Category: Business Organization (including LLCs)

Your EIN is an integral part of your business. Without it, your business can end up in hot water with the IRS. This article explains the purpose of an EIN, when to get one, and shares the ways to look up a misplaced EIN or locate the identifier of another business should you so desire.

Don’t have an EIN? Get one now.

What is an EIN? – EIN Lookup

An employer identification number (EIN) is a unique nine-digit code your business uses for tax purposes. It acts like a personal social security number and is tied to your company for life.

The Internal Revenue Service (IRS) issues EIN numbers to companies for free. If applying online, you’ll receive a number immediately, along with a confirmation letter for your records.

When Should My Business Get an EIN?

Sole proprietorships and single-employee LLCs can skate by without needing an EIN. Each of these business types will need to provide the owner’s social security number in its place. Even if one isn’t required, obtaining an EIN can help separate personal and business dealings.

The moment your company hires its second employee, you can no longer use a social security number and must file for an EIN. This is immediately the case for a business formed as a partnership or corporation.

Most banks want to see an EIN before allowing you to open a business bank account, even if you’re still a one-person show. This holds true for business credit cards as well.

You’ll also need an EIN if you file excise taxes or withhold taxes for any nonwage income you’re paying to a resident alien.

Ways to Apply for an EIN

Only registered businesses are able to apply for an EIN. In most cases, obtaining your tax identifier is one of the first things you’ll want to do after completing the formation process.

Here’s how to register your business before you go on for EIN lookup.

There are a few ways in which you can apply for an EIN:

Online

Creating an EIN online through the IRS is the fastest and easiest method. Through the IRS’s Internet EIN form, you can fill out the application in one quick session. The IRS will validate your information during the session, and if everything checks out, you’ll receive your number immediately. 

If you want to save time, you can alternatively use ZenBusiness to get your EIN with ease.

By Fax

You can send a completed SS-4 Form to the appropriate fax number at the IRS. Once the IRS determines you’re eligible for an EIN, they will fax back confirmation along with your new EIN. Expect the process to take around four business days.

By Mail

Send a completed SS-4 Form to the appropriate IRS address if you want to submit your application by mail. The average time it takes to hear back by mail is four weeks.

By Phone

Those living overseas can apply for an EIN via telephone. You’ll be asked a series of questions from the SS-4 form to prove you have the authority and necessary information to receive one.

This option is not available to business owners living in the United States.

How Can I Find My EIN Number? – EIN Lookup Guide

If you need to locate your own EIN number, there are a few options you can try.

Check Your EIN Confirmation Letter

When you apply for an EIN, the IRS issues a confirmation letter validating your request. This document is the first place you’ll see your EIN and is the best place to track it down.

For those filing online, you’ll receive an instant notification in the form of an EIN confirmation letter. You can save the letter to your computer or access it online in the future.

If applying by fax or mail, you’ll receive your EIN confirmation letter via the same correspondence. Hopefully, you saved this physical document with other important business papers for easy reference.

Lookup EIN on Other Forms

Since your EIN represents your business on tax forms, you’ll find yourself recording it on tax returns and business license requests. Any tax notices you’ve received back from the IRS may also have your EIN.

Your employer ID number likely won’t change for the duration of your business, so any old records you have on hand would be a good place to look.

Talk to Your Bank

Many banks require an EIN when creating a business account or taking out a loan. Call the bank you do business dealings with and have them assist you in tracking your tax identifier down.

Read more about how to create a business bank account with an EIN only.

Contact a State or Local Agency

Any business requesting a business license at the state or local level has to provide an EIN on the application. Even if you no longer have the paperwork, you can contact the agency to see if they still have it on record.

Reach Out to the IRS

The IRS has a Business & Specialty Tax Line that, among other things, can provide you with your lost or misplaced EIN. Hours of operation are Monday through Friday from 7 am to 7 pm in your local time.

When you get through, an assistor will ask a series of questions to ensure you’re authorized to receive the EIN number. You’ll receive the identifier over the phone and not through any physical or online means.

Wait times for speaking with someone at the IRS can be insanely long, so use this route as your last resort. 

How to Find Another Company’s EIN – EIN Lookup

Locating the EIN for another company may not be as straightforward a process. Here are a few methods you can try for looking it up.

Look at the SEC Database

If the business you’re interested in publicly traded stock, you can use the U.S. Securities and Exchange Commission database to locate EIN information. The filings should have the information on hand, but you can also check a recent 10-Q or 10K.

Check the Tax Exempt Database

Tax-exempt companies are all part of a database on the IRS website. All you need is the name of the business you’re inquiring about.

Search the Web

There’s a chance you can find a company’s EIN through some careful internet searching. Local, state, or federal websites may have employer information just waiting for you to find it. If you know the state the company operates in, the Secretary of State site may be a good place to start.

Get a Credit Report

There are few privacy protections for business credit reports. If you can get your hands on one, you may see that company’s EIN mixed in with financial information. Some places may charge a fee to let you leaf through a report.

Hire a Third Party

EIN databases keep tabs on tax identifiers for a wide variety of businesses. It’s not free, but these services may have the information you’re looking for.

Call Them

You can always pick up the phone and reach out to someone in the financial department of the company you want an EIN from. This may work well for businesses you have a relationship with, but these organizations have no obligation to share this information.

Bottom Line on EIN Lookup 

You’ll need your EIN to file annual taxes, open a bank account, or request a business license with the authorities. Should you misplace it, there are a few potentially time-consuming methods for getting your EIN back. Keeping proper documentation can save you the hassle of tracking it down and will help protect your company’s privacy down the road.

Get your EIN with ZenBusiness 

A Limited Liability Company (LLC) comes with a lot of perks but can be confusing to run without proper documentation. Operating agreements serve to contain everything your LLC needs to flourish. This article explains what operating agreements are and an LLC operating agreement template you can use to create one of your own.

Use ZenBusiness to create the perfect operating agreement.

What is an LLC Operating Agreement Template?

An LLC operating agreement is a document containing crucial information about how you’ve chosen to structure your business. It serves to provide information on legal, operational, and financial aspects of your company that may come under question in the future.

