such as your state entity number
- Your business purpose
- List of authorized signatories
- Your registered agent information
So don’t worry-just make sure it is done!
Maintain detailed records-and keep them where you can find them
Again, keeping meeting minutes and other company records is not a legal requirement, but it is a good way to protect yourself.
Remember, in the event of litigation, bankruptcy, or any other situation where your company’s assets may be at risk, it’s important to be able to prove that your LLC is a different entity from you personally—that is, it’s a real business, not just It is a tax loophole. Keeping records on a regular basis can show that you treat your company like a company, thereby strengthening your personal liability protection in the event of a lawsuit.
Detailed and comprehensive financial records also make it easier to deal with taxes, which will be necessary if your business needs a loan.
You should keep copies of the following at your business premises and back them up in the cloud so that you can use them quickly and easily:
- LLC Articles of Association
- LLC Operating Agreement
- A list of all members of your LLC, along with their addresses, contributions and shares
- EIN Confirmation Letter
- Meeting minutes or other records required by the operating agreement
- All financial statements and tax records
- All business licenses and permits
Pay taxes
As mentioned above, for most limited liability companies, it is the owner, not the company itself, that pays taxes.
In other words, there are many variables, depending on whether you are a single member or a multi-member limited liability company, how your operating agreement was established, whether you are responsible for payroll taxes, if you sell taxable goods and services, and where you are located .
Paying taxes in full and on time will help maintain the good reputation of your limited liability company and save you from trouble with the IRS. It is worth consulting a qualified tax professional to ensure that you fulfill your obligations. This person can also help you take advantage of any tax deductions or credits that your LLC is eligible for.
Next step
Take the necessary measures to ensure that your LLC status is maintained, and you can concentrate on operating your business without worrying about losing your signed responsibilities and tax incentives.
Keep in mind that requirements vary by state and company. Whenever you have a question or need some guidance, it is wise to consult a qualified business lawyer.Crazy Egg has one Online legal service guide This can help you save money compared to traditional lawyers.
You can also find our guide Best Commercial Insurance with The best credit card for businesses it works.
Now go and build your business!
