A limited liability company (LLC) is a business structure that protects its owners from personal responsibility for its debts or liabilities. Limited liability companies are hybrid business entities that combine the characteristics of a corporation with those of a partnership or sole proprietorship.
The limited liability company (LLC) is one of the most popular business structures because it offers a level of flexibility and legal protection that is attractive to many people who are starting their own businesses. The following six steps will help you get started if you are interested in forming an LLC.
Choose a name. One of the most important steps in forming your new LLC is to choose a name. The name you select cannot be the same as or even too similar to any other LLC’s name; it must be unique to avoid consumer confusion. You are able to use the “Name availability” search tool on the Kentucky Secretary of State’s website to determine if your intended name is available. It is best to have several name options in mind prior to reaching this step. As simplistic as this step may seem, it is critical to successfully establishing an LLC and being able to take advantage of the legal protections this business structure provides.
Select a registered agent. In addition to selecting an appropriate name, you must select a registered agent. A registered agent, also known as a statutory agent, is the party appointed to receive service of process and communication from the Kentucky Secretary of State’s office. Registered agents must provide an address where important correspondence can be sent. Typically, post office boxes are not acceptable places for a registered agent to receive these communications—rather, a physical address is usually required so the agent can receive service of process. When deciding who should serve as the registered agent, keep in mind that the registered agent will typically be the first person to whom the state reaches out if any issues arise with your LLC. As a result, it is important to ensure that your registered agent consistently checks incoming correspondence and relays that information to you as the business owner.
Drafting necessary legal documents. To form an LLC you must file with the Kentucky Secretary of State’s office the LLC’s Articles of Organization. The Articles of Organization include such information as the company’s name, the registered agent’s name and address, and the business’s purpose. This information becomes public record, so be mindful of what information you are comfortable sharing with the world. Additionally, another important document is the LLC’s Operating Agreement. The Operating Agreement outlines the rules and regulations governing the LLC and its members. Without an Operating Agreement, disputes can arise when a member of an LLC wants out, becomes incapacitated, divorces or dies.
Get a tax identification number. Another essential step in starting an LLC is obtaining a Tax Identification Number. Your LLC’s Tax Identification Number, also known as an Employer Identification Number, is provided by the Internal Revenue Service (IRS). After completing a successful application, the IRS assigns a unique number that links the identity of the responsible party to the business for income tax purposes.
Open a business bank account. After you have filed your LLC’s formation documents with the Secretary of State and obtained a Tax Identification Number, you will be ready to open a business checking account. This step must not be overlooked in order to enjoy the benefits of an LLC. Maintaining this separate business checking account prevents you from commingling your personal funds with the business’s funds. Failure to maintain this separate business account could result in losing the business’s limited liability status because of a legal concept called “piercing the veil.” If this happens, you could be held personally liable for the LLC’s debts and liabilities.
Seek appropriate licenses. Many cities and counties in Kentucky require businesses to have a “business license” in order to operate in the city/county. Depending on the nature of your new business, you may also require federal, environmental, operational or vending licensees.
We Can Help
The process of forming an LLC can be complicated and involves complex legal documents and procedures. If you need assistance forming an LLC or any other type of business structure, The Dupree Law Firm can help. Schedule an appointment to talk with us today.