When issues arise, members can turn to your operating agreement as a baseline for how to react. Each owner should have a hand in its formation and be aware of the rules within.

To finalize the document, creators should sign on the dotted line to make it a legally binding document.

Free LLC Operating Agreement Template

Here’s a single-member LLC operating agreement template that will give you a solid idea of what the document looks like. 

Note that this is a generic document for Limited Liability Companies with only one member. Here a single member has full control over the LLC, and no other individuals have a membership. 

What Should You Include in Your LLC Operating Agreement?

It can be challenging to capture every possible situation in an operating agreement. Start with the following sections and add things as your company grows.

1. Basic Information About Your Business

Right off the top, you’ll want to record your company’s legal name and any “doing business as” titles you’ve chosen to create. Be sure to capture your business address in the state you registered.

All LLCs require a registered agent, an individual, or a service that accepts legal documents on behalf of your business. Add the name and address of this registered agent to this section of your operating agreement.

This section should also contain your business purpose, a few lines about what you plan to sell, or the services you wish to perform. Don’t make this section too specific, as most successful businesses expand beyond their initial offerings at some point.

Place a statement of intent in your basic information mentioning that your operating agreement conforms to all the LLC laws in your state.

If you include any other basic information when filing your articles of organization with the state, you’ll want to include those here as well.

2. Member Information

After capturing the basics, it’s also wise to list details about each of your initial members. Particulars should include name, address, and job title. Since there’s no requirement to split profits evenly among owners, you’ll also want to list the percentage each one gets.

There’s no limit on the number of members your company can have, and you may wish to add more in the future. Be sure to encompass all the requirements for bringing a new owner on board.

Similarly, you’ll want to have a plan in place should a member decide to leave the company. Lay out guidelines for shifting profits and responsibilities to the other members of the team. It’s also important to document any grounds for expulsion and how to handle such a situation.

3. Capital Contributions

At the time you register your business and open your business bank account for LLC, there’s a good chance some or all of your members contributed funds, services, or other forms of capital. You’ll want to list these donations in your operating agreement and their cash value.

In the event, your business needs to raise more capital in the future, provide a guideline for who can present funds and any limits. You may also have to stipulate how interest percentages can shift if a member contributes.

4. Business Management

For managing the day-to-day operations of your business, you can elect to take a member-run approach or hire a manager. Make sure your operating agreement specifies which approach your company decides to take.

In a member-run scenario, you’ll want to create a detailed list of job responsibilities for each member, so there’s no confusion or positional overlap. How you divvy up roles is entirely up to you and your team.

Manager-managed LLCs should clearly explain the manager’s responsibilities and which areas they need to seek counsel from the owners. You can also list the salary for such a position and the length of time you expect it to exist.

States don’t require LLCs to hold meetings the way corporations do, but that doesn’t mean you shouldn’t have any. Your LLC operating agreement should specify how often your company will hold meetings, where they will take place, and how many members must attend to have a quorum.

Furthermore, decide all rules around voting to approve an action. You must choose if each member carries an equal vote or base voting shares on ownership percentage. There should be no questions about what’s needed to approve a vote, whether it’s a majority, a unanimous decision, or something altogether different.

In manager-managed LLCs, you’ll want to spell out when members need to vote on manager actions and the areas a manager is free to act on their own.

Operating agreements are fluid documents and will change over time. Use this space to specify how votes will take place to make changes affecting the company as a whole.

Read more about the difference between member-managed vs manager-managed LLCs.

5. Tax Status

LLCs are in a unique position, able to take on the tax status of another type of business entity. 

Many business owners choose pass-through taxation, seen in sole proprietorships or partnerships. Here, the government does not tax profits at the corporate level, taxing income only at the individual level.

Others elect to hold a corporate status, following tax guidelines that come with an S-corp or C-corp.

Whatever tax status you choose to start out with, you’ll want to record it here. Since LLCs can change tax structure as needed, you’ll want to document the process for making an adjustment down the line.

6. Dissolving Your LLC

With any LLC, there may come a time when members decide to dissolve the business. Such a process can be a monumental amount of work, but your operating agreement should cover circumstances that would cause your business to end.

Be sure to mention which members will handle each part of the dissolution, from paying off debts to liquidating assets and filling out the necessary paperwork. Once that’s all settled, you’ll want to list what happens to any remaining assets.

7. A Liability Statement

LLCs offer limited liability protection, shielding members from losing personal assets in the event your business can’t cover a debt or a fee. Sole proprietorships and partnerships do not have the same protections, leaving personal responsibility on the table.

An operating agreement is the perfect place to spell out this protection if someone ever challenges this claim. 

8. Additional Provisions

At times, other provisions can find their way into an operating agreement. Additional topics often include the death of a member, how to communicate business affairs, and ways to handle disputes among members.

Many businesses use this space to document state laws governing your LLC or any special circumstances specific to your business model.

Does My Business Need an Operating Agreement?

Most states do not require an operating agreement to start an LLC. However, if you file in one of the following locations, you will need to create such a document:

• California
• New York
• Missouri
• Maine
• Delaware

If you’re starting an LLC in any other state, you’re technically off the hook. However, it’s a smart move to create an operating agreement anyway.

Not having an operating agreement defaults your LLC to the rules and regulations governed by the state. While some of these may pertain to your specific business, many have to be ambiguous to account for a wide range of company types.

This can lead to confusion among members and uncertainty surrounding how to handle business matters. This lax approach could very well lead to disaster down the road.

Your operating agreement is the foundation you and other business owners can turn to when problems arise. It provides a structure for all the crucial components of your business and, since you create it, is something all members agree upon.

Use a reliable service provider like ZenBusiness to create a professional operating agreement for your LLC. 

What Is The Purpose Of An Operating Agreement?

Your company stands to benefit in several ways if you use an operating agreement. Here are a few of the top reasons you should create one right away:

Legal Credibility

As you operate a business, there is always some risk when dealing with products and services. Whether justified or not, customers may have a bad experience with your company and take matters to court.

Operating agreements, especially those with a liability statement, show that LLC owners have taken the time to outline policies, procedures, and protections. Judges tend to look favorably at companies with such documents, upholding the limited-liability nature of the business structure.

