I started working with a new editing client in 2022 as a freelance journalist. He didn’t bat an eye when I told him my rate to copy edit his legal blog. And, he eventually went on retainer with me. I wanted to be able to attract more clients like him: professional, willing to value creative services and easy to work with.
So I decided to up my game professionally. One night, while I was sitting in a graduate seminar with the university’s department chair, I got distracted. I have the type of brain where, when something comes into my mind, I have to do it right then and there. So I formed my limited liability company (LLC), Springer Creative Associates, while we discussed the previous week’s reading.
How to create an LLC for your business
An LLC is a business structure that combines the pass-through taxation of a sole proprietorship or partnership with the limited liability of a corporation. This means that, in the event of insolvency or litigation, your personal assets are protected from creditors since they’re recognized as separate entities.
The filing process
Before setting up your LLC, you should probably do some research to decide if that’s the most appropriate business entity for you. Once you’ve decided that an LLC is the way to go, you can file it using these steps:
1. Choose your state
You can file your LLC in whatever state you would like. But, most people file in their own state or the state in which they’ll likely be doing business.
2. Check the name availability
After you decide where to file, you need to come up with a business name and check to see if the name is available in your chosen state. You should choose a name that is memorable and suits your plans for growth. As a marketer, I strongly recommend you choose a name that will be easy to optimize for search engines. I have worked with businesses that have very generic names and are hard to find during a Google search.
3. Choose your registered agent
You will be required to have a registered agent. A registered agent is someone who is registered to receive legal and tax notices on behalf of your business. You can be your own registered agent, or you can appoint someone else, often your attorney or a company that provides registered agent services.
4. Create an operating agreement
Your LLC’s operating agreement will give its members protection from liability and clarify agreements between the members.
5. File your LLC with the state
This is the process of becoming official when you file your state’s formation documents. You can usually do it yourself through the secretary of state, but you can also hire an attorney to do this for you.
6. File your Beneficial Owners Information Report (BOIR)
Most businesses are now required to file something called a Beneficial Owners Information Report. This report is to ensure there is transparency in business ownership. You can file the report with FinCEN online.
These steps make your LLC legal. But, there are a few things I personally wish I had known before filing. I filed my LLC through a DIY legal website, and I regret it. If I were to go back and do it again, I would either file myself through my state or work with a business attorney. DIY filing companies upcharge their services without the benefits of working with an actual attorney, who would have expertise in your area of business, the state that you plan to do business in and what compliant documents should look like.
Regardless of whether you file on your own or work with a business attorney, it’s still a good idea to get legal advice. Jon Morgan is the CEO of Venture Smarter, a consulting firm that specializes in helping startups scale and grow. He says one of the biggest pitfalls entrepreneurs face while filing an LLC is not fully understanding the local laws.
“Each state in the U.S. has its own set of regulations governing LLCs,” Morgan says. “These can vary greatly, so freelancers should familiarize themselves with the specific laws in their state before starting their business. This can be a complicated task, so I often recommend that freelancers consult with a local attorney or business adviser to ensure they are fully compliant with all local and state laws.”
What to do after filing your LLC
I am going to own up to a very foolish mistake I made when I filed my own business: I paid for my employer identification number (EIN).
As a technology journalist, I’d like to think I would have known better. However, there are companies out there that make themselves look like the IRS website, will take you through the registration process and charge $300 or more for something you can do for free.
After you file your LLC, there are some general housekeeping tasks to complete:
- Register your EIN. Again, do not pay for this! You can do it for free on the IRS website.
- Obtain any business licenses and insurance. Find out what you need for where you live and get it. Beware of mail scams telling you that you need to get a license or pay a lot of money to get a labor laws poster.
- Set up your business bank account and separate your expenses. To reap the full benefits of owning an LLC, you absolutely need to separate your business expenses from your personal finances by establishing a separate bank account for your business and having a credit card dedicated solely to business use. “One of the most common mistakes I’ve seen is failing to separate personal and business finances, which can cause confusion, legal problems and even jeopardize the LLC’s limited liability status,” Morgan says. “To avoid this, I always advise freelancers to set up a separate business bank account as soon as they register their LLC.”
- Register to do business in other states, if you need to. This is usually necessary if you have a presence in that state or have employees in that state.
This article appears in the September 2024 issue of SUCCESS+ Magazine. Photo by Prostock-studio/Shutterstock.
