Become A CEO: How To Form An LLC -

Become A CEO: How To Form An LLC

Forming a company is easy and just about anyone can do it. Want to work for yourself? One of the first things you’ll want to do is start your own company. In this post we will go over how to start an LLC online with MyCorporation.

I chose MyCorporation because compared to other companies, they are one of the most affordable. That’s important to me, and that’s one big reason why I chose them for this post.

Anyone Can Do It

It doesn’t matter if you have poor credit, no job, and/or no friends…

If you need a friend I’m available. 🙂

The type of business you plan to have will determine the type of entity you want to create. Entity types include sole-proprietorships, LLCs, and corporations.

This post will compare sole-proprietorships with LLCs.

Why are you looking to form a company?

  • To look like even more of a badass? (in my opinion this is as legit a reason as any other)
  • To protect your personal belongings in case you get sued?
  • To get tax benefits? (most people don’t understand how significant this can be)
  • To make your business look more credible?

Whatever the reason, this post will show you how to get set up.

Here’s what you’ll learn:

  1. The advantages and disadvantages of the company types
  2. How to set up an LLC
    • Business/Company Address
    • Registered Agent
    • Paperwork
  3. Setting up a business bank account

Resources in this post:

MyCorporation – Set up your entire LLC in one place. Transparent filing!

Beware of companies charging the government filing fees separately. If your total with another company comes to less than $400, read the fine print.

The Traveling Mailbox – If your business has no storefront, consider using a digital mailbox for your business address. Save yourself of the hassle of changing business addresses should you have to physically move in the future.

Let’s get to it.

Sole Proprietorship

A sole proprietorship is exactly as it sounds. A sole/single person owns the company.

I would go with this type of entity if I provided some sort of service where I was both the product AND the brand.

This might include a one-person consulting service or handyman service.

I’m sure that sole-proprietorships have their place with many professions.

LLCs can be set up as single-member LLCs with one owner as well.

Advantages

Control

With one owner there will be no issues with splitting taxes or making decisions.

Inexpensive to set up

Sole-proprietorships require filing paperwork called a DBA (Doing Business As) if you are operating under a name other than your own.

I looked online and checked the filing fees for 5 states as of April 2017.

  1. California – $53
  2. Arizona – $10
  3. Colorado – $20
  4. Florida – $80
  5. Rhode Island – $50

The fee is all over the place but you can most likely file for under $100… Why does Arizona even charge a fee? LOL

Taxes

You can file these just like you would your normal income tax under a system called pass-through taxation. This is where your business taxes get “passed through” onto you.

Don’t be intimidated by this. You do your taxes online just like normal.

Another major benefit of forming a company is that you get to write off expenses.

Here’s an example of what that means. Say these were your finances last year:

Activity:

  • Annual Income (business and personal) – $40,000 per year
  • Annual Business Expense – $3,000

Here’s what the taxes look like when you don’t form a company vs when you do form a company:

Taxes without a company:

  • $40,000 x 20% = $8,000
  • Cannot write off business expenses

Taxes with a company:

  • $40,000 – $3,000 = $37,000 (Writing off $3,000 in business expense)
    • $37,000 x 20% = $7,400

Tax Savings: $8,000 – $7,400 = $600

You see how that works!? In the above example, you saved $600 in taxes!!

Disadvantages

Liability

A sole proprietorship has unlimited liability. This means that if somebody were to sue you they could come after everything you own… your coffee table or even worse… your couch!

There are liability insurance policies aimed at covering you in the case you get sued. You’ll pay separate for this.

Your liability isn’t just limited to people suing you. If you take out debt in your company name there is nothing to stop the bank from coming after your couch either.

Credibility

People may not hold your company as highly as they would an LLC or corporation due to assumed limitations.

A customer may think that if you are unable to handle setting up an LLC you may not be professional enough to handle their problems.

Then again, your average customer probably wouldn’t even look into your business entity at all.

Other business owners and banks may perceive your company as less professional and it may be harder to get loans and raise money with investors.

