How to Set-Up a Limited Liablity Company (LLC)

For a small solo-preneur business, operating as a sole proprietor is acceptable. It’s certainly easier since there is no paperwork and only requires a Schedule C for taxes. However, its also a riskier proposition. If sued, your personal assets (such as your house) are fair game.

In the 1970’s a new form of business structure called the Limited Liability Company (LLC) emerged that provided business owners with the protection and tax advantages not available to sole proprietorships, and yet are less complicated than corporations.

Because it is a legal entity, LLC’s should be set up by qualified professionals such as a lawyer or service that specializes in creating business entities. But it is possible to set up your own LLC.

Name your LLC making sure that the name is not in use or trademarked by another company. You can visit the US Patent and Trademark Office to do a name search. Contact your Secretary of State to see if the name is taken by another corporation, and check with your local area business office to find out if the name is being used in your area. You can use a non-trademarked name that is taken by another business if your business does not operate in the same area as the company already using the name. But you’re better off to choose something different and unique. Don’t forget to add LLC or limited liability company to your business name. To make it easier, you can use your given name. Unless your name is John Smith, odds are your name isn’t trademarked or in use by someone else.

Decide where to register your LLC business. Many people prefer to set up their LLC in Nevada or Delaware because they have liberal laws regarding corporations. If you go this route, you”l be setting up a foreign LLC (unless you live in Nevada or Delaware) and will need an address and an agent in that state. Most LLC services will provide this for you for a yearly fee. Or check with your state’s rules about setting up an LLC in your home state. You may find its just as easy and affordable.

File your Articles of Organization, which include the name of your company, its address and the purpose of the business. Some states may want a list of all the members of the business, as well as the registered agent of the company. In New York and Arizona you’ll need to put a notice in the local newspaper about your intention to form an LLC. You can find templates and forms online, in office stores or in books on LLCs. You may want to hire a lawyer to help you to make sure its done correctly.

Write and sign an operating agreement. The operating agreement gives the members’ interests in the business (percentage ownership), their rights and responsibilities and voting power, as well as how profits and losses are allocated, and how meetings are held. All of the business members should sign it. Some states may not require this, but it’s recommended to insure proper protection of the LLC.

Create a filing system to organize LLC documents and keep meeting notes, business changes and financial information. Even single person LLCs that don’t have meetings should keep accurate accounts of the money and business decisions.

Get needed business permits and licenses as required by your city or county. Also apply for an Employer Identification Number (EIN) which you’ll need for taxes. If you’re a single-person LLC you can operate under your Social Security number and file a Schedule C on your taxes, but then you’ll be missing out on some of the tax benefits that come with completely separating the business from you.

Open a business account at the bank. This should be in the LLC’s name and any money used from the account should be for business purposes only. Members can draw salaries from the LLC, but aren’t allowed to directly pay personal bills with LLC money.

Financing Your New Home-based Business

You have a great idea for a business, but like many things in life, starting a business requires money. While start-up costs vary, many successful entrepreneurs started with just a few hundred dollars. Your start-up costs will depend much on the business you are starting and what materials or supplies you will need. When starting a business, it is important to calculate your living expenses as well as business expenses. A new business can take several months to years before seeing a lifestyle sustaining profit. Anticipate this lean period in your budgeting for business start-up.

The following provides various ways to help fund your venture while still supporting yourself.

Moonlight: your business venture part-time during off-hours of your regular job. This lets you ease into all the tasks required to run a business with out the financial pressure. It does take away from your free time but, the sacrifice may be worth it in the long run when in 6 months to a year you have more time to spend with them than before.

Part-time: Consider working part-time and spending the other time building your business. This is a little riskier financially, but it allows you extra regular-day hours to work your business. Be sure to calculate all lost income as well as changes in benefits that often occur with part-time work.

Turn your employer into a client: By becoming an independent contractor, you are working for yourself, you have a client before you even start, and you have a ready made reference. There are many monetary benefits for your company to do this. Just be sure not to compete for your employer’s clients. That could work against you.