In instances without an operating agreement, the court may not feel you have a formal LLC and don’t deserve the protections it affords.

Keep Members on the Same Page

Your entire ownership team needs to sign off on an operating agreement to make it an official document. As a result, every member has to agree on the content within. This includes sensitive areas like ownership percentages and responsibilities within the company.

The operating agreement legally holds each member accountable regarding company guidelines and important company decisions. When push comes to shove, his document explains how to deal with issues and situations where voting could change the course of the company.

Define Key Business Procedures

There’s so much flexibility in how an LLC can function. Areas like tax status and member roles are completely malleable to your company’s needs.

With such a fluid structure, it’s important to document key business procedures that shape the core of your business. An operating agreement is ideal for capturing these critical pieces of information and makes it easy for members to adhere to them.

Avoid Default Laws of the State

Companies choosing not to create an operating agreement must function under the LLC rules dictated by the state they register in. These rules do not take your company’s unique structure into account and instead apply blanket regulations to cover all LLC types.

As long as your operating agreement doesn’t go against your state’s rules, your business has the freedom to choose how to operate. This puts your LLC in a much better place to thrive and can steer you clear of unnecessary gray areas.

How to Create an LLC Operating Agreement Template

It is possible to build your own LLC operating agreement template by following the guidelines in the steps above. Bringing a lawyer in to help with the process can simplify the process but may cost more than a small business can afford.

Smart business owners turn to LLC formation services for drafting an operating agreement that can then be mended as necessary in the future. These services also provide formation tools and can serve as your registered agent.

Our top picks for LLC services that can help you create a professional LLC operating agreement are:

• ZenBusiness
• Inc Authority
• Incfile
• MyCompanyWorks
• Northwest Registered Agent

Bottom Line on an LLC Operating Agreement Template

Operating agreements become the cornerstone of your LLC, providing guidelines for any and all facets of your business. This single document helps keep members on the same page, explains key business procedures, and can keep personal assets safe. While most states don’t require one, an operating agreement can spell the difference between success and failure.

Generating your own operating agreement is just one of the many tools ZenBusiness provides business owners. The service is completely free in Premium and Pro plans and costs just $125 otherwise. 

Sign up today so ZenBusiness can walk you through every step of the LLC operating agreement template creation process.

A Limited Liability Company is a great business structure to consider, no matter what type of business you plan to run. The many benefits of an LLC allow business owners to build the company they desire while minimizing hardships along the way. This article explains the LLC advantages and disadvantages you’ll want to know about before starting a business of your own.

Check out ZenBusiness for all the tools you need to start an LLC quickly and easily.

Pros and Cons of an LLC – Overview

Pros

Cons

• Personal Liability Protection
• Various Tax Options
• Management Flexibility
• Profit Distribution Flexibility
• Builds Business Credibility
• Uniqueness
• Minimal Paperwork
• Easy to Form
• Good for Individuals

• Consequences of Member Turnover
• Self-Employment Taxes
• Role Confusion
• Can Be Challenging to Raise Capital
• Can Be Expensive to Set Up

What are the Benefits of Starting an LLC?

There are several benefits of having an LLC as your business structure, no matter the size of your company. Here are some of the top benefits of an LLC to consider when deciding how to create your startup.

Personal Liability Protection

Perhaps the most standout benefit of starting an LLC is the personal liability protection they offer. As the owner of an LLC, your home, car, savings, and the like are secure even when your business can’t cover a debt, fee, or payment on a loan. This protection holds true for each member you have, whether one or several.

Sole proprietorships and partnerships offer no such protection, making your personal finances fair game in the event of a lawsuit or money issue. If there’s any level of risk with your business, an LLC can keep you safe.

If you ever find yourself signing a personal guarantee for a business debt, your personal assets may come into play if your business can’t handle the expense. Other situations where personal liability protection won’t help are combining personal and business funds, committing fraud, breaching your duties as owner of an LLC, or causing harm due to negligence. 

Tax Options

As an LLC, you and your other members have a few options to choose from when setting up a tax structure. The business structure does not have its own tax classification and can choose the preferred tax status of another business entity. The four options available to LLCs are:

• Sole proprietorship: For single owners only, sole proprietorships don’t pay taxes at the corporate level and instead pass all profits through to the owner. The owner then pays income taxes on this entire amount. Known as pass-through taxation, it allows sole proprietorships to avoid double taxes. The government still considers members self-employed and is subject to self-employment taxes as well.

• Partnership: Partnerships always consist of multiple members, but business profits still pass down to each owner without paying taxes at the corporate level. Each owner then pays income taxes on their portion of the profits. In most cases, members have to pay self-employment taxes on income as well.

• S Corporation: S corporations similarly have pass-through tax structures to dodge double taxation. Owners can choose to receive a salary from profits and pay payroll taxes on that amount. All other profits pass through the corporate tax level to members, who must pay income tax on their portion of the amount. 

• C Corporation: A C corporation is the one business model to pay taxes at the corporate level. Any profits taken by members are taxed a second time as income.

Each of these tax options can be favorable to LLCs at various stages of operation. It’s possible to change tax status as an LLC, but the Internal Revenue Service (IRS) typically only allows such a move once every 60 months.

Unless you decide otherwise, your LLC defaults to the pass-through taxation guidelines of a sole proprietorship or partnership, depending on whether you have one or more members. Being able to avoid paying taxes at the corporate level can be a massive boon for LLCs just starting out.

Management Flexibility

When creating an LLC, members can decide to run the show themselves or hire a manager to oversee day-to-day operations.

Individuals with or without other employees have the freedom to create a business the way they see fit and run it how they choose. LLCs with multiple owners having an understanding of a company’s inner workings can run different departments to ensure the business functions as intended.

Those without expertise in running an organization can hire or appoint a manager to control the workings of the business. Members may choose a more passive role or remain involved in some way. 

Read more about member-managed vs manager-managed LLCs.

It’s up to you as a business owner to decide how the leadership structure of your LLC operates. There are no limits regarding how many members an LLC can have, nor is there a requirement to maintain a rigid board of directors that corporations must maintain.