LLC

Check out MyCorporation to get set up all in one place. Don’t be fooled by other places that make you pay your government filing fees separately!

An LLC is like the sole proprietor’s big brother.

For the most part, it acts the same with a few added benefits.

Advantages

Liability Protection

Remember that a sole proprietorship has unlimited liability. Well, an LLC only has liability limited to the business entity itself.

This means that if you were to take out a business loan in your company name and then fail (it happens), the bank couldn’t come after your Xbox.

When you’re just starting out it’s likely your company won’t have any real financial worth so you’ll have to get personal loans anyway.

If you pitch your business plan to investors and banks they may loan to your business though.

There are rules to preserving your limited liability with an LLC

Co-mingling of funds: Don’t do it

If you treat your business funds like personal funds it will be hard to show that you and your company are two separate entities. After all, that’s the point of forming a company.

In court, the person suing you will argue that you and your company, although legally different entities, acted as one. Therefore you can be personally held liable for business activity.

When you open up your business bank account, be sure to keep things separate.

Don’t use it to pay rent and buy hot dogs.

This doesn’t mean you can’t “pay” yourself with business funds. You can, you’ll just need to use the proper accounting methods to do so.

Taxes

Taxes are handled just like a sole proprietorship meaning they are pass-through. You write off business expenses just the same. See the sole proprietorship tax section above.

Credibility

An LLC will give you more credibility in the eyes of some.

Not only will others potentially hold you with higher regard, it makes you feel like more of a badass as well. The confidence that comes with forming your own LLC is a real thing… for me at least.

With a sole proprietorship I’d almost feel like I’m still just Kyle Krason. With an LLC I feel more like a CEO, like a BOSS. I don’t know how to explain it.

Some people will call this “ego-stroking” but whatever… I say do whatever empowers you to move forward with more confidence.

Ability to Share Equity

Here’s what this means:

Say you wanted to raise capital but you don’t have any collateral to give the investor for providing the loan. What could you offer them?

How about a piece of your business?

For example: Say I wanted to start a coffee shop called “Kyle’s Casual Coffee.”

I’m broke and need to raise $20,000.

I meet an interested investor at a marketing event who sounds interested in my idea but when I tell him/her that I have no current assets they get a little gun shy.

Understandably so. If I were to default and never pay them back, they would have nothing to go after. This makes it risky for the investor because suing me would be pointless.

What do I do? I make them an owner to the company.

I give 20% of my LLC’s equity (the company) to them in exchange for that $20,000.

Therefore, if the company succeeds, so does their investment and they can reap rewards in the future! High risk for them, but high reward as well.

This wouldn’t be possible with a sole proprietorship due to the one-owner-allowed nature of it.

Disadvantages

Higher Cost

LLCs cost more to form and maintain than a sole-proprietorship and just like a sole-proprietorship, costs differ from state to state.

In Nevada, LLC government filing fees alone (as of April 2017) look like this:

  • Articles of Organization Filing Fee: $75
  • Initial List of Owners/Managers: $150
  • Business License Registration: $200

Right there you’re looking at $425 just in filing fees.

If you form an LLC online and DO NOT see these fees in your transaction summary, you WILL be charged them later. THERE IS NO GETTING AROUND IT. MyCorporation charges all of this one time, transparently, in one place.

LLCs also have annual maintenance costs.

Every year in my Nevada example you must pay the Registration ($200) and Initial List ($150) fees to keep your business license in compliance.

How to set up your LLC

Here’s the order of operations for forming an LLC:

  1. Obtain a business/company address
  2. Get a registered agent
  3. File the paperwork and pay for the LLC

Business/Company Address

I bet you would be blown away if you found out how many companies you come across with addresses like –

404 W Blicker Ave, Suite 145

– are nothing more than online or UPS mailboxes!

Home Address or Not?

