Naming the business
The first step in setting up a new business is choosing a name. When deciding what to name a business, prospective business owners should look at the Ohio database for business names. Some business owners, if planning on operating nationwide, or having a website, might want to search the federal Patent and Trademark Office as well. In the case of national brand protection, filing for a trademark may also be advisable for some businesses (see the blog on trademarks for more information). The name of a new limited liability company should be “________” LLC. It is important for new business owners to avoid being too descriptive when setting up an LLC, but also to avoid infringing on another brand’s trademark. Something fresh and new for a name can help a business stand out, especially in crowded industries.
Filing an LLC with the State
To register an LLCwith the state of Ohio, file Form 533A with the Secretary of State’s office. Form 533A can be filed online or mailed to the Secretary of State’s office and costs $99 to file. While filing with the state, it is advisable that business owners start to consider the management style they would like for their business, either manager managed or member managed. A manager managed LLC is advisable when the LLC has a large number of members and the members are less concerned about managing the day to day operations of the business. In a manager managed structure, the managers handle the daily operations of the business. By contrast, a member managed LLC has a small number of members who are willing to do the day-to-day tasks of running the business.
Choosing a Statutory Agent
A statutory agent is an important aspect of an LLC, and is a requirement in Ohio. A statutory agent can be a person or a corporation, but they must be a resident of Ohio or authorized to do business in Ohio. The statutory agent is responsible for receiving important documents associated with the business, such as tax information, legal documents, government correspondence, etc.
Setting up an EIN with the IRS
Next, new business owners should obtain an Employer Identification Number (EIN) to establish a bank account. An EIN is an Employer Identification Number from the IRS. It’s like a social security number for businesses. The application is at this site. Just fill out the application and submit it. Then you will have a number.
Setting up a Bank Account for an LLC
Getting an EIN allows business owners to set up a bank account for the LLC. This is critical, because there should be no comingling of funds between personal and LLC accounts. Every transfer into and out of the LLC’s account should have a reason that is fair to both sides of the transaction. Wherever possible, keep the documentation and receipts of transactions. For example, a business owner should not use a company debit card to buy gas for a car even when driving the car on the LLC’s business. Instead, miles should be tracked and submitted to the LLC for reimbursement for the number of miles that were traveled on LLC business. The IRS establishes the reimbursement rate each year.
Writing an Operating Agreement
An operating agreement is a legal document that outlines the operation, ownership, and member of an LLC. There are six key sections that should be included in an operating agreement:
• Management and voting
• Contribution of money by members
• Distribution of money to members
• Membership changes
• Dissolution process
Having all these sections in an operating agreement gives straightforward direction in how to run the LLC in the cases of common items that will affect an LLC. An LLC also outlines the ownership of an LLC, and what percentage of ownership each member has in the company. It is of note that some banks may require an operating agreement as proof of ownership in order to open a bank account, in those cases it is advisable to complete and sign an operating agreement before attempting to open a bank account.
Finding an Accountant
Having an accountant can help to manage LLC finances. To find the best accountant for an LLC’s industry there are a few suggested steps:
• Get referrals
• Find a certified accountant through the certified public accountants directory
• Find out the accountants experience in the particular industry
• Ask the accountant for the services they provide
• Determine communication methods with the accountant
• Get information on billing
• Negotiate pricing
• Draft an engagement letter
There are several reasons to have an accountant, such as:
• Starting a business with no accounting knowledge
• Deciding on a legal structure for a company
• The business is growing very fast
• The IRS is involved
• A loan needs to be taken out for the business
• Buying or selling the business
Accountants are experts in their field that make sure that finances and taxes are in order for businesses, to make sure that mothing illegal is happening on accident or on purpose that might hurt a small business.
All businesses should obtain insurance for risks that it will encounter. For example, a company car gets into a car accident, or someone alleges trademark infringement. Having insurance can minimize out of pocket costs for events outside of a business’ control. Obtaining insurance is less expensive than maintaining cash reserves for such risks.
Obtaining a License
Some businesses and industries require a license or permit to operate. Businesses that sell goods must obtain a vendor’s license for sales tax purposes. Bars and restaurants require inspections from the department of health or a liquor license if alcohol is served. A business with employees requires registration with Workers Compensation. A plumbing, HVAC, or electrical contractor requires a license. Information about what permits and licenses are needed can be found on the Licenses and Permits webpage in the Business section of the ohio.gov website.
Some professions also require state license for the individuals in those industries, such as:
• Securities Brokers
• Real Estate Agents and Brokers
• Hair Dressers and Barbers
The ohio.gov website also has a detailed list of the professions requiring licensing.
Deciding on a New Operating Name
Deciding on a name for an LLC can seem like the end of naming issues for a business, but if the name a business is operating under is not working out, businesses are allowed to file that they will be operating under a different name. In the cases of LLCs this is referred to as a fictitious name. Businesses can file with the Secretary of State’s office to note intent to operate under a different name than the original LLC filing.
Setting up a new business can be a lot of work, and stressful for those who do not know the process. Hiring a knowledgeable attorney can cut down on the stress of starting a business, and give business owners the piece of mind to focus on their business.