My answer to What are the initial steps of setting up an LLC? Is it just a matter of obtaining an EIN and registeri…
Answer by Ken Larson:
An LLC limits your personal liability for debt and any court judgments that may not fall in your favor. A sole proprietorship does not afford such protection. Business insurance is also most affordable with an LLC.
Representing yourself as a company allows you to pursue financing as an enterprise. I am sure you can think of a creative name for your LLC and you can complete the articles of incorporation necessary to bring your enterprise into existence. The term, "LLC" must conclude the name of your company if you decide to form such an organization.
You must also register with the IRS after you have filed your articled of incorpoation with the state. Consider the Subchapter “S” (disregarded entity in IRS parlance). You will pay no taxes as a company and the revenue and expenses will flow through to your personal tax return, potentially lowering your taxable income at startup.
If you involve more than one person in the ownership of the enterprise I suggest you develop an operating agreement. If you are the sole owner an operating agreement would not be required unless someone else invested in the company in an ownership capacity in the future.
An operating agreement is a separate document, not controlled or required by the state or the federal government but very important to your company. It should be a simple, straightforward document you and you and your prospective partner(s) can draft yourselves It should cover such matters as % of ownership, how revenue will be distributed and other general matters, as well as who can commit the company in the form of credit cards, who signs checks on the company account and other administrative matters. Buying out a partner should also be covered as well as adding new members if the need arises down the road. You can download a free example of an operating agreement from the BOX in the right margin of the following site:
I have seen many enterprises fail or go through terrifically hard times due to lack of an operating agreement. The parties should sign it after a review by a lawyer. It should then be notarized and made an official part of the company file.