The Business of Doing Business Podcast Episode 6: Do I Need an LLC? (And then what?)

In this episode, Yasmine discusses the basics of forming a limited liability company (LLC). She explains that an LLC is a business structure that protects owners from personal responsibility for the company’s debts or liabilities.

Yasmine highlights the benefits of forming an LLC, such as personal liability protection and potential tax benefits. She compares LLCs to corporations and explains when it is appropriate to form an LLC.

Yasmine also provides guidance on how to form an LLC, obtain an EIN, and open a business checking account. She emphasizes the importance of maintaining financial separation and liability protection, as well as complying with filing requirements.

Key Takeaways:

  • Forming an LLC provides personal liability protection for business owners.
  • LLCs have lower compliance requirements compared to corporations.
  • Consider the nature of your business and the potential involvement of investors when deciding between an LLC and a corporation.
  • Maintain financial separation between personal and business expenses to preserve liability protection.

Episode Timestamps:

00:00   Introduction and LLC Basics

01:02   Benefits of Forming an LLC

03:53   When to Form an LLC

04:28   Tax Considerations

05:39   Considerations for Investors

06:33   Structuring Your Business

07:09   Forming an LLC

09:54  Obtaining an EIN and Opening a Business Checking Account

11:03   Maintaining Financial Separation

12:25   Maintaining Liability Protection

14:00   Compliance and Filing Requirements

15:29   Celebrating LLC Formation

15:59   Hosting Business Events

18:53   Conclusion and Call to Action

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Episode Transcript

Intro (00:00) I’m gonna guess that they probably still do paper filings, but for whatever reason you’re into that, highly doubt that anybody listening to this is trying to mail anything to the government. Personally, I try to avoid mailing anything at all costs. Welcome to the Business of Doing Business podcast with Yasmine Salem Hamdan.

Hey y ‘all, welcome back to another episode of the Business of Doing Business podcast. It is a question I hear time and time again. Do I need an LLC? What even is an LLC? Is forming an LLC the first step I should take if I decided to start a business? And then what do I do after that? What exactly do I do with an LLC? How many more times can I say LLC?

I guess we’ll find out. We talked a little bit about forming a business entity in our legal lowdown episode. I think that was episode two with business entities and forming a business entity being one of the… three main pillars of your business’s legal foundation, alongside intellectual property and contracts.

Benefits of Forming an LLC (01:02) Today, we’re gonna do a little double-click and zoom in on LLCs specifically. To kick us off, let’s talk about what is an LLC. LLC stands for limited liability company. And a limited liability company is a type of business structure in the United States that protects its owners from personal responsibility for the company’s… debts or liabilities.

So depending on the nature of your business and the nature of the business that you are engaged in, it might be higher risk, it might be lower risk, you might be engaging in commercial activity that puts you at higher risk as a business owner. And so having an LLC in place can help shield your personal assets and shield you, the individual, from any debts or liabilities or damages that you could incur as a company and as a business.

So when you form an LLC, you are creating an entity that is separate from you, the individual. In the eyes of the law, in fact, it’s considered its own person, its own citizen. It can own property, it can own assets, it can sue others, it can be sued, it can owe a debt, it can enter into contracts, et cetera. I think maybe the only thing it can’t do is vote, but it’s another topic, I suppose.

And so when you create an entity, you are creating something that is separate from you. So even if, and it’s a common question I get around people that have a personal brand and engage in business activity or commercial activity around their personal brand, can I create an LLC that is separate from me even if my business is based on my personal brand?

And the answer is yes, you absolutely can. You can create a business entity that stands on its own two feet and is… completely separate in a legal sense from you, the individual, and any personal assets that you may possess.

Now, many people might find themselves trying to decide between, should I form an LLC? Should I form a corporation? Which one is the right one for me? They are very similar in that they are both business structures that provide that liability protection that are separate from the business owner or the business owners and provide you with that personal liability protection. However,

An LLC is more of a recent development. The first LLC was formed in the 70s in the state of Wyoming, I believe. And what we have found is that LLCs simply have a lower standard in terms of compliance requirements. So there just isn’t as much required of the LLC owner in order to maintain compliance with corporate formalities associated with the business entity.