In my opinion, it is best to set up a business address separate from your home address for two main reasons:

  1. To keep your business entity separate from yourself
    • You aren’t very separate when your business address is also your home address
  2. To avoid unsolicited spam mail to your home address
    • Get this sent somewhere else where you won’t have to necessarily deal with it

Although I don’t recommend it, there are benefits to using your home address. The main reason being that you can write off some of your home expenses as business expenses.

I showed you earlier how beneficial write-offs can be.

In my opinion, the tax write-off still isn’t worth the mingling of entities. I’d rather be able to sleep at night.

Where can you get a business address?

There are a couple options: Online and Physical mailboxes

Online mailboxes such as The Traveling Mailbox receive mail for you, scan it into an online portal for viewing, and forward your mail if you need it. I love the flexibility and affordability of this option.

I ended up leasing a mailbox from the UPS Store when I got my first LLC and I wouldn’t recommend it unless you NEED to physically receive your mail (which most of us don’t).

It cost $264 for the year ($22/mon) and will renew annually.

I’ll be switching it over to an online mailbox soon to save some money and not worry about the consequences of moving.

Avoid the day when you have to move away from a physical mailbox and update your business address everywhere you have accounts.

Registered Agent

You’ll need a registered agent in the state where you hold your license.

A registered agent is simply a person who is available to receive mail or “get served” legal documents on your behalf during normal business hours.

They also need to have a real store front or address. No P.O Boxes.

This isn’t too much of an issue since most places offer this service when you form your LLC.

MyCorporation offers registered agent services as part of their set up. (Told you, all in one place)

Filing the Paperwork

Form an LLCIf you wanted to apply for your LLC on your own you can absolutely do that.

You’ll need to find the forms, fill them out, send them, and pay the government filing fees. You’d also need to get a registered agent service separate from that.

I’m sure for some people this is probably no big deal. For me it sounds like a nightmare.

MyCorporation will walk you through the process step by step online.

If you’re still nervous about what you might find there, don’t worry, I made a tutorial for that with detailed instructions and pictures. You can find that here (coming soon).

Tax EIN for Setting Up Your Business Bank Account

Once you’ve set up your LLC you’re going to need your Tax EIN Number.

This is the social security number of your business. You’ll need this to set up a business checking account.

Be sure to set up a business bank account!

It’s important to keep your personal and business funds separate.

If you choose to have MyCorporation register your business for you with the IRS, then you will be provided your Tax EIN number.

If you don’t want to pay for MyCorporation to set it up for you, click this link to be taken directly to the exact IRS page needed to sign up.

It’s free and takes 10 mins or so. I recommend doing this to save a few bucks.

You can get your business checking account from any bank under the sun. I personally sought after a free online bank because I am trying to get ahead of the curve.

In my opinion, brick and mortar banks will be dead soon.

I recommend Capital One Spark Business Banking.

It was really easy to set up and I love the interface. Also, it’s FREE!

Ending

Did you finish the steps?

If so, congratulations business owner (yea, that’s what you are now) on forming your own company!

I hope to see you around on social media, the comments, and who knows, maybe doing business with you!

Good luck.

Give your business a mention in the comments and share how you’re doing. Let’s support each other.

Talk to you later. -Kyle

Resources in this post:

MyCorporation – Set up your entire LLC in one place. Transparent filing!

Beware of companies charging the government filing fees separately. If your total with another company comes to less than $400, read the fine print.

The Traveling Mailbox – If your business has no storefront, consider using a digital mailbox for your business address. Save yourself of the hassle of changing business addresses should you have to physically move in the future.

13 Comments

  1. Andrei May 2, 2017
    • Kyle Krason May 3, 2017
  2. Danish Sheikh April 29, 2017
    • Kyle Krason April 29, 2017
  3. Brendan April 29, 2017
    • Kyle Krason April 29, 2017
  4. Allen Webb April 25, 2017
  5. Shawn P April 18, 2017
    • Kyle Krason April 18, 2017
  6. Moki April 15, 2017
    • Kyle Krason April 16, 2017
  7. Roman April 11, 2017
    • Kyle Krason April 11, 2017

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