How to Operate an LLC

By David Carnes

Like corporations, limited liability companies, or LLCs, offer investors and owners -- called members -- personal asset protection from the demands of LLC creditors. In order to maintain this limited liability protection, however, an LLC must be run as a separate business, not as an extension of its members' personal finances. Many LLCs draft operating agreements that guide their operations, although this is not mandatory in most states.

Step 1

Appoint managers for the LLC. LLCs may be managed by all or some of its members. Some states allow LLC non-members to be managers.

Step 2

Draft an LLC operating agreement and have every LLC member sign it. The operating agreement should cover capital contributions, profit distribution, voting rights, management and dissolution. Some states allow LLCs to file operating agreements with the secretary of state. Filing your agreement with the secretary of state will prevent later disputes over its content.

Ready to start your LLC? Start an LLC Online Now

Step 3

Determine the LLC's tax status and file any necessary documents with the IRS. If you do nothing, the IRS will treat your LLC as a partnership, or a sole proprietorship if it has only one member. An LLC can can also choose to be taxed as a C corporation or, if it qualifies, as an S corporation. File Form 8832 to be taxed as a C corporation, and Form 2553 to be taxed as an S corporation.

Step 4

Set up a bank account in the name of the LLC, add sufficient funds to meet reasonably anticipated demands of potential LLC creditors and refrain from co-mingling these funds with the members' personal funds.

Step 5

Establish a tax withholding system if the LLC will hire non-member employees. You will have to withhold employment taxes from employee paychecks, and pay the employer portion to the IRS. You will also have to issue Form W-2 to employees after every tax year.

Step 6

File the appropriate LLC tax return every year. If the LLC has only one member, that member must add Schedule C of Form 1040 to his personal income tax return. If the LLC has more than one member and has not elected to be taxed as a corporation, it must file Form 1065 with the IRS and distribute Schedule K-1 to its members. LLCs opting to be taxed as C corporations file Form 1120, and LLCs opting to be taxed as S corporations file Form 1120S.

Step 7

Include an indication of the company's limited liability status on all company stationary and correspondence in order to preserve the LLC's limited liability status by putting the public on notice not to rely on the personal assets of members to satisfy LLC debts.

Ready to start your LLC? Start an LLC Online Now
How to Find a Company's EIN


Related articles

How to Close an S-Corporation in North Carolina

To close an S corporation, or S corp, there are a number of steps you must take to ensure that the corporation has settled its debts and will no longer be liable for taxes. Both the board of directors and the shareholders must agree to close the corporation. You should inform all business associates, creditors and consumers about the dissolution, and ensure that all business debts and wages are paid. Finally, you must notify the state and file final tax returns.

How to Incorporate as a 501(c)(6)

Section 501(c)(6) of the Internal Revenue Code provides a federal tax exemption for business leagues, chambers of commerce and other professional leagues that are not organized for profit. In order to fall under this exemption, your organization's mission must be to promote the common interest of the organization, and not benefit any particular member. If this describes your organization, there are a number of steps that must be completed to acquire 501(c)(6) status.

What Is an LLC License?

A limited liability company is a type of business structure that shields the owners of the company from personal liability for the financial dealings of the operation. An LLC does not pay federal taxes since the profits are only reported on the owner's tax return as personal income. The creation of an LLC is governed by state law and members must file certain documents with the appropriate state department to gain approval to operate as an LLC.

LLCs, Corporations, Patents, Attorney Help

Related articles

How to Change an LLC Filing as an S Corp to a Sole Proprietor

A limited liability company, or LLC, is a business structure defined by state law which protects its members from ...

How to Convert a C Corporation to an S Corporation With Shareholder Approval

A regular corporation, also known as a C corporation, can make an election with the Internal Revenue Service to receive ...

What Are the Tax Advantages of LLCs?

A limited liability company, or LLC, is a business entity that has the advantage of offering personal liability ...

How to Create an LLC for Investments

Limited liability companies, or LLCs, are flexible business entity structures that have characteristics of a ...

Browse by category
Ready to Begin? GET STARTED