After you’ve filed your articles of organization, your LLC will begin its legal life. But there are still other actions that you need to take to make your LLC fully operational.
Below is an outline of some of the steps that you need to take after your form your LLC. Some of them are legally required. Others aren’t mandatory, but they’re still a best practice.
Step 1: Draft and Sign an LLC Operating Agreement
First up, let’s discuss the need to draft and sign an LLC operating agreement.
What’s an operating agreement?
It’s a legal document that establishes how your LLC will be run and will include:
- How decisions will be made
- How money will be distributed
- How disputes will be resolved
Lots of detail here, so take your time as you draft it, and really think about what you’re putting into your operating agreement. Not sure where to state? Check out our LLC Operating Agreement template.
Who’s involved in this process?
All of the members of your LLC need to sign the agreement and agree to follow the rules that it contains.
If you’re the only member of your LLC, you’re the only one who needs to sign and follow it.
Is an operating agreement necessary?
An operating agreement isn’t mandatory, but it’s a great idea to have one, even if your LLC only has one member and you’ll be making all of the decisions.
- Having a written operating agreement lends credibility to your LLC.
- It shows that your LLC is a legitimate business entity that’s separate from you, not just some sham that’s been created to avoid liability.
- It’s really important for single member LLCs (SMLLCs) because, without the formality of an agreement, an SMLLC can appear like a sole proprietorship, which doesn’t provide limited liability.
- Lenders might ask to see an operating agreement before they’ll agree to give you a loan in your LLC’s name. If you’re planning on taking out loans to build your business, this simple document will definitely be helpful.
To learn more about operating agreements, read our article, Freelancer’s Guide to LLC Operating Agreements.
Step 2: Get a Federal Tax ID (EIN)
Next up is the Federal Tax ID (or Employer Identification Number / EIN).
You’ll obtain your EIN from the IRS. This nine-digit number will be used by the IRS to identify your LLC, so you’ll need to include it in all of your tax forms and communications with the IRS and your state tax agency.
If your LLC doesn’t have any employees, a separate EIN is, generally, not required by the IRS. Instead, you can use your personal Social Security number. But it’s still recommended that you get an EIN.
Why is an EIN important?
- It helps prove that your LLC is a legal entity that’s separate from you personally, just like an operating agreement.
- Using your EIN rather than your Social Security number can be a smart step in avoiding identity theft, which is frighteningly common today.
- Many banks will actually require an EIN when you’re ready to open up a business bank account in your LLC’s name.
How do you get an EIN?
Getting an EIN is free and easy. You can complete an online application at the IRS website.
For additional information, see our article, Freelancer’s Guide to EIN (Federal Tax ID).
Step 3: Get a Business License
Whether or not you’ll need to get a business license for your LLC will depend upon where your business is located. A few states require all businesses to get a state-wide business license. But, in most states, business licenses are handled by your city or county government.
Don’t fret, as obtaining a local business license is usually simple and straightforward. The specific details for your particular license will be available from your local government, so some research is required. Once you know what you need, you’ll have to fill out an application and pay a fee.
Just keep in mind that, in addition to a local business license, you might also need to get a professional or occupational license or permit from your state government, or even from the federal government. This will depend on the work that you do. For example, real estate brokers and salespeople must be licensed by the state.
Step 4: Learn your state LLC requirements
LLCs are formed at the state level and while every state has different rules, most states have an ongoing reporting requirement. Some states even require you pay an ongoing fee to maintain your LLC.
What you need to file, and when, will vary state to state so it’s important that you take some time to research your state’s requirements.
Generally, you can find information about these requirements on your state’s Secretary of State website or by conducting a simple Google search.
Step 5: Open a Business Bank Account
It’s highly recommended that you open a bank account in your LLC’s name, rather than use your personal bank account for business purposes.
Once again, it boils down to ensuring that your LLC is recognized as a separate, legal entity that’s a legitimate business.
Do I really need a business bank account?
If you use your personal bank account for business purposes, you put your limited liability protection at risk. You definitely don’t want that!
Setting up a business bank account might seem daunting at first, but you can read through our article, Freelancer’s Guide to Banking, to learn more.
Step 6 (Optional): File a Fictitious Name Statement
Did you know that you aren’t required to operate your LLC under the legal name that’s listed in your articles of organization? It’s true; you can use a different name.
This name is referred to as an assumed name, fictitious name, or dba, which stands for “doing business as.”
How do you operate under a different name?
To operate under a different name than your LLC’s legal name, you have to file a fictitious business name or “dba” application.
In some states, you can file the application with the Secretary of State or a similar official and it applies state-wide. In other states, fictitious business name applications are filed at the local level—in the county or city where you have a business location.
You may have to file more than one application if you do business in more than one county. To find out what you need to do, check your state Secretary of State’s website and the website of the county where your office is located.
Before you file your fictitious business name application, you should also check fictitious name records to be absolutely sure that the name you wish to use isn’t already taken by another business. In states with a state-wide dba application, you can check the registry maintained by the Secretary of State.
In states with local filing, you’ll have to check your county’s records. For additional information, check your county’s website for details.
Maintaining Your LLC Doesn’t Have to Be Complicated
Wow, those are a lot of rules! Just take things one step at a time so that you don’t become overwhelmed. Taking these steps will give you the peace of mind that your LLC will have everything it needs to operate legally and be recognized as the legitimate business that it is.
Stephen has dedicated his career as an attorney and author to writing useful, authoritative and recognized guides on taxes and business law for small businesses, entrepreneurs, independent contractors, and freelancers. He is the author of over 20 books and hundreds of articles and has been quoted in The New York Times, Wall Street Journal, Chicago Tribune, and many other publications. Among his books are Deduct It! Lower Your Small Business Taxes, Working with Independent Contractors, and Working for Yourself: Law and Taxes for Independent Contractors, Freelancers & Consultants.