Ultimate Guide – Management Library

February 23, 2023March 20, 2023

Do You Need a Business Bank Account?

Business person using their business bank account through internet banking

A bank account is more than just a place to store money. When used effectively, it can become a money management tool to help you track your cash flow, analyze your performance, and even reduce your expenses. But the question remains, should you open a business bank account once you already have a personal one?

The Different Between a Business Bank Account and a Personal Bank Account

Usually, business accounts enable you to perform the same types of transactions that are enabled by your personal bank account. There are, however, some minor differences between the two.

Ownership

While your personal bank account is owned by you personally, this is not necessarily the case with a business bank account. If your business is considered to be a separate legal entity, such as an LLC or a corporation, then the bank account is considered to be an asset of the business. This means that if the business is sold, then the bank account will be included in the sale.

If you’re a sole proprietor or an individual contractor, however, then the business account will be owned by you personally because your business is not a separate legal entity.

Taxes

Unlike a personal account, your business bank account is considered an asset of your business. As a result, the expenses you incur in this account are tax deductible so long as the IRS believes that they were incurred for work purposes and they are not deemed excessive.

Setup Process

Applying for a business bank account usually requires more paperwork than a personal account.

Your exact requirements depend on the type of business you own and may include documents such as your business license, DBA (Doing Business As) name, and form of ownership specific details such as Articles of Incorporation or a Partnership Agreement. We will, however, go into more detail about this process later.

Employee Debit Cards

Some business accounts allow you to order employee debit cards, thereby giving them the ability to withdraw and spend funds. If your bank enables this feature, then you’ll also have the ability to set spending limits including online, at ATMs, and on card machine purchases.

The Benefits of Business Bank Accounts

While the extra administration that comes with opening an additional bank account may seem daunting, there are several important benefits that prove why opening a separate business bank account is not only a worthwhile endeavor but a necessity.

Taxation

By keeping your business and personal funds separate, financial management becomes a lot more efficient. Not only is it easier to track business expenses and income, but filing taxes becomes simpler as well.

Instead of confusing business funds with personal ones, you’ll have a clearer picture of what to include in your business’s tax filings as well as what expenses to include as tax write-offs.

Credibility

For many potential customers, financial security is of utmost importance, especially when it comes to parting with their hard-earned money. By having a separate bank account that reflects your business’s name and contact details, you’ll provide your business with a layer of legitimacy that will make it appear more credible in the eyes of customers, thereby earning their trust.

Liability Protection

Although not every business operates as a separate legal entity, opening separate business and personal bank accounts can help you to minimize your personal liability should your business run into financial or legal trouble. Should an issue arise where your business’s finances are affected, your personal finances will remain untouched.

Building Credit

No matter the size or age of your business, having access to a line of credit always provides peace of mind.

Not only do business checking accounts often come with business-specific financing options, but by using a business bank account, you’ll have the opportunity to build your credit history. This will result in a stronger business credit score and access to bigger loans on better terms.

Functionality

Many business bank accounts offer multiple signing authority. This means that both you and other key business members such as directors, managers, or treasurers can obtain signing authority on the account.

What’s more, you can create different groups of signatories, for example, one could be sole signatories with their own signing power while others require dual signatures. With multiple signing authority, you can accelerate daily financial decision-making.

Another feature that business accounts often have is the ability to order debit cards for multiple employees, thereby enabling them to perform necessary business purchases as and when needed.

What You Need in Order to Open a Separate Business Bank Account

While banks will require some basic information from all businesses, the specific documents you need in order to open a business bank account depends on the type of business you run. Let’s take a look at what you might be required to submit depending on your form of ownership.

Sole Proprietor

Basic information that banks usually require from sole proprietors include your personal details such as full legal name, physical address, phone number, and email address as well as your Tax Identification Number (TIN) or your Social Security Number (SSN).

Some documents that may be required include your DBA (Doing Business As) certificate and either an IRS SS-4 form or a 147 c Letter that verifies your Employment Identification Number (EIN).

General Partnership/Limited Liability Partnership (LLP)

Like sole proprietors, partners in a partnership are required to submit their full legal names, physical address, phone number, email address and Social Security Numbers (SSNs).

Documents that may be required for further validation are a copy of the Partnership Agreement as well as Certificate of Partnership. It’s important to note, however, that the Partnership Agreement should stipulate the percentages of ownership among the partners.

Limited Liability Company (LLC)

When applying for an LLC business checking account, LLC’s are required to present their Business Employer Identification Number (EIN) as provided by the IRS. This is in addition to their physical address and phone number. The date that the business was established may also need to be submitted.

Essential documents that LLCs must submit are their Articles of Organization as well as their Operating Agreement. While not always a requirement, some banks request LLCs to disclose their annual revenue, so make sure to have this information available just in case.

Corporations

Much like an LLC, corporations are required to submit their Business Employer Identification Number (EIN) as well as physical address and phone number.