So yes, there are some formalities and some requirements to maintain an LLC. We’ll talk about that a little bit today, but it’s not as demanding and does not require as much in terms of when compared to a corporation.

When to Form an LLC (03:53) So it is the more user-friendly business structure. It’s typically less expensive to maintain an LLC. And so for many people, especially small business owners, startups, first-time entrepreneurs, an LLC is a great option. So should you form an LLC?

I will say it’s almost never a bad idea if you’re going to be engaging in business activity, if you are accepting payment from anybody, if you are selling anything. It’s almost never a bad idea to have an LLC and to have a business structure in place to shield you personally from liability.

Tax Considerations (04:28) And also there might be some tax benefits too. I’m not a tax expert by any means, but having a business entity and… engaging in all of your commercial activity as a business as opposed to doing so as a sole proprietorship or a partnership more informally, there are tax benefits to doing so and to formalizing that and to forming that business structure.

There is also the concept of an S corporation and some people think that an S Corp is its own type of entity, but you can be an LLC and still opt to be taxed as an S corporation. So it’s really a tax election. It’s not a type of business entity. It’s either a corporation or an LLC. And then from there, you can opt to be taxed depending on your specific circumstances.

And I highly encourage every business owner and every entrepreneur to have a CPA accountant that you trust that can advise you accordingly as it relates to your taxes and what tax elections you might want to make. Now, I said it’s almost never a bad idea. So when is it a bad idea or when is forming an LLC not your best option?

Considerations for Investors (05:39) Now, with an LLC, you can’t issue stock, you can’t issue ownership to shareholders. So many times, investors prefer to invest in a corporation within which they can be issued stock and be a shareholder in the corporation.

If you are planning to bring on investors, that’s something that you’ll want to consider as well when you are deciding whether or not to form a corporation or an LLC. And then within the scope of the rest of your business portfolio, if you have other business activity that you’re engaged in, you want to consider the whole picture when making that decision.

But if you are, as I mentioned, somebody who is a first-time entrepreneur, or if you are wanting to start a small business where you are the only owner, or maybe you do have a business partner, it is possible to have a business partner within an LLC and to co-own the LLC and co-manage the LLC.

Structuring Your Business (06:33) So that is an option, but the structure of that and the nature of that relationship is a bit different than having a corporation and issuing stock in ownership of the company. So those are all things to think about as you structure your business, because this is truly the foundation of your business.

And the way you decide to structure your business from the jump can impact options that are available to you later on and decisions that you’ll have to make later on in your business as well as how you continue to carry your business and maintain your business’s compliance within the state that you’re formed in.

Forming an LLC (07:09) So how do I form an LLC? I’m going to give you a quick, what’s the word I’m looking for? Not tutorial, but like crash course, I guess, of how to form an LLC wherever it is that you live. Of course, there are in the US alone, 50 jurisdictions that all have their own laws on the books as it relates to business.

So this is not personalized legal advice for you because I don’t know where you may be located or what law governs the jurisdiction that you’re located in. So this is generally speaking, but this is typically the experience of most people who form a business entity and form an LLC.

So if you’re in the U.S., if you go to your Secretary of State’s website, every state has a Secretary of State’s office, and that’s the administration that oversees the formation of business entities in your state and in your jurisdiction. So go to the Secretary of State’s website. You should find resources and information on forming a business entity, forming an LLC.

This is typically where you’re going to process or submit all of your business filings as it relates to your business. So it’s a good idea to get a little familiar with the website. The website is probably not the most, I mean, it’s definitely, I would bet it’s not the most beautiful website you’ve ever seen in your life, but it’s also probably not the most user-friendly website.

It can be challenging for some people to navigate the website and if it is, then you might want to seek out support navigating the website and forming your business entity if you aren’t entirely sure how to navigate the website. An attorney can help you form a business entity. I know some CPAs offices also offer this as a service business entity formation. I would just tread carefully depending on who it is that you hire. There are also websites online that form business entities.

Again, just tread carefully and be careful of who it is that you are hiring to provide a service to you and double-check the work to make sure that everything was completed in compliance with your local jurisdiction. So go to your Secretary of State’s website, check out where their LLC filing portal is, and you should be able to file your LLC formation documents online on the internet.

