LLC Setup Transcript
Hi there, my name is Adam Davis. This video is about how to properly start an LLC. There are many benefits to this type of business structure for the beginning business owner to get into. Among those are the ability to separate your personal credit from your business credit which is a primary reason to do so. So even if you have poor personal credit, you can still qualify for being able to purchase large ticket items for your business or in the name of your business by using your business credit and name. There are multiple other benefits, but those can be explored in more detail later.
1- The 1st thing that you actually have to do is establish your LLC with your state, Or in another state such as New Hampshire that has friendlier business tax practices then other States such as New York, Illinois, California, or a few others. Some people may say to go to legal zoom.com Or another service online that will take care of all of this for you but they don't go into the depth of things that you need to do, and that you can take care of yourself for far less money. Just as an example in Ohio where I'm located I was able to file for my LLC for only $99. Had I done it through legal zoom it would have been somewhere close to $400. So there is a lot to be said for taking the do-it-yourself route.
You will be filing through your Secretary of State webportal, the easiest way to find that is to search "how to get an LLC" in whatever state that you are in, followed by the name of the state of course. Be sure to use an actual physical address, as a P.O. Box address is unacceptable for doing certain things you will need to do later. Once you have created your profile for the Secretary of State's page to be able to move forward, It will take about 5 or 10 minutes to finish out the rest of the form that you will need to fill out In order to file. You will have to pick a business name and then search that name to make sure that it is not already in use by another business. Once that is confirmed and any changes if needed to the name are made, You can proceed with finishing the rest of the documentation including the business type and and any signatures that have to be signed off on this, which usually will just be yourself, unless you decide to make it a partnership in which case that would be an LTD instead of an LLC.
Now if the Secretary of State website is anything like Ohio's website you should have an add to cart button for this new business entity, And you should be able to proceed from there with your credit or debit card to actually make the purchase and file officially. Generally speaking this should be a very fast process for them to take care of once everything is filed properly, And once you have email confirmation of the filing being successful and you have your business successfully registered as an LLC, you can proceed to the next step which is procuring your EIN from the IRS. If you do it on a Monday or sometime through the rest of the week as long as it's not on a weekend or Friday, it generally will take 1 to 2 business days at the most for this filing to take place.
2- The next step is quite possibly the easiest, procuring the EIN For your business. The EIN stands for Employer Identification Number. A quick search of "how to get your EIN" Should bring up the top result from irs.gov regarding getting your EIN. Once you have entered the site, You will need to input your LLC information, and then submit it. This is 100% free, and you should have an email back within a very short time. I received mine within 15 minutes of filing for my EIN. Having an EIN is extremely important for the next steps that you will have to take.
Your EIN is similar to your social security number for your personal business, the EIN separates anything that you do in your business life from your personal life because your business will be treated as a separate entity from you. This is key, because it allows you to compartmentalize and protect your personal assets, should anything happen to go wrong with your business. It also separates your personal credit from your business credit. Just remember though, to Always freeze your personal credit when applying for things, no matter how good it is, so that It is not taken into consideration for any business loans, business credit cards, or business lines of credit that you apply for. If you have done everything correctly in the process of setting up your LLC, as I will show you how to a little later as we go on, you will not need to expose your personal credit to a lender.
3- Your 3rd step is setting up a business bank account. Personally I prefer credit unions, Like my account with Wright Patt Credit Union. Credit unions are generally more friendly to small businesses that are just starting than the big banks like Chase. The fees are much lower than regular banks if you have an issue like an overdraw or unpaid transaction, and are more likely to help you with a loan or other credit when you need it. To set up your account, you’ll need your ID, your Social Security Card, the documentation of your Articles of Incorporation from the Secretary of State’s office (digital format is acceptable) and your EIN from the IRS (digital format is acceptable). It should take the bank rep about 20 to 30 minutes to get the account set up and ready to go for you. A small deposit will likely be needed to open the accounts, $20 is what I did, $5 to the savings and the rest to checking.
4- Your next step will be in setting up your business website and business email. There are many hosting services you can go with, but I prefer Godaddy.com for its ease of use, the templates that are available, the ease of customization, and its built-in integration with Microsoft Outlook and Microsoft365. The first thing is making sure your site is branded with your business name, or at least as closely as possible (such as daviscollc.com). It is important to have your business as a .com address, as this lends credibility to your business, and increases the odds of your approval for loans, credit, and other financial transactions.