Corporation-specific documents that will be required are your Articles of Incorporation as well as the Company Bylaws.

Choosing a Business Account

Before searching for a bank account, it’s important to determine what features are a priority for your business. Here are some of the factors that may help you identify the ideal business bank account for your circumstance.

Fees

While they may not be viewed as typical business costs, banking fees such as monthly fees, ATM transaction fees, and transfer fees are still expenses. What’s more, because they occur on a regular basis, they can add up to a substantial amount.

If your aim is to save money, then you’ll want to consider opening a business bank account with minimal fees. Some banks such as Novo and Bluevine offer accounts with no monthly fees, while Axos provides full unlimited reimbursements on ATM fees.

Interest

As you focus on growing your business’s income through sales, your business can earn a modest passive income on the side by joining a bank that offers a competitive interest rate. Bluevine offers an APY of up to 2.0%, while others such as Lili and LendingClub offer up to 1.5% interest.

Online features

Aside from financial benefits, your bank account can also help you to run your business more efficiently. Lili offers online features such as its tax optimizer to help you organize your tax write-offs and file your taxes, while Found and LendingClub both provide digital invoicing software so that you can perform all financial transactions on one integrated platform.

Credit Access

No matter how much financial planning you do, the future remains uncertain. Because of this reality, you may want to ensure that you have access to credit lines in case you need some extra financial support to grow your business and reach your goals.

Bank of America and Axos are two banks that provide a range of loans specifically tailored to small businesses.

Do You Need a Business Bank Account Frequently Asked Questions (FAQs)

Do you still have some unanswered questions about opening a business bank account? Here are some answers to common questions that will hopefully make the process a little clearer!

What ID do I need in order to open a business bank account?

While each business requires a specific set of documents according to its form of ownership, there are some forms of identification that all business owners should make sure to prepare when applying for a business bank account.

Make sure to have your full legal name, physical address, phone number, and email address ready to submit along with the legal name of your business.

If you’re a sole proprietor or a partnership, then you and any relevant partners will need to submit your Social Security numbers as well as your Tax Identification Numbers.

For other businesses that are a separate legal entity, an Employment Identification Number (EIN) is required. Here’s how to open a business bank account with EIN only.

How do you open a business checking account online?

Today, opening a new business bank account online is easier than ever. Axos, Bluevine, Lili, Novo, and Found are just some examples of online banks that provide a fast and straightforward sign-up process straight from their official websites.

All you’ll need is the documents required by your chosen bank and a working internet connection and you’ll be able to apply for an account within minutes.

An array of traditional banks are also entering the online banking sphere, with Bank of America and Chase for Business among those brick and mortar banks that are enabling their clients to apply for accounts and conduct banking transactions entirely online.

How does tax work if I have a business bank account?

By signing up for a business bank account, filing your taxes actually becomes simpler! This is because you don’t have to search through your transaction history and separate business income and expenses from personal banking activities. What’s more, some banks provide tools to automate your tax filing.

Some business bank accounts such as those from Lili and Found come with accounting software, receipt scanners, and automatically generated financial reports, while Bluevine and Bank of America offer integration with external accounting platforms.

Bottom Line on Whether You Need a Business Bank Account

No matter what type of business you own and what size it is, opening a separate business bank account is a must. Whether or not your business is a separate legal entity, your online bank account’s digital tools will be sure to make managing your business’s finances simpler!

Best Business Bank Accounts by State

Below you will find an interactive U.S map that can help you locate and compare different banks and financial institutions that offer business accounts in your area.

February 17, 2023February 20, 2023

What is the Deadline for the Employee Retention Credit?

The word "deadline" written boldly on an office calendar

Many companies experienced lost revenue to the COVID-19 pandemic but chose to keep employees on the payroll. To compensate small and medium-sized businesses, the government offered employee retention credit to help them stay afloat. Did you miss the window to receive your reimbursement? Read on to find out.

Use Bottomline Concepts for streamlined and speedy ERC filing!

Employee Retention Credit Explained

When the COVID-19 pandemic hit the United States in force, many state governments shut down businesses to keep people safe. Employers were left wondering what to do with employees.

Many good-natured souls kept staff on the payroll to help people make ends meet and in hopes the shutdown would come to a quick end. In some cases, companies still dealt with issues well into 2021.

The government created employee retention credit (ERC) as a way for small and medium businesses to recover payroll costs during slow times. Business owners could request credit from 2020 until the fall of the following year.

What Are the Eligibility Requirements for ERC?

To qualify for employee retention credit, your business must have experienced at least one of the following:

Your business was completely or partially closed from a government order in your state. This order must have come as a result of the COVID-19 pandemic.

Your business faced a certain decline in gross receipts

.The government’s rules surrounding “a decline in gross receipts” varied between 2020 and 2021.

Businesses in 2020 must have seen at least a 50% drop in gross receipts when compared to the same interval in 2019. Only companies with 100 full-time staff or less are able to apply.

