Commonly Asked Questions When Starting an LLC
If you’re thinking about launching a new business as a sole proprietor, you probably have questions about how to structure the company. When this question arises, most people choose an LLC. Let’s delve into some of the most commonly asked questions related to starting an LLC.
What is an LLC?
LLC is an acronym for Limited Liability Corporation, which is a type of business structure that’s easy to establish and maintain. One of the reasons why people choose an LLC is because it offers limited liability, much like a corporation. However, it does not involve many of the complications associated with establishing a business that’s incorporated.
The term “limited liability” refers to the fact that an LLC protects its owners by limiting their personal liability. This includes debts that are owned and claims on the business, such as lawsuits and liens. Specifically, individuals with liens against an LLC cannot pursue any of the business owners. While this is the case in most situations and across most states, there are variations.
What’s Required to Start an LLC?
Setting up an LLC starts with selecting a business name. You’ll need to choose a name that’s not already taken in your state. The name that you choose must also comply with state regulations that govern business names. For instance, LLC must be included in your name.
The next step is to develop and file articles of incorporation, which is a document that establishes your LLC. This document doesn’t need to be complex. In fact, it usually requires information like the name, address, and owners of the LLC, among other related details.
Establishing a limited liability company will also include appointing a registered agent, paying required fees, publishing a notice of intent to create an LLC, paying taxes on revenue through the LLC, and creating an LLC operating agreement. While most of these steps are self-explanatory, you should know that an LLC operating agreement is sometimes complex because it details the rights and responsibilities of each owner. It’s far less complicated when there is only one owner.
What Are Financing Options?
While it might be easy to obtain LLC status, it can be difficult to obtain financing for a new business. In fact, most small business lenders like LendingClub.com won’t approve loans until a company has been in business for at least 2-3 years. In the meantime, your LLC can try and get capital via other means. These include:
Personal Business Loans: There is an increasing number of online lenders that are willing to provide new small business owners with financing through personal loans. While these types of loans often have high annual percentage rates (APRs), they can be a welcomed solution when you need access to cash, and traditional financing is not an option. However, you can get a better APR if you have high credit scores.
SBA Loans: The U.S. Small Business Administration generally only offers loans to businesses that are established. However, they also have a microloan program that could potentially provide new small business owners up to $50,000. The average microloan is approximately $13,000. While it’s not a significant amount of money, it can certainly jumpstart your small business.
Nonprofit and Microlenders: These options are similar in that they are great for small business owners who do not have a stable financial situation. These types of loans often provide help to communities that are struggling financially. The purpose is to provide the support needed for business growth and to generate more revenue.
Starting an LLC is recommended for many small businesses. There are benefits as well as incentives to go this route. With that said, it’s important to get answers to common questions before going forward. We hope we’ve managed to help provide them.