Live on one salary: If you are married and can afford it, live on one salary for a period of time. Because of the strain it can cause financially and emotionally, you want to have set goal in terms of a time frame to make a business profit.

Use savings: If you don’t have one, create one by putting away part of your job earnings in an account. If you have one, consider using it to start your venture. If you are successful, it will have been a great investment!

Misc. Money: Use money you receive unexpectedly (inheritance, lottery, gift, stocks, etc) to invest in your business.

Borrow from family or friends: This can be tough because not all family and friends are as encouraging or supportive as you will need to get your business rolling. On the other hand, they may be eager to help you reach your goal.

Credit: While the message of every financial planner is to cut up credit cards, it may be a way to help finance your business start-up. Remember, interest rates are high so, use them wisely.

Loan: There are business start-up loans, but they can be difficult to get. Get information on the variety of small business loans from the Small Business Administration. Consider taking out a home equity loan if you own your home instead.

Investors: If you have a great business idea other business people may be willing to invest in your business in exchange for partial ownership (usually stock). Seek professional assistance before recruiting venture capitalists.

Before spending any money on your new business, be sure you are clear on all the details of your business. Create a business plan that includes details on starting and running your business and the costs associated with it.

Can You Afford NOT To Work From Home?

There are two things I wish I’d understood when I first wanted to stay home with my children. One was how much it actually cost me and my family for me to work and, second, how little I really needed to earn to stay home! This page will help you figure out both!

CAN YOU AFFORD TO WORK?

Would you send your children to childcare for 45 hours per week so that you could work 40 hours per week to make a measly $3.80 per hour? Of course not, you say. But how do you know you aren’t doing just that? I certainly never thought as a professional social worker that I would be making only $3.80 per hour. But that is exactly what I was doing.

When I worked as a social worker, I made about $28,000 per year. Not a great salary but, combined with my husband’s, was a decent income. So why was I always broke? Why did we have a good income but couldn’t afford to go on vacation? Worse, I couldn’t afford to take the full 12 weeks allotted for maternity leave when my second child was born. The reason was that I had no clue how much I spent to work outside the home.

Here is what I paid each year so that I could work:

• $3,000 for Federal and State government income tax, Social Security payments and Medicare tax.
• $6,000 for childcare
• $2,400 extra for car payments, car insurance, and personal property tax for a newer car.
• $1,700 for commuting 10 miles a day.
• $1,000 for clothes, dry cleaning and other items and services related to my professional appearance.
• $1,000 for lunches.
• $2,600 for convenience foods and dining out because I was too tired to cook.
• $2,400 for I-deserve-this-because-I-work-so-hard items and guilt treats (toys, special outings) for my kids.

Total cost of my job: $20,100!
I spent $20,100 to work! That equaled an income of $7,900 per year, $152 per week… a full $3.80 per hour!

How much do you pay to work outside the home?

Work-related Expenses (listed below):

• Federal Taxes:
• State Taxes:
• Local Taxes:
• Social Security:
• Medicare Tax:
• Child Care:
• Commuting (toll, parking, 2nd car):
• Gasoline and mileage:
• Car insurance (extra car, nicer car):
• Clothing expenses (cleaning, new):
• Gifts, special friends etc at work:
• Convenience food for meals:
• Eating Out:
• Housekeeping help:
• Grooming needs (hair, nails etc):
• Guilt items for kids and family:
• Extra cost related to lack of time to research cheaper prices:
• Extra cost related to hiring help instead of making repairs yourself:

Add all the items above and subtract from your GROSS income. This is the amount left over after you pay for work expenses. Depending on the results, you may find it much cheaper not to work or to work part- time from home. For many years I made significantly less than I did at my last traditional job, and yet we had more disposable income. Why? Because I didn’t have so many work related expenses, and I was able to save a lot of money by being home.