Profit Distributions

LLCs don’t have a fixed management structure, which is quite different from other business structures. With partnerships, owners must split profits evenly between themselves. Corporations have shareholders who receive profits based on how many shares each one has.

Members of an LLC get to choose how to distribute profits, however, this must be planned out in your LLC operating agreement. If a particular owner invests more time or capital, that person can bring in a greater share of earnings than others do. It’s up to the current ownership to decide how distributions of income work at the time of startup, but even this can change as a company grows.

You may need to provide reasoning behind the disbursement of profits to the IRS when filing taxes. It must be clear that distributions reflect leadership structure and aren’t an attempt for one or more members to avoid falling into a higher tax bracket.

Business Credibility

Partnerships and sole proprietorships are legitimate business models, but they don’t always appear very credible on paper. Businesses and customers you deal with typically see LLCs as more credible, professional, and trustworthy.

Your business must include some form of the “LLC” or “limited liability company” in your name, further cementing your status as a company worth doing business with. 

Uniqueness

With few exceptions, forming an LLC in your state gives you unique access to the name you choose for your business. Other companies can’t come along and create a name identical or similar to yours, offering you a niche to work out of.

Businesses in other states can still use the same name as you unless you register an LLC there as well. If you’re thinking of expanding to a nearby state, it may be prudent to do so. Some states will allow you to reserve a name for a set number of months while you get your affairs in order.

Minimal Paperwork

Another huge perk of forming an LLC is the minimal amount of paperwork needed to get your business off the ground.

Unlike corporations, LLCs don’t have to hold meetings or record meeting minutes. There’s no need for a board of directors or officers and the paperwork required to maintain those positions. Less record-keeping allows members to focus on other matters instead.

At formation, LLCs should establish an Operating Agreement containing all the rules those in your business need to follow. Without this document, your LLC must adhere to the state’s regulations, whether they make sense for your company or not.

Many states do require annual reports summarizing changes made during the last year to keep government records current. Requirements for each state vary considerably, but the paperwork is usually still minimal.

Easy to Form

When the time is right to create your LLC, the process is quite simple. There may be subtle differences depending on the state you form in, but it is something you can do without the help of an attorney. 

Below are the steps any business owner needs to follow when setting up an LLC. You can also hire one of the best LLC formation services to create and enjoy the benefits of your LLC at an affordable price.

Step 1: Choose your state

Most business owners prefer to start out in the state they live in, considering they already have knowledge of how the state runs. Delaware and Wyoming can be great options for registering a business, thanks to business-friendly processes and tax perks.

Step 2: Name your business

As mentioned earlier, you’ll have to come up with a name someone’s not already using in your state. Be sure to follow any state guidelines for naming and avoid anything that may mislead customers.

Step 3: Hire a Registered Agent

A registered agent handles legal and state matters that come your business’s way. You can choose to be your own registered agent, but most LLCs look to knowledgeable registered agent services to handle this role.

Step 4: File Articles of Organization

Articles of organization is the sole document you need to file with the state. It provides the government with the into it needs to approve formation.

Step 5: Write an Operating Agreement

This agreement stays within your LLC and should provide a financial, operational, and legal footprint for members and employees to follow. Not creating an operating agreement puts your business into the hands of state government guidelines when disagreements occur.

Step 6: Get an Employee Identification Number (EIN)

An EIN (Employer Identification Number) is effectively a tax code for your business. LLCs with more than one member require an employee identification number, but you can pick one up for free from the IRS.

Good for Individuals

LLCs work well for large businesses, but the business structure serves just as well for individuals building a small venture from scratch. A single business owner without employees still receives the limited liability protection and tax flexibility a larger LLC does. As your business grows, you can modify facets of your LLC to accommodate more staff or additional owners.

Disadvantages of an LLC

Unfortunately, not everything having to do with an LLC is an upside. Here are a few disadvantages to keep in mind when choosing an LLC as your business structure.

Consequences of Member Turnover

Members are the backbone of an LLC and can cause havoc if one or more choose to leave. Owners need to carefully redistribute profits, and states may have specific roles regarding the matter. In some instances, the state may require the dissolution of an LLC after just one member departs.

This sticky situation doesn’t occur in corporations that constantly see shareholders coming and going as shares trade from one person to the next. With an LLC, it is possible to curb some of the chaos through careful documentation in an Operating Agreement.

Self-Employment Taxes

Unless you’ve chosen to follow a corporate tax structure, the IRS records LLCs as partnerships or sole proprietorships, depending on the number of owners. In these instances, owners are still considered to be self-employed.

Self-employed members must pay Social Security and Medicare taxes in an amount relative to what the business earns. This self-employment tax is in addition to income taxes on profits.

Role Confusion

Corporations offer clear roles between owners, directors, and employees with rigid rules about how each one functions. LLCs, on the other hand, do not have such requirements. Without guidelines in place, it can be very confusing to know who can perform certain functions and where divisions of responsibilities lie among higher-ups.

LLCs can create clear-cut lines with the help of an Operating Agreement so long as members take the time to properly flesh the document out.

Can Be Challenging to Raise Capital

Most LLCs will need money at some point, but the business structure doesn’t provide clear opportunities for investors to get involved. Because of the way LLCs do ownership, it’s not nearly as simple to add members as it is with a corporation.

Many investors are similarly deterred by an LLC’s tax-exempt status, as investments can create unrelated taxable income.

Cost

A limited liability company is more expensive to form than your average sole proprietorship or partnership, which can be a deterrent to someone just starting out. State fees can be well into the hundreds per year, a difficult challenge to surmount with little to no income flowing in.

In many states, there’s no cost for starting up a sole proprietorship. Those wishing to use a DBA still pay far less in fees.

Bottom Line on the Benefits of an LLC

The benefits of an LLC far outweigh the negatives, providing an opportunity for those starting a business to protect personal finances while offering pass-through taxation. As LLCs grow, their flexible nature allows for changes while keeping paperwork to a minimum. Easy formation is the cherry on top that should have all new businesses considering LLCs at startup.

