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You should know … How to start (or clean up) your LLC

Chris Brown

Chris Brown

Editor’s note: In this new column, Missouri lawyer-entrepreneur Chris Brown shares useful legal information for startup founders and owners of small businesses.­

Starting a business is exciting, but it is often a confusing process for entrepreneurs. One of the first things you will do is create an LLC (or a corporation in certain situations).

In this article, we’ll explain some of the things you should consider when creating your LLC. And if you’ve already created your LLC, you can use these tips to make sure your LLC is set up properly.

Incorporating with the Secretary of State

One of the best benefits of creating an LLC is the limited liability it can provide for owners. The only way to obtain that benefit, however, is by filing the proper documents with your state’s Secretary of State. While regulations of each state are different, they usually require you to file Articles of Organization (or a similar document) that includes your LLC name, the purpose of the company, a registered agent (in short, the person who can receive lawsuits on behalf of the company) and the name of the person submitting the filing.

In Missouri, this is a very simple filing that can be made online for $50. This process is simple, but it is often best to talk to an attorney about the filing to make sure you don’t make a mistake. After you file, you will receive a file-stamped copy of your Articles of Organization.

Drafting an operating agreement

All LLCs should have an operating agreement. For single-owner LLCs, this may include only a few pages. For multi-owner LLCs, it usually will be 10-20 pages.

The operating agreement is essentially the rules that will govern the company and its owners. It should cover topics such as voting rights of the members, day-to-day management rights, economic rights, confidentiality obligations, restrictions on owning competing businesses and limitations on the ability to sell your ownership interest.

Getting an EIN

You also should obtain an Employer Identification Number (“EIN”) for your LLC. This is a unique number assigned to you by the IRS, and it will be important to obtain even if you don’t hire employees. You’ll use it with various government entities, banks and other third parties.

In most cases, you can obtain this online from the IRS. Sometimes you can get the official letter online. Other times, it will give you the number online but mail a hard-copy letter to you as confirmation.

Opening a bank account

If you’ve made it this far, then you likely will have everything you need to open a business bank account. Simply print all of the documents referenced above and take them to your bank.

When choosing a bank, make sure you research how the bank operates. If cloud-based tools are important to you, then review the bank’s digital infrastructure. If you use a specific accounting program, then make sure the bank syncs with your program of choice. Also consider what future needs you might have from your bank (loans, for example), and make sure you select a bank that can help you to grow your business.

Keeping the LLC separate from you

After doing all of this, it is critical that you take ongoing steps to keep your LLC separate from you, the owner. This means actively using the business bank account (and not your personal account), signing contracts for the LLC (and not under your name), filing annual reports required by your state, and properly documenting company meetings and decisions that must be approved in writing pursuant to your operating agreement (for example, approval for an owner to sell his or her ownership interest).

Best practices

Entrepreneurs often try to do everything on their own. While some of these things are easy from a practical view, they are also easy to mess up. And worse, when you make a mistake on these formation items, you may not learn about it until months or years later. For that reason, it’s often best to work with a business attorney to help you set up your LLC the right way.

This article is very general in nature and does not constitute legal advice. Readers with legal questions should consult with an attorney prior to making any legal decisions.

Chris Brown represents startups, freelancers and small businesses through his law firm, Venture Legal, in Kansas City. He also co-founded Contract Canvas, a digital contract platform for creative professionals. You can find him on Twitter @CSBCounsel.

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