STARTING A SMALL BUSINESS
You have decided to go into business. Becoming an entrepreneur can be both an exciting and stressful experience. Of the many decisions that you must make, one of the most important is selecting a business structure. For many small businesses, a limited liability company (“LLC”) is a good option.
Why form an LLC?
An LLC is a popular choice for small businesses as it combines the protection from liability like a corporation but offers the tax benefits of a partnership. If operated and formed correctly, an owner, referred to as a Member, of an LLC is generally protected from personal liability. In addition, the LLC is taxed only once rather than the “double taxation” that occurs with some corporations.
What are the steps to forming an LLC?
Articles of Organization
The first step in forming an LLC is filing the Articles of Organization with the Secretary of State. In Indiana, Articles of Organization must include the following: the name of the LLC; the period of duration of the LLC; the name and street address of the Registered Agent; whether the LLC is managed by manager(s) or member(s); and the signature of at least one organizer, member or manager. All Indiana LLCs must identify a Registered Agent, responsible for receiving legal notices.
The name of the LLC must end with “Limited Liability Company” or “LLC”. If a business wants to use a name other than its official name, it must file a Certificate of Assumed Business Name. For example, if the official name is Smith’s Enterprises, LLC but the members want to operate a business called Smith’s Restaurant, the business name of Smith’s Restaurant should be registered as an Assumed Business Name.
An LLC can be managed by manager(s) or member(s). Generally, an LLC is member-managed when the number of members is low. If an LLC has multiple members, vesting management authority in a single manager provides for more efficient daily operation of the business.
Although Indiana does not require an Operating Agreement, it is generally recommended as a way to tailor the operation of your LLC to your business. Without one, Indiana statutes will govern how the business operates. The purpose of the Operating Agreement is to govern the internal operations of the business in a way that suits the specific needs of the members. The Operating Agreement typically contains information about percentages of ownership; rights and responsibilities; voting powers; allocation of profits and losses; cash distributions; management details; fiduciary duties; and the like. In addition, an Operating Agreement is often required by banks for opening a checking account or obtaining loans; potential business partners or investors; attorneys; and accountants.
Due to the importance and complexity of the Operating Agreement, it is generally recommended that you seek legal assistance to prepare this document. A sample or template Operating Agreement may not meet your business’ specific needs or comply with the laws of the state where your business is operated.
Obtaining your “EIN” and “TIN”
An LLC should obtain a federal employer identification number (“EIN”) and state taxpayer identification number (“TIN”). These numbers are necessary for banking, payroll, and tax filings.
Are there any continuing responsibilities?
After its initial organization, an LLC must file Business Entity Reports with the Secretary of State biennially. In addition, if the Registered Agent, Registered Agent’s address, or Principal Office Address changes, a written notification must be given to the Secretary of State.
Remember: When doing business as an LLC, the owners should always sign by or for the LLC by noting the company name. This demonstrates to those with whom you are dealing that the company, and not you personally, is engaging in the transaction.
If you are interested in forming an LLC, we recommend that you contact an attorney for assistance. Note that this post is only a brief summary about starting a small business. It does not constitute legal advice nor does it establish an attorney/client relationship. Should you have specific questions regarding the above, please contact any of the attorneys at our office.
Hodges and Davis, P.C. - June 2015