And there’s typically a filing fee. You can pay that filing fee online. I… I’m going to guess that they probably still do paper filings, but I wouldn’t be shocked if they didn’t offer that anymore, but I think they might still. So for whatever reason you’re into that, highly doubt that anybody listening to this is trying to mail anything to the government.

Personally, I try to avoid mailing anything at all costs. So I’m going to guess that you also feel the same way. You can form that online, file the paperwork online digitally. And then from there, within a week, or so, you should receive confirmation from your Secretary of State’s office stating that, yes, your entity has been successfully formed and here is your official certificate of formation or articles of organization, depending on what your state or jurisdiction calls that.

Obtaining an EIN & Opening a Business Checking Account (09:54) And then from there, you can retrieve an EIN, which is an employer identification number from the IRS website. That’s the Internal Revenue Services website. Essentially, this is your company’s tax ID number with the feds.

So you’ll want to go to IRS.gov and you can get your EIN for free. There’s no cost. If you’re on a website that’s telling you to pay anything to get your EIN, you are on the wrong website, go directly to the IRS.gov website and get your EIN. You will need that EIN in order to open a business checking account.

So once you have your Secretary of State documentation that shows you have officially formed your business entity and this is the name of your entity, and then this is your EIN number and this is how the government is identifying this organization and this entity as its own.

Now it’s an official taxpayer or it will be. Now it’s able to pay taxes. From there, you can take both of those documents to your bank of choice and open a business checking account. And I highly encourage you to do that so that you can begin to create financial separation between yourself personally and your business.

Maintaining Financial Separation (11:03) Remember, your business is its own entity. It is its own person and you are your own person. And so you have your personal bank account and your business should have its own bank account and those finances should remain separate. So open that business checking account if you want to open a business savings account or open multiple business checking accounts.

I know some practices like profit first if you ever heard of it. That’s one of the first books that I read as an entrepreneur. I read it in maybe like 2015, was the concept of paying yourself first and taking a profit in the business before you allocate all of your other expenses to your taxes.

For example, your business expenses, your payroll, etc. And that way you can set your business up for success to be profitable as opposed to waiting until the very end to hopefully take a profit, which as business owners, any experienced business owner knows that that can happen pretty easily.

You could find yourself with very narrow profit margins if you aren’t careful about where you are allocating the rest of your capital and revenue. And so from a liability standpoint, it is incredibly helpful. And I would argue necessary and many would agree that it’s necessary in order to maintain that liability protection. It’s important for you to maintain separation financially between your personal finances and your business finances to spell it out for you as to why.

Maintaining Liability Protection (12:25) Let’s say you are paying your business expenses out of your personal account, your personal expenses out of your business account, and then you find yourself in a situation of liability and you are in a court before a judge and a judge is looking and your argument and your attorney’s argument is the business owner’s personal assets should not be accessed.

Because there is an LLC in place and there’s the liability protection and they were treating it as totally separate and what they are going to look at and what a judge is going to look at is did you as the business owner actually treat it as though it was its own separate entity or were you treating it as all one in the same and co-mingling your funds and personal and your business and everything is mixed.

Well, we’re just going to treat it as though it’s one and the same too, and the liability protection is removed. It’s not very common for liability protection to be dismissed. It’s called piercing the veil. So there’s this veil of protection. And then if the liability is deemed to go beyond that of the protection that’s afforded to LLCs, then they will pierce the veil and the individual behind the business can be held personally liable.

And there are some instances where this can and will take place, but for the most part, it’s pretty uncommon and you can reduce the likelihood of that being the case for you by making sure that you’re actually treating it like it’s its own separate entity and that you are not mixing business with personal. That is how you can make sure you are maintaining your liability protection and preserve your access to that liability protection. In terms of maintaining your LLC otherwise.

Compliance and Filing Requirements (14:00) After you form the LLC, again, maintain that separation and treat it like it’s its own entity. And then of course, in your jurisdiction, be aware of any compliance requirements or filing requirements. Sometimes there are annual filing requirements and fees that are necessary in order to maintain the status of your entity and maintain the status of your LLC, as well as the liability protection that you benefit as the owner of that LLC.

