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February 23, 2012

To LLC, or not to LLC? That is the Question (Part 2)

In the previous post, I talked about a friend who asked if they should set up an LLC for investing.  I outlined a barebones explanation of what an LLC does and what it can do for you.  Read that first.  If you decide you need an LLC, here’s how to do it.

  1. Make sure you can actually register as an LLC.  There are still a handful of states that do not allow single-person LLCs.  If you live in one of them, you’ll have to find someone you trust to go into business with you.  Always, always, always do your own due diligence.  Like I said in the previous post, I am not a legal or tax professional, so it would be foolish to do anything solely on my say-so.  The best I can do is share my experience, your mileage may vary.
  2. What are you going to call it?  Not quite as simple as it sounds.  Each state carries a registry of company names that are currently licensed to do business.  Once you’ve chosen a name, check with your state to make sure the name is available for use.  In Iowa, you have to send a name reservation document along with a fee.
  3. Fill out the paperwork.  Depending on your state, setting up an LLC is a matter of sending in a document that declares your LLC.  In Iowa, it’s called a Certificate of Organization.  It’s basically a document that outlines the purpose of the company (to make money), the members entering into the agreement, and the name and information of the person who is responsible for making decisions (the managing member/partner.)  There are all kinds of resources online that charge money for this document.  But all you really need to do is go to Staples.  Office supply stores will have LLC packets that you can fill out.  I started Bag of Holdings, LLC with an LLC packet from Staples for 30 bucks.
  4. Create an LLC agreement.  Even if you are going to be the only member of your LLC, it’s a good idea to put together an LLC agreement.  An LLC agreement outlines things like frequency and amount of disbursements, the decision making process, and most importantly, the terms of dissolution.  The packet I used to start BOH had a LLC agreement template included.
  5. Get your paperwork notarized and send it in with your fee.  Find your local notary public and get them to sign off on it.  Send the paperwork in for both the Certificate of Organization and the LLC agreement.  You don’t strictly have to send in the LLC agreement, but it’s useful to have it on file with the state.  Make sure you pay your fee to avoid having to go though it all again.
  6. Set up a bank account.  For bookeeping, you’ll need at least a checking account in the name of the company.  Depending on the bank, you just need a notarized copy of the Certificate of Organization identifying you as the principal agent of the LLC.  You’ll use this bank account as the bucket for your income streams.
  7. When you get your copy of the Certificate of Organization packet, you are ready to go.

You now have the basic information you need to start setting up an LLC.

Thanks for reading.

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