To make the process even easier, those wishing to start an LLC can turn to ZenBusiness for all their setup needs. The LLC service has the knowledge to create a business in any state for as low as $49 before state fees. 

Sign up for ZenBusiness today to ensure your LLC kicks off without a hitch.

Starting and running an LLC has a price. Luckily, the cost of starting an LLC is relatively affordable compared to future business expenditures down the road. Today’s guide explains how much an LLC costs and what you can expect when launching your first business. Here’s everything you need to know about how much does it cost to start an LLC.

Start your LLC with ZenBusiness for $49 only!

How Much Does an LLC Cost? 

LLC costs can be divided into two categories: LLC setup costs and LLC maintenance costs. LLC setup costs relate to the state where you register your LLC. The maintenance costs are the ongoing expenses to sustain your Limited Liability Company.

Let’s take a closer look at both LLC cost categories.

LLC Costs: Setup

You are subject to several fees when creating and filing the legal documents needed to form your LLC. There are also costs when you register your LLC with state and local authorities. For instance, you must make sure you have all the proper business licenses, business bank accounts, certificates, and permits required by local, state, and federal governments.

Filing Fees

The main cost to set up an LLC is the fee for filing your LLC’s articles of organization with the secretary of state or other relevant state authority. The typical costs for filing fees range from $50 for legal services and $50 to $800 for filing fees, depending on which state you’re starting your business in. 

For most new business owners, filing fees account for the majority of the LLC setup costs. Although you don’t need to hire a lawyer to file the articles of organization to form an LLC, we recommend using an LLC formation service. 

There are several LLC services that can help form your LLC for less than $50 plus the additional state fee. Some notable service providers include ZenBusiness and Incfile. These LLC formation services offer excellent customer service and guide you through every step of the setup process.

Best of all, LLC formation services exponentially reduce the risk of improperly filing paperwork, which can cause additional fees to fix the paperwork or reapply. They also save you time by expediting the process and giving you all the information you are required to fill out.

Start your LLC with ZenBusiness for $49 only!

Operating Agreement

An LLC operating agreement typically costs $0 to $200, depending on if you create it yourself or use an interactive template from an LLC formation service provider.

Your LLC’s operating agreement is an internal document that describes your business’s daily operations, the owners’ roles and contributions, and how your LLC makes decisions. Although only required in five states (California, New York, Delaware, Missouri, and Maine), operating agreements are crucial for every business.

This document defines specific procedures and guidelines, such as how to divide profits and losses among owners. Therefore, unless you have a legal background, it’s important to use a legal service provider like ZenBusiness. These legal service providers offer interactive templates to ensure your operating agreement is catered to your specific needs.

You can find many free templates online if you don’t want to use a paid service. However, we don’t recommend drafting it by yourself. For a small fee of $50 to $200, a legal service provider can ensure your operating agreement is congruent with all members. 

LLC Notice of Formation: Publication

Three states, including New York, Arizona, and Nebraska, require LLCs to publish a notice of their organization in the local newspaper. The fee for the publication ranges from $40 to $2,000, depending on your location. Consider this if you plan to set up your LLC in one of the three states mentioned above.

LLC Costs: Maintenanceo

After you file your articles of organization and register your business as an LLC, there are several costs associated with maintaining it. These fees include federal and state taxes, reporting costs, and the price of any services you use to maintain your LLC.

Taxes

Similar to any other entity or person, LLCs are subject to taxation. The exact tax costs vary from state to state. Read our state corporate tax guide for more information.

However, the federal government doesn’t take its portion of taxes directly from the LLC. Instead, the federal government collects taxes from the owners’ profits as a pass-through income. Nonetheless, LLCs can write off certain setup costs up to $5,000, including attorney fees, office space, equipment, and market research. 

At the state level, most states tax LLC profits in the same manner as the federal government. However, a few states also have mandatory LLC franchise taxes. For instance, the annual franchise tax in California is a minimum of $800, and the franchise fee in Delaware is $300. 

Furthermore, your LLC is subject to reporting fees at the state government level. These fees range from state to state, but you can expect to pay around $100 yearly. 

Registered Agent

The typical costs for registered agents range from $0 to $300.

An LLC registered agent is the primary point of contact between your LLC and the state. As such, your registered agent receives all legal documents and accepts the service of lawsuits. Although any adult aged 18 or above can be a registered agent, they must reside in the same state as the LLC and be available during business hours.

Since there is a lack of restrictions on who you can designate as a registered agent, you can be your own registered agent or appoint someone else in the company. However, we recommend using a registered agent service from reputable providers like ZenBusiness, Northwest Registered Agent, or Incfile. 

Registered agent services ensure your LLC never loses important legal documents and government notices in the mail. These service providers scan all the mail they receive locally and forward the documents to you as soon as they can. Depending on the registered agent service provider, you can expect to pay an annual fee of $100 to $300. 

Cost to Form an LLC in All States

The table below states the filing fees in each state as well as any annual expenses. The LLC filing fee is a one-time fee paid to the state when you create your LLC. 

The LLC ongoing costs are ongoing mandatory fees you must pay every one to two years, depending on your state. This is because most states require LLCs to file a regular report and pay an annual fee. These ongoing fees keep your LLC in compliance and in good standing. In most states, they will shut down your LLC if you fail to pay the ongoing fees.