In 2021, businesses only needed a 20% decrease in gross receipts to qualify. The government also allowed organizations of up to 500 full-time employees to take part.

What is the Deadline for the Employee Retention Credit?

The employee retention credit program may be at an end, but it’s not too late for your business to submit a request for funds. However, there are two deadlines you’ll need to watch out for.

Any amendments to your 2020 filing must be completed no later than April 15, 2024. Similarly, changes to your 2021 payroll tax forms must be submitted by April 15, 2025 at the latest.

How to Apply for Employee Retention Credit

Employee retention credit comes from your payroll taxes, which you’ve already submitted for 2020 and 2021. To claim a reimbursement of funds owed as a result of this program, you’ll need to file an amendment to those payroll forms.

The IRS uses Form 941-X specifically for this purpose. You’ll have to file one form for each quarter you’re requesting funds from.

You can get away with just one form for 2020, but you’ll need to submit a unique Form 941-X for each of the first three quarters of 2021, assuming you qualify.

Bottom Line on What is the Deadline for the Employee Retention Credit

Although the employee retention credit program has come and gone, it’s not too late for your business to file for a refund. Submitting your application requires careful completion of Form 941-X for each quarter you’re requesting credit from. The IRS handles these forms as they can, but many businesses are waiting between six months and a year for their check.

If you want to speed up the process, using an ERC filing service may be your best bet. Companies like Bottomline Concepts will help you navigate the complicated process and get your form in front of the IRS that much faster. Such a service also minimizes your chances for errors that can lead to delays or no payment at all.

November 29, 2022February 15, 2023

DBA Meaning: Creating a Special Name for Your Business

Forming a business can be a challenging process, made more confusing by tricky terminology. A DBA can benefit any business structure if you understand how one works. This article takes a look at DBA meaning and the ways to use a DBA to set your company apart from the competition.

Use ZenBusiness to facilitate the DBA registration process.

DBA Meaning – What is a DBA Name?

DBA stands for “doing business as”, and is a registered name your business operates under. It is different from the legal name your company takes upon formation with the state, and is therefore sometimes referred to as a fictitious or assumed name. A DBA is particularly helpful in situations where you have no control over your business’s legal name.

Benefits of a DBA

By DBA definition, creating an assumed name can open many business doors. Here are a number of reasons why filing a DBA can be advantageous.

Hide Your Private Information

In a sole proprietorship, your business name is the same as your legal name. Partnerships follow a similar pattern, incorporating the last names of both partners to form a business name. Any time one of these entities does business, the owners have to share those names with suppliers or clients.

You can avoid that headache with a DBA, meaning you can do business with an assumed name that keeps your private information private. This can, you have more control over who sees your personal name as you make contacts.

Marketing Your Business

Most businesses you know tell a story with their name, and a DBA allows you to do the same. Your DBA name can convey your business purpose to potential customers about the products you sell or services you provide. If consumers don’t understand what your business is all about, chances are they aren’t going to be shopping there.

Expansion

If you expand your business into a completely different niche from where you normally operate, you can use a DBA to represent that new area. This also holds true when moving across state lines and you want to personalize your locations by name.

A Boost of Credibility

There’s little to say about a business using a person’s surname for professional matters. Other companies and customers may not take your business seriously and choose to work with you.

Business Banking Purposes

Along that same vein, many banks want to see a DBA before allowing you to open business banking account. Business accounts often have extra perks and help you keep personal and professional finances sorted.

Easy and Affordable

Although each state has a different process, creating a DBA name is generally easy to do. As an added bonus, the cost is often quite low and lasts for several years before you need to renew.

Create a DBA with ZenBusiness

What a DBA Won’t Do

When looking at DBA meaning, it’s important to note that this assumed name is not a legal business entity. In other words, a DBA does not protect your personal assets in the event of legal action against your company. If there’s a risk of legal action against your business type, it’s wise to register an LLC.

In most states, a DBA isn’t enough to have a unique business name. Other companies can also file the same DBA name in the same state without consequence. If you want to be the only one who can use a particular moniker, you’ll need to file a trademark instead.

When Do Sole Proprietorships and Partnerships Need a DBA?

There’s no requirement for a sole proprietorship or partnership to register a DBA, meaning you can go about business indefinitely using just your name. If you wish to operate under an assumed name, you will have to file the appropriate paperwork in most states. Check with your county as well, as some local entities need documentation as well for compliance.

Thirteen states do not require a state filing for a DBA, meaning you can use your business name of choice without consequence:

Alabama
Alaska
Arizona
Delaware
Florida
Hawaii
Kansas
Maryland
Mississippi
Nebraska
Ohio
Wisconsin
Wyoming

It’s still worth checking at the county level for any necessary paperwork.

Can LLCs or Corporations File a DBA?

LLCs and corporations are formal business structures with a host of perks. When you register your business as one of these entities, business owners must come up with a unique title that becomes the company’s legal name. No other venture in the same state as you can use the same name.

