For many people, being an entrepreneur is a lifelong goal. It means freedom from the usual nine to five drudgery and being your own boss. It also means that the sky’s the limit for your earnings, unlike being stuck getting paid by someone else. However, before you can start raking in the revenues, there are a few steps you need to take.
One of those steps is to decide what kind of structure your business will have. There are several options, such as a corporation, a sole proprietorship, or a Limited Liability Corporation, which is commonly called an LLC.
As the name would suggest, an LLC offers an owner less liability and risk from the business. Personal assets can be kept separate from business assets so that if the business fails, the individual doesn’t necessarily end up financially ruined. There are also tax benefits as well as the opportunity to have a flexible management structure. If you are looking at starting an LLC, here is everything you need to know about it.
Start With a Name
You might not think that a business name has much importance other than for marketing, but you can’t register an LLC without one. Once you’ve thought of a name, you will have to make sure that there are no other businesses in Massachusetts with the same name. If there are, then choose another one. If you want an LLC, then your official business name must also include LLC in it. You also cannot choose a name that could be confused with a government agency, such as the FBI or CIA. Other than these restrictions, use your imagination.
Outside of registering for an LLC, you want a business name that is memorable and provides consumers a glimpse into the personality of your brand. The name doesn’t necessarily have to explicitly say what your company does, but it should give off a vibe of what you want to convey and what type of attitude your brand presents to the world.
Select a Registered Agent
Every LLC must be represented by a registered agent. This can be someone who works directly with the company, or it can be an outside party contracted to do the job. A registered agent is the government contact point. They will receive correspondence about laws, regulations, taxes, and anything else that the business needs to handle in an official capacity. Whether the registered agent is an individual or a corporation, they must be registered to conduct business in Massachusetts to qualify as one.
File the Certificate of Organization
Once you have the registered agent in place, along with your business name, you can then file your certificate of organization. This form is what will make your LLC an official entity. Before filing, you will need to get an employer identification number through the IRS. You can submit your certificate of organization online or through the mail. If doing it online, it should only take a few hours for approval. If doing it through the mail, you can expect a response within a few days. While it is not a long process, there is a $500 fee to have it completed.
The certificate requires all of your LLC’s information. This includes the employer identification number, contact information, how long the LLC will be in operation if there is an end date, and the names and signatures of anyone who has a stake of ownership.
If your LLC has more than one owner or member, then it’s a good idea to create an operating agreement. This is not legally required, but it will keep everyone on the same page when it comes to the operation and management of the company. The operating agreement is legally binding and outlines all of the rights and responsibilities of each member. It guides how members can vote, how profits are allocated, how members can be removed, and how much each member is contributing to the LLC. Without an operating agreement, your LLC will have no direction, and keeping everyone working together without an overarching agreement will be next to impossible.
Separating Your Business and Personal Assets
One of the main purposes of an LLC is to minimize risk for owners. Once the LLC is in place, you can then take steps to separate your personal assets from your business assets. Firstly, you must have a business bank account. Trying to filter things through your personal account is not demonstrating that separation that you want, and it will also make things incredibly complicated. It will make everything simpler, including filing your taxes.
You should also have a separate business credit card for work expenses. Again, this will make filing your taxes easier since you will have a clear breakdown of your business and personal spending. Having a credit card will also help your business build a credit score, which could prove to be invaluable if you end up wanting to take out business loans or purchase a property.
It’s also a good idea to hire an accountant just for your business. They will be able to help give you an accurate picture of your business finances, advise you of the tax implications of your decisions, and make sure that you have adequate cash flow at all times.
The fact is, you will need everything to be separate. No matter what, you will need Massachusetts business insurance, as your personal coverage will not protect everything, even if you work from home. You can also use equipment and electronics for business and separate ones for your personal life. This will help keep your personal assets protected from any business liability.
When you have a great idea to start a business, your first instinct might be to get your product and brand out in front of the world as soon as possible to start raking in cash. This is an exciting thought. The truth is that you do need to take some necessary steps to protect yourself and your business. By creating an LLC, you can do just that while still having all of the benefits of going into business for yourself.