State

LLC Filing Fee

LLC Ongoing Costs

Alabama

$200

$100 minimum (annually)

Alaska

$250

$100 (every two years)

Arizona

$50

$0

California

$70

$800 (annually) + $20 (every two years)

Colorado

$50

$10 (annually)

Connecticut

$120

$80 (annually)

Delaware

$90

$300 (annually)

Florida

$125

$138.75 (annually)

Georgia

$100

$50 (annually)

Hawaii

$50

$15 (annually)

Idaho

$100

$0

Illinois

$150

$75 (annually)

Indiana

$95

$30 (every two years)

Iowa

$50

$45 (every two years)

Kansas

$160

$50 (annually)

Kentucky

$40

$15 (annually)

Louisiana

$100

$35 (annually)

Maine

$175

$85 (annually)

Maryland

$100

$300 (annually)

Massachusetts

$500

$500 (annually)

Michigan

$50

$25 (annually)

Minnesota

$155

$0

Mississippi

$50

$0

Missouri

$50

$0

Montana

$70

$20 (annually)

Nebraska

$105

$10 (every two years)

Nevada

$425

$350 (annually)

New Hampshire

$100

$100 (annually)

New Jersey

$125

$75 (annually)

New Mexico

$50

$0

New York

$200

$9 (every two years)

North Carolina

$125

$200 (annually)

North Dakota

$135

$50 (annually)

Ohio

$99

$0

Oklahoma

$100

$25 (annually)

Oregon

$100

$100 (annually)

Pennsylvania

$125

$70 (every ten years)

Rhode Island

$150

$50 (annually)

South Carolina

$110

$0

South Dakota

$150

$50 (annually)

Tennessee

$300

$300 (annually)

Texas

$300

$0

Utah

$54

$18 (annually)

Vermont

$125

$35 (annually)

Virginia

$100

$50 (annually)

Washington

$99

$60 (annually)

West Virginia

$100

$25 (annually)

Wisconsin

$130

$25 (annually)

Wyoming

$100

$60 minimum (annually)

Best LLC Formation Services

When creating an LLC for the first time, we recommend using a business registration service provider. These services are designed to make your LLC setup as simple as possible. Here are the top two LLC formation services you can use right now.

ZenBusiness

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ZenBusiness Review

ZenBusiness is the best all-in-one LLC formation service that’s been helping businesses with LLC formation for over a decade. As such, ZenBusiness has assisted over 300,000 businesses and carries an excellent reputation for speed and transparency.

In addition to LLC formation services and same-day filing, ZenBusiness also provides registered agent services and EIN (employer identification number) assistance. You can even opt for ZenBusiness’ worry-free compliance, domain name registration, web design, and business banking services. Read our ZenBusiness review to find out why it’s our top pick.

• Trustworthy online LLC formation services
• Excellent customer service
• User-friendly website 
• Affordable tier-based plans

• Registered agent service auto-renews for $99 each year
• Cheaper options for web hosting and domain name registration exist

Pricing

ZenBusiness offers three pricing tiers for its LLC formation services:

• Starter: $49 per year
• Pro: $199 per year
• Premium: $299 per year

Inc Authority

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Inc Authority Review

Inc Authority is another LLC formation provider that offers free business registration services. This service provider offers the best customer support out of all the options available. This is because you can access 24/7 US-based support when you create your LLC with Inc Authority.

Helping businesses for over three decades, Inc Authority has established itself as one of the most worthy players in the LLC formation space. Inc Authority has thousands of positive reviews and an innate understanding of how to get your LLC up and running as soon as possible. Read more about Inc Authority in our review.  

• Extensive range of LLC services
• Outstanding customer service
• Excellent free plan

• Lots of marketing upsell
• Paid plan pricing is confusing
• Lack of BBB accreditation

Pricing

Although Inc Authority offers free LLC filing services, you can opt for a premium bundle:

• Starter: Contact Inc Authority for pricing
• Fast Track: Contact Inc Authority for pricing

Bottom Line on LLC Cost

Starting an LLC is an important part of establishing a flourishing business in the United States. However, some people may shy away from forming an LLC because of the LLC costs. In general, you can start an LLC with less than $1,000. The most expensive part of the process is filing your LLC registration documents with the secretary of state. 

Choose ZenBusiness to file your LLC with $49 only!

When registering your business as an LLC, your operating agreement imprints the operational guidelines and foundational elements of your company. It’s a customized document that outlines the functional and financial decision-making of the business. Continue reading to learn why creating this agreement is crucial and what operating agreements typically consist of.

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What is an LLC Operating Agreement?

An operating agreement for LLC (Limited Liability Company) is a document that identifies the business, defines member duties, states its ownership, and defines other structural components of the company. It usually includes basic information about the LLC and its owners. Furthermore, it states the company’s elected tax treatment and guidelines for handling specific procedures. 

Operating agreements function as legal contracts between the members of a multimember LLC. However, single-member LLCs can benefit from operating agreements, too. The operating agreement, once signed, acts as a binding set of rules for the members of the LLC to follow. 

It’s important to note that creating an operating agreement is not mandatory for most states. Nonetheless, it’s a crucial document you should create when starting an LLC. 

In essence, the purpose of an operating agreement is to govern the business’s internal operations in a way that adheres to the specific needs of the members. 

Why Do You Need an Operating Agreement?

There are several reasons why your LLC needs an operating agreement, including:

• Defines key business procedures: Although the articles of organization you file with the state make your LLC official, it describes little about how the company functions. LLC operating agreements get more specific in voting, meetings, day-to-day operations, and conflict resolution procedures.
• Strengthens your LLC’s “corporate veil”: If you don’t have an operating agreement, courts may not take your LLC status as seriously. The legal separation, or veil, between a company and its members, is key to limiting personal liability. 
• Protects members from personal liability: An operating agreement is a formality that projects the members from personal liability.
• Clarifies verbal agreements: The LLC operating agreement sets all agreements between the members in writing so there is no future confusion or misunderstandings. 
• Makes certain you aren’t subject to default state rules: If an LLC doesn’t have an operating agreement in place, the default rules set by your state will apply. For instance, states have standard rules that require companies to divide profits and losses equally. 

What’s Included in an LLC Operating Agreement?

While the content and structure of LLC operating agreements vary for each business, here are the types of information they most frequently include:

1. Each member’s ownership conveyed as a percentage
2. Each member’s responsibilities and voting rights
3. Guidelines on the duties and powers of each member
4. The profit and loss allocation among each member
5. The rules regarding member meetings and taking votes
6. The issues regarding the management structure of the LLC
7. Buyout and buy-sell provisions, when a member wants to exit and sell their share.

However, it’s important to remember that operating agreements are not one size fits all. Your operating agreement should be drafted to provide freedom, control, and protection over your specific type of company.

Let’s take a closer look at what’s included in an LLC operating agreement. 

Basic Information About the LLC

Operating agreements further emphasize your LLC’s most basic decisions and premises, many of which may already be set in your company’s “articles of organization”. This information typically includes your LLC’s official name, principal place of business, management structure, duration, registered agent, and statement of purpose. 