That said, any type of business can register a DBA should they want to run the business under an assumed name or branch off into a new category without creating a new company. There’s no restriction to the number of DBAs you can have, so large businesses may have several under their hat to pick from.

Create a DBA with ZenBusiness

How to File a DBA

Filing a DBA in your state is not a difficult process, but it does vary from state to state. Follow the steps below and you’ll have a DBA in no time.

Step 1: Understand the Meaning of DBA in Your State

No two states are the same when it comes to a DBA and its requirements. Take the time to see what you need before filling out any paperwork. Be aware that some cities or counties have requirements of their own that may complement or supersede happenings at the state level.

Step 2: Come Up With a Name

Once you know how to file your DBA, you’ll still need to come up with a name. Many customers will use this title to decide whether to shop with you, so come up with something catchy that spells out exactly what you do.

Keep in mind that shoppers in this day and age have short attention spans and will quickly forget convoluted or long names. Even if they remember bits and pieces, it likely won’t be enough to share with a friend or find you again online.

States will place restrictions on certain words that you’ll need to avoid. It’s not possible to include LLC in a DBA if your company is a sole proprietorship.

Step 3: Check for Businesses Already Using the DBA

Most states don’t have a rule limiting a DBA name to just one business. While you can use the same DBA name as the flower shop down the street, such a move can spark confusion on multiple levels.

With so many businesses functioning at least in part online, your DBA name needs to work online as well. Website addresses, also known as domain names, are unique. If another company already has the domain of the DBA you’re considering, you may want to go a different route.

Step 4: Register the DBA

After completing the first three steps, you’re ready to register your DBA. The process isn’t free but should cost less than $100, depending on the location you file. Some state or county offices will let you perform this step online, but in others you’ll need to drop the paperwork off in person.

In either case, you’ll want to wait for approval from the governing body before you start using your DBA. You’ll receive a document letting you know you can conduct business under your new name and can start ordering your branded marketing tools.

DBA Meaning Frequently Asked Questions (FAQs)

This FAQ answers some of the most common questions surrounding DBA meaning.

What is a DBA name example?

If your legal name is Roger Smith and you start a sole proprietorship, your business’s name is one and the same. You can register a DBA under “Roger’s Bait Shop” to tell customers what you’re all about and keep your last name private.

Is DBA the same as a company name?

No, your company name is the legal name of your business at the time of formation. In the case of a sole proprietorship, it is the same as your legal name. A DBA, or “doing business as”, is an assumed name you can use in its place. Your DBA name can be used for branding or marketing but has no legal bearing.

What is another name for DBA?

DBAs are often referred to as assumed names or fictitious names. A DBA does not replace a business’s legal name.

Can I open a business account with a DBA?

Yes, a DBA is enough for most banks to strike up business negotiations with a sole proprietorship or a partnership. This way, you can separate your personal and professional finances while reaping the benefits of what a business account can offer.

Bottom Line on DBA Meaning

Understanding DBA meaning can help your business immensely, no matter the size or structure. For sole proprietorships or partnerships, DBAs offer a way to keep personal information out of the spotlight while allowing these business types to create a name to build a brand around. If you want to take your business to the next level, registering a DBA is an obvious next step.

ZenBusiness is one of the top DBA services available, with all the tools you need to register your DBA. You can look up potential names and register straight from the ZenBusiness site, ensuring you get everything right the first time. Head over to the ZenBusiness website for all your DBA needs at one reasonable price.

Best Business Bank Accounts by State

Below you will find an interactive U.S map that can help you locate and compare different banks and financial institutions that offer business accounts in your area.

November 28, 2022February 17, 2023

Understanding LLC Taxes The Ultimate Guide to LLC Taxation

tax time reminder concept on a bluish background

No one likes to think about them, but taxes are an integral part of any business. If not done correctly, repercussions on your company can be severe. In this article, we look at how an LLC is taxed and a few ways to keep your payments as low as possible.

Use ZenBusiness to file your LLC with ease and TurboTax to make LLC tax filings easy.

What are LLC Taxes?

Nothing is certain but death and taxes. With a Limited Liability Company, just like any other business entity, you have to pay taxes on your taxable income. This includes all sources of revenue minus money spent on marketing, research, expenses, and the like. How you choose to set up your LLC plays a major role in what you pay during tax time.

LLCs do not have a defined tax structure and instead borrow a tax identity from other business types. This also grants you as a business owner the flexibility to change classifications, although the government typically only allows a switch once every five years.

How LLCs Pay Income Taxes

The government looks at an LLC as a sole proprietorship for single-member companies and a partnership for those with multiple owners. These entities do not pay income taxes on the federal level, instead passing down income to each member’s personal returns. Each member pays taxes based on their percent ownership in the company.

It is possible for an LLC to choose taxation using corporate guidelines, taking on an entirely different tax structure, one of the biggest benefits of LLCs. Let’s take a look at each LLC taxation method and what business owners should expect.

