Jennifer Reuting

Cheat Sheet / Updated 07-03-2023

Individuals are now, more than ever, realizing the power of the limited liability company (LLC). If you’re like many people, you probably understand that an LLC can benefit you somehow; you just don’t know the next steps to take. Read on to find out the benefits of LLCs, get help naming your LLC, and get the lowdown on the different tax types for LLCs so you can make the best decisions for your business.

Article / Updated 03-03-2021

An operating agreement is a contract that controls how an LLC (limited liability company) operates and how the members interact with the LLC. You might think that as a sole owner of a company that no operating agreement is necessary — after all, operating agreements are comprised of terms agreed to by all of the members, and well, why make an agreement with yourself? Reason 1: Without an operating agreement, your LLC is bound by the default rules of your state. We all know how business tends to go when the government is the one calling the shots. It's not pretty. Luckily, most state laws governing LLCs allow the default rules to be overwritten in the company's operating agreement. Now, the states vary substantially on what can or cannot be amended in your company's operating agreement. Do some research before drafting your operating agreement to make sure that the terms you're putting into place for yourself are even legal in your state. Reason 2: The alter ego problem — you must separate the business from the individual. A major benefit of an LLC is that it limits liability in two ways. First, it protects the member from lawsuits that arise from the business of the LLC. Second, it protects the LLC from the personal liability of the member. Without an operating agreement — which states that the LLC is an independent business, what the business does, and when the business was formed — the business looks a lot like a sole-proprietorship, which has no liability protection. In other words, it's really no different than good ole you. The danger of this lies in the fact that the courts will not recognize that your LLC is its own entity (or "person," so to speak) and will not allow you all of the great liability protection advantages that an LLC offers. Reason 3: You can allow for future growth. All successful businesses have something in common: They grow! For example, a business might want to take on investors in order to expand. An operating agreement can provide for how the investors will be treated, such as how their investment will be repaid, what voting rights the investors will have in the company, and what happens when the investors want to "cash out" of the business. If you know what you want, then it's good to get this all structured up front. Especially if you aren't interested in giving future investors too much wiggle room in the negotiations. Having your company already structured in a way that allows for explosive growth will definitely put you in a much more powerful position come fundraising time. Reason 4: You can control the day-to-day operations. Often, a business owner wants to bring in a manager to operate the business while the owner can concentrate on big-picture thinking. An operating agreement is the perfect place for a sole member to define what powers a manager will have, how he or she will be compensated, and what happens if the person leaves the company. The agreement binds the managers and ensures that they are loyal and financially responsible to the company. As you can see, it is very important for a single member LLC to have an operating agreement. Luckily, you won't have to worry about fighting over terms and getting everyone to sign. All the more reason to draft your operating agreement today!

Article / Updated 03-26-2016

You can't expect to pick a great name for your LLC (limited liability company) out of thin air. Creativity is best served when subject to a few helpful restrictions. The following are a few naming rules for your businesses: Be distinct. Naming your brand-new and improved social media site FaceSpace or MyTube won't give the impression that you are either "new" or "improved." Quite the opposite, actually. Be memorable. Avoid acronyms like the plague. Unless you have a huge annual marketing budget to waste, don't attempt to grab anyone's attention with a few letters. If you're serious about shortening your name, condense it into an amalgam, like FedEx for Federal Express, or Nabisco for National Biscuit Company. With that being said, contrary to what you may hear elsewhere, long names are often a lot more memorable than short names (think T.G.I. Fridays versus Joe's). So don't worry about restraining yourself with length — especially since you'll have better luck finding a domain name for a longer name than a shorter one. Be approachable. Make sure your LLC's name is easy to pronounce. You don't want people to avoid saying the name because they're afraid of mispronouncing it. Try out potential names on a first grader. If he can't pronounce it, ditch it and have him help you find an alternative. Hey, you'd be surprised at what good ideas kids can have! Be meaningful. This doesn't mean be descriptive; save the description for your tag lines and slogans. Make your LLC's name evocative and allude to the heart and soul of your business. For instance, Netflix is a great name for an online video rental site, whereas FilmsOnline is not. Be vivid. What image and feeling do you want your customers to associate with your brand? Try to paint a picture. For example, the name Stonyfield Farm makes you think of cows in green pastures, which gives the impression of wholesomeness. Be bold. With so many names already taken, you can't be afraid of taking risks. As long as your name is evocative, don't worry about being too unusual — just look at Yahoo! and Google. Be eternal. LLCs are now made to have a perpetual existence, so why restrict the life of your business with its name? Choose a name that will sound good for decades or even centuries down the road, or you may face the same conundrum as Twentieth Century Fox. Be expansive. Be careful that your name doesn't restrain your business to a specific location, product, or service. For instance, Los Angeles Rentals would have to spend a pretty penny on rebranding if it ever were to expand to another market. No matter how small you are now, you don't want your name to hold you back or become antiquated as your business moves forward. Be global. Make sure your name is internationally friendly. Otherwise, you may be ready to expand abroad one day only to find out that your name has a negative connotation in certain cultures.