What’s important to keep in mind after forming your LLC is that it’s not just a matter of filing the paperwork and you’re in the clear, it’s all good. At that point, moving forward, after you file the paperwork and form the entity, your job is to treat it like it’s its own separate entity.

That means maintaining complete separation between that business and your personal expenses, your personal activity, as well as any other businesses and any other business activity that you might be involved in. That… is the best way that you can ensure you and your business can reap all of the benefits that come along with having a limited liability company.

And that’s it on LLCs, limited liability companies. I am guessing that if you’re listening to this, you probably have an LLC or maybe you’re thinking about forming an LLC. It is many times the first step that a lot of people take when they decide that they’re going to form a business or start a business or begin selling a product or a service of some kind.

Celebrating LLC Formation (15:29) And so I always like to celebrate. I’ve celebrated many friends who want LLCs. I feel like we need to have parties to celebrate new businesses. I know I’ve seen so many conversations over the years as it relates to like having business showers, kind of like how we have baby showers, which… I am all for, please invite me to your business shower. I will come with a present ready to party and celebrate you. And yes, we need to do more of that. That actually sounds like a lot of fun. Hmm.

Hosting Business Events (15:59) Has me thinking about some in-person events. I have been wanting to host in-person events for a while. Of course, like the last two years that wasn’t exactly compatible with the state of the world, but you know, most recently it has become a very possible thing. And so starting to think about it again.

And I would love to have more events that are centered around business ownership and entrepreneurship and women in business and the different business models that are available to us in the year of 2024 when I’m recording this episode and beyond, because I think that the opportunities are just incredibly abundant and there are so many resources available to us that we can and should be leveraging if… that is something that we desire as individuals.

And I think a lot of the time too, you know, yeah, a lot of us do desire that. And then there are many people that are simply not aware of the opportunities available. And so kind of thinking about like, how can we create and host more events that help spread awareness around all of the innovative resources and tools and information that is available today that can help us advance our careers, advance our businesses, advance the way we are supporting our communities and customers, providing solutions to those who we are here to serve.

And so stay tuned on that. I don’t have anything solid to share at this point, but kind of just sharing my ideas and what I’ve been thinking about. So if you have ideas around events, I’m based in Dallas. So if you are based in Dallas too, then maybe. You could attend something that I host one day in person. That would be awesome. Or maybe I’ll do a destination event. I don’t know. All of that is yet to be determined.

If that’s something that excites you or interests you, I would love to hear from you. If this episode was helpful for you, please let me know. Would love to receive your feedback. You are always welcome in my DMs on Instagram @CoachesandCompany. Wherever it is that you’re listening to this podcast, you can leave us a review. That would be great. Would love to hear from you there.

I think I’m going to start reading some of our reviews on the episode, like the beginning of the episode and share some of the feedback that we’re getting and shouting out some of our listeners. So please be sure to sign your review so that I know what your name is. I love the handles too. You already know like on Apple podcasts, if that’s what you use, it’s like their random iCloud handle, which is totally fine.

But if you want to leave your name, I would love to shout you out and I would love to hear from you. Give me a shout. Come say, hey, let me know what you’ve got going on in terms of your business and If an LLC has been great for you, if you’ve decided to go in a different direction, if you are just starting your business or if you have been in the game for years and years, either way, we’d love to hear from you. We’d love to connect with you. And I will talk to you in the next episode. Peace.

Outro (18:53) Hey friend, thanks for listening to this episode of the Business of Doing Business podcast powered by Coachesandcompany.com.

If you enjoyed what you heard, please share it with a friend or to your social media and tag us @CoachesandCompany. And if you haven’t already, subscribe to the podcast so you never miss an episode. The best way to support this podcast is by leaving us a review wherever you’re listening to it now.

It takes just a few seconds to do so and makes a huge difference to us as an independently produced podcast and can help us continue to create great content for our listeners. Also, you can find more tips and resources for your business by visiting Coachesandcompany.com and by following us on Instagram @YasmineSalemHamdan and @CoachesandCompany.

If you have any questions or comments, any topic requests for future episodes, or maybe you want to be a guest on our show, you can reach me directly by emailing hello@coachesandcompany.com. Thanks again for listening and I’ll see you next time.

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