Single-member LLCs

The IRS lists LLCs with a sole owner as a disregarded entity for federal income taxes. In short, the government ignores your business structure and treats the company as if it were a sole proprietorship. The LLC itself does not have to pay taxes, with taxation being passed down to the sole member.

All income and expenses have to appear on the business owner’s federal tax return. The member records all income and expenses on a 1040 form before filing. If the company returned a profit during the year, the owner pays taxes on that income based on the tax bracket the income falls in. If operating at a loss, there’s no income to tax.

Multi-member LLCs

Multi-member LLCs deal with taxes very similarly to single-member LLCs by default. Also considered a pass-through entity, An LLC with more than one owner doesn’t pay taxes on its own, either.

In this situation, each member pays taxes on what the business makes based on their percent ownership in the LLC. At formation, LLC owners should list in the operating agreement how much each one will earn. The split does not need to be equal. Even if members decide to leave potential profits with the company, the IRS still expects taxes on the entire amount they would receive every year.

At tax time, LLCs must fill out form 1065 with the IRS indicating gains and losses for the year. It is also required to create a Schedule K-1 for each member, reporting the amount that person receives. Individual owners still need to document their earnings on a 1040 form to the government.

As a Corporation

LLCs can choose to file taxes as a C-corporation or S-corporation. Since this is not an LLC’s default tax structure, members will need to vote and agree on the change.

In a C-corporation, the company first pays taxes on gross income after deductions using form 1120. The remaining profits then get distributed to shareholders, who still pay individual income taxes. The current federal corporate tax rate is 21%, lower than most individual rates.

S-corporations work somewhat similarly to an LLC’s default tax structure. The government treats it as a pass-through entity with some deviations in how it taxes profits. Business owners opting to file as an S-corp use form 1120S.

Use ZenBusiness to register your business as an LLC

Payroll Taxes for LLCs

Any LLC with at least one employee has to collect payroll taxes and make payments to the IRS. The company withholds an employee’s share of these taxes from paychecks.

Employers are also responsible for a portion of payroll taxes that go to social security, Medicare, and unemployment benefits. The LLC uses forms 940 and 941 to declare these taxes, with the former filed annually and the latter each quarter.

A company does not pay payroll taxes when submitting these forms but rather throughout the year, as indicated by the IRS.

Self-employment Taxes for LLCs

The government does not view LLC members as employees. Therefore, any LLC business owners filing taxes as a sole proprietorship or partner are considered self-employed.

Self-employed business owners must pay the full amount of self-employment taxes toward Medicare and social security. At present, these taxes add up to 15.3%, and members have to make payments at quarterly intervals. Schedule SE is the form to document these fees.

State Taxes for LLCs

Federal taxes are fairly straightforward, but this isn’t always the case at the state level. Keep the following in mind when working in one or more states.

LLC Income Tax

There’s usually little difference in the income tax process at the state level, except that states will only tax based on relative income in that location. Businesses selling products or services in multiple locations will have to pay income tax in each state.

Read our guide on income taxes by state.

LLC Sales Tax

Most states charge a sales tax on applicable goods and services. Only Delaware, Montana, New Hampshire, and Oregon do not. It is an LLC owner’s responsibility to collect these taxes from customers at the time of sale. Each state sets its own sales tax rate.

If a company ships products across state lines, each state determines how to tax those sales. In most cases, the tax rate comes from the final delivery location of the package. A handful of states charge taxes based on the shipment’s origin instead.

LLC Business Expenses and Deductions

No matter which tax structure you choose, it’s possible to deduct certain expenses from your taxes. The expense can be anything that ultimately helps your company succeed. Common examples are startup costs, equipment, advertising, rent, and business insurance.

Any deductions come out of the total revenue your business earned in the given year. This reduction means you don’t have to pay taxes on the portion of income covering those expenses.

For example, a company with $20,000 in income with $3,000 in applicable business expenses only has to pay taxes on the remaining $17,000.

In 2018, the government passed an income tax reform law for owners of pass-through businesses. Any qualifying member can deduct up to 20% of net business income from their taxes right off the top. Keep in mind LLCs filing as C-corporations do not receive this benefit.

Use a Tax Software to Help With LLC Taxes

You’ll need to keep careful track of income and expenses throughout the year to have accurate tax returns. As you can guess, failing to properly declare all the money your company makes can lead to serious issues with the IRS.

This can be a challenge for established LLCs and even more so for a startup working through all the nuances of a new business. To help alleviate some of the pressure, using a tax software ensure nothing gets overlooked on your tax forms can be beneficial.

Tax software like TurboTax can walk you through the filing process from start to finish, including how to keep track of finances and which forms to use with the government.

LLC Taxes Frequently Asked Questions (FAQs)

Understanding LLC taxation is not a simple process. Our FAQ answers some of the most common questions about the topic.

Is an LLC worth it for tax purposes?

By default, LLCs are pass-through entities. This means the business structure doesn’t pay taxes at the federal level and members only on individual income.

