We felt a Limited Liability Company or LLC was the business structure that would best fit our needs. A limited liability company, or LLC, can be an attractive way to organize smaller businesses that don't plan to significantly expand.
The LLC offers the personal liability protection and fringe benefits of a corporation, but lacks many of the administrative and organizational obligations. Additionally, it is exempt from corporate taxes. The members of LLCs have limited personal liability for lawsuits against the company, which legally protects their personal assets.
According to an article on the Entrepreneur website entitled "LLC Basics," the member's personal assets are also protected from lawsuits filed by the LLC against its own members. Also keep a operating agreement on file with all members roles outlined and notarized.
Now that you have a name, it's time to check your states database and see if it's available. This can be as simple as searches your states LLC records that are usually available on the states official website or by calling your states office of business and taxation. If it's available you are good to go
What you won't need to do is go through some pricey attorney or a 'done for you' website as this a simple form to complete.
There is a fee to register the form. In Maryland it's about 150 bucks.
So there it is - it's fairly easy to register you new company as an LLC.
Establishing business credit is an important step for any new small business and helps you to: (1) maintain a credit history separate from your personal credit history and experience the business benefits of having good business credit, and (2) demonstrate separation between owners and the business.
Why separate credit histories?
By having a business credit history separate from your personal one, you can minimize the effect negative events on one might have on the other. For example, if you have some financial missteps that impact your personal credit history and score, they shouldn't impact your small business credit if you have established a clear separation and vice versa.
Why separate business and owners?
Unless you're operating your small business as a sole proprietorship or general partnership, you need to demonstrate that the business is separate from the owners. One of the key benefits that corporations and limited liability companies (LLCs) provide the owners is protection of their personal assets. Keep this protection in place by consistently showing clear separation between the owners and the business.
- Incorporate your business. Even though you may be incorporated when you're reading this, it deserves a mention. With sole proprietorships and general partnerships, the business is legally the same as the owner; therefore, there can be no separation of business credit history from personal. Incorporating a business or forming an LLC creates a business that is legally separate from the owner(s).
- Obtain a federal tax identification number (EIN). The EIN is basically a social security number for a business. It is required on federal tax filings, and is also required to open a business bank account in the name of the corporation or LLC. In order to comply with IRS requirements, many larger businesses also require an EIN from their vendors in order to pay them for services provided.
- Open a business bank account. Open a business checking account in the legal business name. Once open, be sure to pay the financial transactions of the business from that account. If you use a business credit card (see below) for many financial transactions, be sure to pay the credit card bill from your business checking account.
- Establish a business phone number. Whether you use a landline, cell phone or you use VoIP, have a separate number for your business and in your business's legal name. List that number in the directory so it can be found.
- Open a business credit file. Open a business credit file with all three business reporting agencies: Experian, Equifax and TransUnion.
- Obtain business credit card(s). Obtain at least one business credit card that is not linked to you or any other owners personally. Pick a business credit card from a company that reports to the credit reporting agencies.
- Establish a line of credit with vendors or suppliers. Work with at least five vendors and/or suppliers to create credit for your company to use when purchasing with them. Ask them to report your payment history to the credit reporting agencies.
Pay your bills on time. Perhaps it should go unsaid, but be sure to pay your bills on time. Like with your personal credit, late payments will negatively impact your business credit.
Benefits of having good business credit
Having good business credit can provide a number of benefits, including:
- Positioning your company for more favorable payment terms with new vendors and suppliers.
- Reducing the number of times you will need to prepay for products or services purchased.
- Allowing you to obtain better interest rates and credit terms from lenders and banks.
Once you have established and built good business credit, be sure to monitor and protect it, just as you do with your personal credit.
We had an amazing coaching call today in the virtual coaching and we had future business owners from ATL, Cali, OH, PA on the call asking great questions and making constant progress. From hiring great caregivers to finding private pay clients we covered some great topics.