Member Information

One of the most important functions of an operating agreement is to specify how the LLC’s profits and responsibilities are distributed among the members. The operating agreement typically states basic member information, including names, addresses, and roles within the business.

It may also include the amount and nature of a member’s contributions to the business. These are often financial and should state expectations about compensation, which may be described with ownership percentages.

Tax Treatment Preference

LLCs usually have a single layer of taxation. This means they are, by default, exempt from business taxes, meaning profits are only taxed at the individual level when members report their share of income and expenses on personal tax returns. 

Furthermore, LLCs have a bit of autonomy regarding tax treatment, depending on the type of business. For example, LLCs may want to elect corporate status by filing as a C-corp or an S-corp to take advantage of certain incentives. The operating agreement should state the LLC’s initial tax status and define the procedure for modifying tax classification in the future. 

Management Structure

LLCs have one of two types of management structures, member-managed or manager-managed. A “member-managed LLC” lets members act as “agents” on behalf of the LLC and relies on members for daily operations. This is ideal for small or startup companies with relatively few members.

A “manager-managed LLC” is the second form of management structure where members elect a smaller set of people to manage the company. The non-elected members still retain passive ownership and voting rights on major decisions. This type of management structure is popular among larger companies with passive investors. 

Operating Procedures

An operating agreement also includes crucial business procedures for running the company.

These procedures include:

• Voting
• Approving manager actions
• Adding new members
• Holding member meetings
• Facilitating member exits
• Dissolving the LLC

Liability Statement 

One of the primary benefits of forming a limited liability company is the distinction it makes between the company and its individual members. Although corporate stockholders are protected from their company’s liability, sole proprietors or partnership members assume full personal liability for the risk of operation.

LLCs combine the best traits of both structures, enjoying a corporation’s limited liability without carrying its level of tax and regulatory burdens. Therefore, LLCs must clearly define the limited liability status with a comprehensive liability statement in case this status is challenged in the future. The operating agreement is the best place to declare this statement. 

Extra Provisions

The final goal of an operating agreement is to proactively navigate future bumps in the road. For this reason, they usually include provisions describing what happens in the event of unplanned circumstances such as a member’s death, a member’s withdrawal from the LLC, and disputes among members. 

Most operating agreements end with a “severability provision,” stating the rest of the operating agreement stays in effect if one part is opposed to state or federal law and is otherwise unenforceable. 

How to Create an LLC Operating Agreement?

Creating an operating agreement is a straightforward process as long as you use a template or get help from a business formation service.

Let’s discuss each option:

Do It Yourself

You shouldn’t draft an operating agreement yourself without a legal background. Since an operating agreement is legally binding, you don’t want to make any mistakes. Instead, you can use a blank template or step-by-step instructions. You can find many variations through legal help websites and law libraries.

Use an Online Service

The most efficient way to create an operating agreement is with the help of LLC formation services such as ZenBusiness and Rocket Lawyer. These services offer interactive templates that provide the structure and framework necessary to start a successful business. 

These automated business registration services offer an easy way to create an optimized operating agreement for your specific type of business. 

Use a Professional Service

If your LLC has unique considerations and a high level of complexity, you may want to consider getting professional legal help. There are plenty of lawyers specializing in operating agreements and offer pricing for individual documents instead of hourly rates. 

Bottom Line on What is an LLC Operating Agreement

An LLC operating agreement is a legal document that lays out the terms of an LLC to its members. As such, it creates the roadmap for the business to follow and provides clarity in operations and management. It’s important to develop an operating agreement because, without one, your LLC is governed according to your state’s default rules. 

A limited liability company (LLC) is a business entity operating out of a specific state. Its particular model caters to both single-person enterprises and large organizations through personal protections and tax benefits. This article explains what is an LLC business, its advantages, and the steps needed for formation.

Sign up for ZenBusiness to expedite your LLC formation process.

What is an LLC?

A limited liability company, or LLC, is a popular type of business structure in the United States. Sometimes referred to as a hybrid entity, it takes some of the best pieces of corporations and partnerships/sole proprietorships and mashes them together.

Rules for registering your business as an LLC and regulations for maintaining your enterprise do vary from state to state. Many states allow foreigners and citizens alike to create this type of business structure.

There are no restrictions on the size of an LLC, making the structure available to anyone with a business. One or more individuals can own an LLC, known as “members”. Even small companies or startups with a single member can take advantage of an LLC’s benefits.

Common examples of LLCs

Many large businesses are actually LLCs. Some prominent examples include search engine giant Google, tech company Microsoft, and ecommerce behemoth Amazon. Other big names include Johnson & Johnson, General Electric, Sony, and Pepsi-Cola.

Advantages and Disadvantages of LLCs 

There are several upsides and very few negatives to forming an LLC. Let’s take a look at these now.

Advantages

Personal Asset Protection

Perhaps the most appealing aspect of a limited liability company is the ability to safeguard its owners’ personal assets. Should your business become subject to a lawsuit, LLCs create a clear and distinct line between personal and business. Even if your company can’t afford to pay damages, those filing against you are unable to take from your personal finances.

This is not the case with a partnership or sole proprietorship, where there is no such distinction. If hit with legal penalties, your personal assets are fair game.

Tax Options

LLCs have the advantage of choosing a tax status from other business structures, be it sole proprietorships, partnerships, S corporations, or C corporations.

Because of this, it’s rare for this business type ever to pay taxes at the business level. LLCs can benefit from pass-through taxation, where profits pass straight to owners. Members then record their earnings on individual tax returns.

On the other hand, C corporations get hit with double taxes on both the top level and again when reporting on individual returns. When it comes to an LLC vs corporation comparison on taxes, the former takes the win.

Management Flexibility

Whether you’re flying solo or wish to own your business with others, LLCs have a place for you. There are no limits to the number of members an LLC has to have, and that number can change as your company progresses. It’s even possible to divide up profits among these individuals in specific ways.

The ownership also gets to structure the organization how they see fit. They can take it upon themselves to run the business or hire a manager to oversee day-to-day operations. Read more about member-managed vs manager-managed LLC.