Is LLC income taxed twice?

LLC income is not taxed twice, since LLCs do not have to pay at the federal level. The only exception to this rule is if an LLC chooses to be taxed as a C-corporation.

What happens if my LLC does not make money?

If an LLC doesn’t make money, its members may not need to file a tax return that year. It can be beneficial to file anyway to check for deductions or credits.

What are the benefits of owning an LLC?

LLCs allow members to separate and protect personal funds in the event of a lawsuit. For tax purposes, LLCs function as pass-through entities, so business owners only have to pay at the individual level.

Bottom Line on LLC Taxes

Taxes are a cumbersome but necessary part of running a business. Fortunately, LLCs allow you to choose from different tax structures that best suit your company at the time. Whether pass-through taxation or filing like a corporate entity, LLCs make the process as easy as can be.

Best Business Bank Accounts by State

Below you will find an interactive U.S map that can help you locate and compare different banks and financial institutions that offer business accounts in your area.

November 20, 2022March 29, 2023

LLC Name Search: Ultimate Guide to Finding a Unique LLC Name

Businessman finger touching an empty LLC name search bar

No matter which state you’re starting a limited liability company (LLC) in, you’ll need a unique name to do business with. States will not let you use a designation already taken by another business entity. Read on to discover how an LLC name search can facilitate this process.

Check out ZenBusiness for all the tools you need to start your LLC with ease.

What is an LLC Name Search?

You’ve come up with the perfect name for your new LLC and are all set to submit registration documents to the state. If your fantastic moniker is already in use, the state will reject your paperwork and request you to resubmit with a different name choice. Any failed attempt to open your doors can cost untold amounts of time and money.

That’s where an LLC name search comes in. Many business registration services have an LLC lookup tool you can use to uncover which names are available and those already in use. The probe will also identify similar titles that could similarly affect the state’s decision.

Run an LLC name search with ZenBusiness

Tips for Naming Your LLC

Your LLC name can ultimately make or break your business. Customers want to connect emotionally with your brand and often use a name to do so. Here are some important tips to remember when creating yours.

It’s Okay to Ask for Help

LLC name search tools are an excellent way to reveal options you haven’t been considering. ZenBusiness allows business owners to input a list of keywords the platform will sift through to locate ideas.

Other sites contain business name generators that may help point you in the right direction. Just be sure to put these in an LLC lookup before attempting to register your business.

Plan for Future Expansion

Be careful not to shoehorn yourself into a niche you may want to break out of in the future. If you’re too specific in your choice, customers may have no idea you offer more than your name implies.

For instance, don’t call your company Carl’s Boots if you plan to sell other types of shoes and perhaps even clothing down the road. Also avoid names that limit you to a specific city or region, as who knows how your business will take off.

Catchy is Key

Shoppers are more likely to remember a name that’s clear and concise, even if a longer name sounds cool. We absorb so much content nowadays, there’s only a limited amount of information that stays with us. If there’s a chance of a customer forgetting your business name, they likely will.

On that note, your name needs to stand out against all the other companies offering the same products or services you are. What’s a name conveying what you’re selling that consumers will recall the next time they need what you provide?

You need to find a fine line between boring and being too far out there. Your team shouldn’t be embarrassed by your name and not want to tell people where they work. Say it out loud to make sure it sounds good audibly in addition to being a winner on paper.

Give your company’s title meaning, even if that importance currently only belongs to you. This can become part of your story and may help to sell your brand and products.

Don’t Use Complicated Spelling

Customers may not be the best spellers, and typing errors from complex names may lead them away from your site instead. Similarly, using intentional misspellings to skirt around names already in use could send shoppers into your competitor’s hands.

If someone can’t find your site the first time they search, chances are they aren’t going to try again. A simple, to-the-point title accomplishes way more than you think.

Get Some Feedback

Once you’ve heard a handful of names in your own head a few dozen times, try them out on people you trust to give good feedback. Lean towards unbiased people who have a good ear for naming conventions. Don’t hesitate to seek out feedback from your target audience through forums or social media to hear their thoughts on your ideas.

Don’t Mislead

When starting an LLC, don’t try to tag your business name with “corporation” or some form of the word. In that same vein, don’t imply your company deals in some type of business it doesn’t actually have. If you’re not a doctor, don’t allude to the fact that you are.

LLC Naming Requirements

Your business name has to clearly indicate that you are, in fact, an LLC. Therefore, it must include some form of “Limited Liability Company”. Most businesses choose to stick this designation at the end.

While not an exhaustive list, here are some common ways owners indicate their business structure:

Limited Liability Company
Limited Company
Limited
L.L.C.
LLC
L.C.
LC
Ltd. Liability Co.

Check for Trademarks

LLC registration protects you at the state level, but companies in other states can still make use of the same name. Trademarks exist on the federal level and trump state name availability.

Perform a check before registering your business so you don’t end up infringing on a trademark. The United States Patent and Trademark Office is the best place to perform such a search.