Once you have your .com name, go ahead and set up your dedicated matching email, this is usually best as your first inital(s) and last name, like j.b.smith@xyzcorpllc.com You can quickly sync this to your Microsoft Outlook app on all your devices once this is established. A monthly subscription to keep your email active is less than $7 a month, even cheaper if you do it yearly. The website itself is a very low yearly subscription for one page, with multi page websites available for different costs. Start off with the single page for now, you can always upgrade a little later.
5- Next, you will need a dedicated phone number for your LLC. You have two options, both with their pros and cons. Your first option, is to get a VoIP (voice over internet protocol) phone number. Don’t just get a Google or Skype phone number, this looks unprofessional, and even worse, it is unreliable. If you go with a VoIP service, choose one that has the features you will get the most use out of, and one that will reliably forward calls to your phone when needed. A good VoIP phone service will work as your front office, taking messages, directing calls to other lines(handy if you’re in a partnership or have other high level employees) and will allow for multiple voicemails for those other lines.
Your second option is a dedicated cellphone line through a major carrier like T-Mobile. This is the route I took, as I don’t need multiple lines for many employees, and I don’t require a long department directory. It also serves as a great backup line, instead of having to forward business calls to your personal phone. The cost for either option is close to the same monthly, my business line is only $45 a month with autopay. My phone was free, for the Motorola phone I chose which is comparable to my personal Samsung phone. Sure, it may be slightly awkward to carry 2 phones around, but it is less hassle to me, than answering forwarded calls and personal calls all through a single device. You will need your ID, Business Info from the SoS, and EIN to set up the account as usual, and aside from activation time, it should only take the sales rep a little while to set up your business phone account.
6- Well you’ve made it this far, you formed your LLC, you have the EIN, your bank/credit union account is set up, you’ve got your .com website and matching email address, and a dedicated phone line. So what’s next you ask? Am I ready to start applying for business loans and credit cards? Not so fast! You need to build some business credit first! Thankfully, this is a relatively quick process, compared to working with personal credit issues. The first hurdle is getting your DUNS number. This number has many applications, but the main thing it is used for is to have a way for businesses to keep track of their credit rating with the 6 business credit bureaus. You can get your DUNS for free, but it takes 30 days to process. There are ways to expedite this, but that costs $400 to get it in 7 days. 30 days isn’t long in the grand scheme of things, and it actually can work to your advantage as you set up Net30 and Net55 accounts to begin building your business credit.
The Net30 or Net55 account, is a very short term line of credit with a vendor, such as Home Depot, Staples, Grainger, etc. These vendor accounts report to many of the business credit bureaus, in some cases almost all of them. The term Net30 or Net55, literally means you have 30 days or 55 days from the date of the purchase to pay that account in full. You don’t have to make major purchases to cycle these accounts. You can get things you use every day, like cleaning supplies, toilet paper, coffee filters, etc. The important thing is that you cycle each of these accounts monthly, for a minimum of 90 days before you even think about applying for a business loan or business credit card. You will need 5 of these Net30 accounts, or a combination of Net30’s and a couple Net55’s, to get a strong credit history going for your LLC relatively quickly. Of course, if you take them 120+ days before you check your D&B account to consider a loan or credit card, all the better, as it serves to strengthen your credit rating even further.
Always remember though, to temporarily freeze your personal credit when applying for a business loan, business credit card, or making another purchase in the business’ name so they are forced to only look at the credit of the business. These lines of credit will still remain useful to you of course, but their initial purpose will be to pump up your business credit score. Just keep the purchases on these accounts small and manageable, and most importantly pay them on time and in full! Within a few months, you will be ready to set up your business credit card(s), a business loan or two, and boost your business even further.
This is the formula that I have followed to set up my personal LLC. The beauty of it is, once you have it done once, it is easy to replicate for another LLC to protect other assets or businesses you may want to start, such as rental properties, a new brick and mortar business, or even more online business ventures. I highly recommend that you put every individual property that you own, business or rental, under its own LLC. God forbid someone were to become injured on one of your rental properties or a business and they attempt to sue you, if everything is under a single LLC, they can take everything.
Having multiple individual LLCs can compartmentalize and obfuscate the ownership from one business entity to the next, which is very handy in protecting yourself in a legal situation should one arise. It is also helpful in tax calculation, rather than trying to figure out what is what in a single LLC with multiple DBAs (Doing Business As) attached to it, each business that would otherwise be a DBA, has its own separate tax basis. Believe me, your accountant will thank you. You can also place the LLCs under an overall corporation, and form a trust that manages the corporation. This is fairly high level, but it insulates you and your personal assets from tax liability, and is perfectly legal to do. The tricks that “rich people” use, by using the laws the way they were intended. You can do it too, now that you know how.