Business Credibility

Many other organizations view a limited liability company as a more formal business entity than a sole proprietorship or partnership. Adding the LLC or some form therein to your legal business name goes a long way with customers as well. Some banks may require proof of LLC status to make available certain types of business bank accounts or small business loans.

Simplicity

An LLC is typically easy to form and maintain from year to year. There’s little paperwork involved in the process, and states usually require just one annual report to maintain good standing.

Business owners also have to worry less about administrative procedures that can bog down the corporate structure. With an LLC, you don’t have to hold annual meetings, assign specific officer roles, or keep a record of company minutes.

Disadvantages

Cost

Anyone settled into a sole proprietorship or partnership can benefit from the minimal costs of maintaining business status. Fees for forming an LLC can add up, as many states require upfront payment before allowing you to create your business. Similarly, LLCs must have a registered agent to handle legal documentation.

As each year passes, many states add on additional costs in the form of franchise tax fees or through annual reporting.

Transferring ownership

It’s a bit of a pipe dream to assume the members you start your business with will be there until the end. In corporations, individuals can buy or sell stock to modify ownership, but the same isn’t true for an LLC.

When it comes to transferring ownership in an LLC, usually all members have to approve changes to ownership percentages or add new members into the fold. As you form your LLC, it will be up to the ownership at the time how to structure this rule.

What is an LLC – LLC Formation Process

Forming an LLC is a relatively simple process, but there are some necessary steps involved to ensure compliance with the state. Be sure to follow these steps when creating a business of your own. If you’re interested, read out in-depth guide on how to start an LLC.

Step 1: Select Your State

When starting up an LLC, you can choose any state in the Union to do business in. There’s no requirement when selecting the state you live in or plan to work out of, but most owners opt to use this location for the sake of convenience. If you plan to have a physical location, you will want to establish an LLC in the state with your store.

Each state has its own requirements for forming an LLC, and some tend to have better benefits than others. If looking to form your LLC in a state not your own, you will need to file as a foreign limited liability company. Doing so often comes with additional fees and paperwork.

Step 2: Name Your LLC

Naming your LLC isn’t as simple as coming up with a cool name. LLCs in each state must have unique names distinguishable from all other registered names when you go to file. Using a name search through one of the best LLC services can help you whittle down your options and reduce issues during submission.

Customers have a much better chance of remembering short names that are both clear and memorable. Be sure not to lock yourself into a very specific business type if you plan to expand to new areas in the future.

Your LLC’s designation can’t be misleading to potential customers, though. Anything with “corporation” or some form of the word will surely end up on the rejection file. Along those same lines, it’s not wise to include a word or phrase that alludes to a different business purpose. States may have other rules about naming conventions that you’ll want to be sure to follow.

It’s a good idea to come up with a name quickly, even if you’re not quite ready to file. Several states charge a small fee to hold names for a short period of time while you finalize other details of your startup.

Step 3: Choose a Registered Agent

Every LLC needs a designated registered agent serving as your point of contact for legal and governmental matters. Whoever you choose needs to work regular business hours and have an address in the state you’re forming in.

There’s no rule stating you can’t be your own registered agent, but you’d need to be on hand to handle matters as they arise. Most business owners turn to a service to function as a registered agent. Going with the best registered agent services frees you and other members up to perform other tasks while having peace of mind that sensitive matters won’t get missed.

Step 4: File Your Articles of Organization

This form, submitted to the state, contains important information about your company. Each state’s form is a little different, and some areas may call the document certificates of organization or certificates of formation instead.

As one of your final steps for formation, you’ll need to provide your company name, address, registered agent, and what your business plans to do. Each owner’s name also needs to be on the form with an expectation for how long your venture will exist.

Step 5: Create an Operating Agreement

Your operating agreement serves as the foundation of your business from a legal, operational, and financial aspect. Each member should collaborate to create the rules everyone must follow when running the show.

Although this document is unique to your business, it’s essential to capture key points members can turn to whenever there’s a disagreement among the ranks. List everything that ends up in your articles of organization as a reference and who your members are. This is a great place to record ownership percentages and where responsibilities lie.

From a financial standpoint, cover your tax status and how the company plans to keep financial records. When profits roll in, it should be clear where every penny ends up. There should even be rules on who can change your operating agreement and the method to do so.

Step 6: Get an EIN

An Employer Identification Number (EIN) becomes your company’s unique code for all tax purposes. Any LLC will more than one member requires one, but even single-member LLCs benefit from using an EIN over a social security number. You’ll use this nine-digit number for paying taxes, opening a bank account, or obtaining business licenses.

Step 7: Stay Compliant

Nearly all states require you to check in at specific intervals after forming your LLC. The most common duration is one year, but some governments may wish to hear from you sooner or later. These reports help keep authorities apprised of any changes to your organization and often come with a maintenance fee.

What is an LLC – Top LLC Services

It is possible to accomplish every step of the LLC formation process on your own, but doing so is tedious at best. Missing even one small detail can lead to applications being rejected and significant delays in opening your business to the public.

Consider using an LLC service to do all the heavy lifting for you. These services understand the specific needs of every state, can expedite filing, and are able to function as your registered agent if needed. When it comes time for your yearly report or pooling together tax information, these services can offer assistance there as well.

As you consider an LLC service to help get your business off the ground, we recommend one of the following:

• ZenBusiness
• Inc Authority
• Incfile
• MyCompanyWorks
• Northwest Registered Agent
• LegalZoom

Bottom Line on What is an LLC

LLCs are a popular business structure combining many of the benefits that come with sole proprietorships, partnerships, and corporations. Its two standout features are the protection of your personal assets and the opportunity to pass-through taxes on the business level.

Forming an LLC can be a lengthy process, from coming up with a name to filing all the necessary paperwork. LLC services can remove much of the work and stress, allowing you to focus on the things that matter most.

ZenBusiness has one of the cheapest LLC services, starting at just $49 to get your company up and running. Their filing process is swift while offering the tools and guidance to get everything right the first time. Check out ZenBusiness today to create the LLC of your dreams.