Look to the State

Each state is allowed to have rules and regulations surrounding LLC names. Be sure to access this information from the state you’re registering in and make sure you meet all the guidelines.

Be Happy With Your Name

With a little luck, the name you choose will be with you forever as your business blossoms and grows. Make sure you’re happy with what you’ve chosen so you don’t become disillusioned with your company later on. It’s worth a little extra effort to come up with something you’ll always like.

Grab a Domain

Any LLC planning to have an online presence should obtain a domain name during the registration process. Linking your business name to your website is essential for removing customer confusion and boosting your credibility. Sticking with the original “.com” tag is always best, as most consumers will go there first.

Domain provider NameCheap offers some of the best deals on the web. It’s not possible to purchase a domain outright, but you can rent one for up to ten years if you so desire. Don’t let your domain name lapse before you’ve had a chance to re-up your contract.

Reserve a Name

Even if you’re not quite ready to register your LLC, it’s a smart move to lock in your ideal name as soon as you come up with it. Most states will allow you to reserve a name for somewhere between 30 days and a year if you pay the applicable fees.

How to do an LLC Name Search

The best LLC services offer the tools you need for building an LLC from the ground up. Investing in one of these platforms simplifies the LLC creation process, and many include unlimited LLC name searches for free on their site.

Run an LLC name search with ZenBusiness easily

Should you want to search directly with the state instead, the following links will take you where you need to go.

LLC Name Search Frequently Asked Questions (FAQs)

This FAQ has answers to the most common questions corresponding to LLC name searches.

Should I name my LLC after myself?

Many entrepreneurs over the years have named businesses after themselves. While it’s overt in cases like Air Jordan, other companies like Bose and Tupperware may be less obvious. If you decide to follow suit, make sure your name doesn’t limit your ability to grow in some way.

Does your logo have to match your business name?

There’s no requirement to have your logo match your business name. However, both serve to promote your brand and may create confusion if not the same.

Does my website name have to be the same as my LLC name?

Your website doesn’t have to match your LLC name in any way. Although they can be completely different, people searching for you online may become confused or put off if these names aren’t the same.

Is a business name a legal name?

The moment you register your LLC, your business name becomes your company’s legal name. Unless you file a DBA, you’ll need to use your business name on legal and government documents.

Bottom Line on LLC Name Search

The right business name can make all the difference in a never-ending sea of competitors. Customers will buy from a name they resonate with, but may avoid you like the plague if they can’t follow your angle. An LLC name search can help narrow down possibilities in your state while saving time and money when it comes time to register your business.

ZenBusiness has a free LLC search tool on its site for just such a purpose. With the tool, you can identify unavailable names and get ideas for yours based on your favorite keywords. After picking out your name, ZenBusiness can help you with the rest of the registration process for one low fee.

Run an LLC name search with ZenBusiness

November 19, 2022February 15, 2023

Ultimate Guide to EIN Lookup – Find Your EIN Number Easily

An employer looking up his EIN on his laptop

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.

How to Look Up an EIN Frequently Asked Questions (FAQs)

This FAQ provides answers to common questions about EIN numbers.

Is a company’s EIN public information?

A company’s employer identification number is public information, but you should limit its exposure as much as possible. Unscrupulous individuals can obtain your EIN and create false documents or attempt fraud.

What can you do with an EIN number?

An EIN number functions as your federal tax identifier. You’ll need an EIN to open a business bank account, apply for business licenses, hire staff, or file taxes.

Is EIN the same as a Social Security number?

An EIN is not the same as a social security number, although a business can use either one for tax purposes under certain circumstances. A social security number is linked to an individual, and an EIN is a number generated by the IRS for a specific business.

Does an LLC need an EIN?

An LLC (Limited Liability Company) with more than one employee must have an EIN for tax purposes. In many cases, banks will require an EIN (as opposed to a social security number) when opening an account or taking out a loan.

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

October 31, 2022January 11, 2023

Free LLC Operating Agreement Template – Ultimate Guide

Person in White Dress Shirt Using Macbook to check out an llc operating agreement template

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.

Management Library – Single Member LLC Operating Agreement Download

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:

LLC Operating Agreement Template – Frequently Asked Questions

Understanding the ins and outs of an LLC operating agreement template can be a challenge. This FAQ hopes to answer questions about some key aspects of the subject.

Is an LLC operating agreement the same as the Articles of Organization?

An operating agreement and articles of organization are two completely different documents. Your LLC will turn in Articles of Organization when you form your business to register with the state. On the other hand, an operating agreement is an in-house document containing information about your business structure.

Can I make my own operating agreement?

It’s certainly possible to make your own operating agreement, and in most states, you can do so at any time. Due to its complex nature, some businesses choose to use a business registration service to help draft the document.

What is another name for an operating agreement?

Operating agreements are sometimes referred to as membership agreements. A membership agreement clearly indicates that all owners need to approve what they’ve recorded within.

Why should an LLC with only one member still have an operating agreement?

Even with just a single member, an operating agreement helps protect your personal assets if you find yourself in legal hot water. Judges sometimes treat LLCs without operating agreements as sole proprietorships and may rule against your personal assets.

As your business grows, having an operating agreement early on looks good in the eyes of potential investors. Since you’ve already laid the groundwork, bringing additional members on board may cause fewer headaches.

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.

October 28, 2022February 16, 2023

The Benefits of Starting an LLC – Guide to LLC Benefits

Dark skinned woman and colleagues in corporate llc office working

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

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.

Benefits of an LLC – Frequently Asked Questions (FAQs)

The benefits of an LLC play a major part in determining which business structure to use for your business, but they don’t offer the complete picture. This FAQ serves to answer additional questions you may have about limited liability companies.

Is an LLC a good idea?

LLCs allow a lot of flexibility that other business structures don’t offer. No matter your company size, you can also benefit from personal liability protection, minimal paperwork, and easy formation.

How do LLC owners make money?

As a business records profits, owners are able to take out their share as income. Thanks to the flexibility of an LLC, profit contributions to members do not have to be the same amount.

Can an LLC have employees?

There is no limit on the number of employees an LLC can have. Any LLC with more than one member requires an employee identification number (EIN) for tax purposes.

How does an LLC avoid self-employment tax?

The only way for an LLC to avoid self-employment tax is to choose a C corporation tax structure. Although the government taxes income on the corporate level, owners do not have to pay self-employment tax. It is possible to adjust an LLC’s tax status every five years as needed.

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.

October 27, 2022February 17, 2023

How Much Does It Cost to Start an LLC – LLC Cost Guide

Businessman calculating how much it cost to start an llc

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.

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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.

Alabama

$200

$100 minimum (annually)

Alaska

$250

$100 (every two years)

Arizona

$50

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

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

Mississippi

$50

Missouri

$50

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

New York

$200

$9 (every two years)

North Carolina

$125

$200 (annually)

North Dakota

$135

$50 (annually)

Ohio

$99

Oklahoma

$100

$25 (annually)

Oregon

$100

$100 (annually)

Pennsylvania

$125

$70 (every ten years)

Rhode Island

$150

$50 (annually)

South Carolina

$110

South Dakota

$150

$50 (annually)

Tennessee

$300

$300 (annually)

Texas

$300

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

LLC Cost Frequently Asked Questions (FAQs)

Here are a few common questions we receive from our readers about how much does it cost to start an LLC.

Do I Need a Lawyer to Start an LLC?

No, you aren’t required to hire a lawyer to start an LLC. However, some business owners choose to hire a lawyer to help create their operating agreements.

Should I Use an LLC Formation Service?

Yes, you should use an LLC formation service because it saves time and lets you focus on other parts of the business.

Does My LLC Need a Registered Agent?

Yes, you need a registered agent to create and maintain your LLC in every state except New York.

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!

October 24, 2022February 10, 2023

What is an LLC Operating Agreement & Why Do You Need One

Business executives signing an LLC operating agreement

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:

Each member’s ownership conveyed as a percentage
Each member’s responsibilities and voting rights
Guidelines on the duties and powers of each member
The profit and loss allocation among each member
The rules regarding member meetings and taking votes
The issues regarding the management structure of the LLC
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.

What Is an Operating Agreement – Frequently Asked Questions (FAQs)

Before you start drafting your operating agreement, there are a few key questions we receive about operating agreements you should know. Here’s a list of some frequently asked questions about operating agreements for LLCs.

Which States Require LLC Operating Agreements?

Five states require LLC operating agreements, including New York, California, Missouri, Maine, and Delaware. Although requirements differ among the states, none require you to file anything with the state office. Instead, they only require an operating agreement to exist.

Do Single-Member LLCs Really Need an Operating Agreement?

Although it’s not necessary for 45 states, it’s strongly recommended. Operating agreements can help a single-member LLC establish credibility and help ensure LLC status. Without a proper operating agreement defining the legal distinction between the LLC and the sole owner, it can be challenging in the event of litigation.

Is an LLC Operating Agreement Legally Binding?

LLC operating agreements are typically treated as legally binding documents once signed. If a member from the LLC ever goes to court to resolve internal issues or disputes with a third party, the court will likely hold members accountable to the guidelines in the operating agreement. Keep in mind that you don’t need to get an operating agreement notarized.

What’s the Difference Between an LLC Operating Agreement and Articles of Organization?

Articles of organization are official documents that you must file with the state when you form an LLC. These documents are relatively minimal and include basic information about the LLC, its management structure, and its members. On the other hand, operating agreements provide more detail about essential business functions and structure.

Can I Modify an Existing LLC Operating Agreement?

Yes, you can amend the operating agreement to ensure it’s up to date at all times. It’s important to keep your operating agreement updated. You can create amendments and, once approved by the members, you can file the amended operating agreement with the secretary of state as needed.

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.