Article / Updated 03-26-2016

Because LLCs (limited liability companies) are allowed to elect pretty much any tax status that suits them, the federal returns, information statements, and notices that they are required to file each year vary accordingly. An LLC can choose the following types of taxation: disregarded entity, partnership, corporation, or S corporation. Disregarded entity taxation Disregarded entity isn't so much an election as a default tax status for single-member LLCs. Single-member LLCs don't qualify for partnership taxation because no partners exist, so they're automatically subject to this form of taxation unless they elect corporation or S corporation tax status. This form of taxation can actually be beneficial for some real estate and investment transactions. When considered a disregarded entity by the IRS, your company is treated as if it doesn't exist and you're taxed simply as an individual (or as a sole proprietorship, to be exact). This arrangement can be beneficial when executing tax credits, deductions, and strategies that only apply to individuals, such as mortgage interest deductions and special exception rules in a 1031 exchange of real estate. Partnership taxation Partnership taxation is the default tax status for limited liability companies with more than one member. It's a form of pass-through taxation. The primary benefit of partnership taxation over other forms of pass-through taxation is that, assuming your primary intention isn't tax avoidance; you can vary the profit and loss allocations to the partners. Additionally, recourse loans are, for the most part, deductible to the members who guarantee them. Corporation taxation The corporate tax status differs dramatically from all others. It's the only non-pass-through form of taxation an LLC can elect. The revenues and expenses, and thus the profits and losses, of the company do not pass through to the members, but instead are retained in the company and taxed at the applicable corporate income tax rate. Because the corporation tax rate is generally lower than what an individual pays, this status can often be beneficial. Additionally, when a member sells his interests in the company, the profit from that sale is subject to a very favorable long-term capital gains rate. This can result in substantial tax savings. The major drawback of corporate taxation, though, occurs when ordinary profits (called dividends) are removed by the members, causing a double-taxation scenario. S corporation taxation The corporation's answer to pass-through taxation, S corporation tax status came about when small, closely held businesses (such as independent contractors) needed the ability to operate under the liability protection of a corporation but without the heavy tax and regulatory burden that comes with the standard corporation. Note that S corporation is not an entity type, but instead simply a tax election that can be made by either a corporation or an LLC. The S corporation's claim to fame is the members' ability to hire themselves and pay themselves a salary. Although the resulting tax burden is ultimately equal to the income tax and self-employment tax they would pay with partnership taxation, the members only pay income tax on amounts over the salary they pay themselves, as opposed to members subject to partnership taxation who have to pay income tax and self-employment tax on all profits over their salary. Obviously, you can't just pay yourself $1 and be done with it. The IRS stipulates that your salary must be consistent with others in your industry and your position.

Article / Updated 03-26-2016

LLCs, or limited liability companies, are one of the most flexible business entities. They allow you to choose how to distribute the profits, decide who manages the business's day-to-day affairs, and decide how the profits are to be taxed. They also offer a lot in terms of liability protection. The overall advantages of the LLC include the following: Personal liability protection: Any creditors who come knocking or lawsuits filed against your business can't affect you personally. You can rest assured that no matter what happens in the business, your family's assets are safe. Business liability protection: An LLC is one of the only entities that can prevent personal lawsuits and creditors from liquidating your business to satisfy a judgment. No ownership restrictions: You can have as many owners as you need. Even other entities can be owners! No management restrictions: Owners can manage and managers can own — you decide. Flexible tax status: You can choose from a multitude of ways to be taxed, depending on what works best for your situation. No separate tax returns: With a standard LLC, the business's profits and losses are reported on your personal tax returns. No double taxation: Unlike some business structures, LLCs can have pass-through taxation. This means that the profits won't be taxed at the company level, only at the individual level. Flexible profit distribution: You decide what percentage of the profits to give to whom — no matter how much of the company the person actually owns.

Article / Updated 03-26-2016

Assuming your limited liability company (LLC) isn't operating in multiple states, changing the name of your LLC is usually a fairly easy process. However, there are a few things to consider. First, you should ask yourself whether or not changing your LLC is absolutely necessary, or if you could simply get by with the much easier process of filing for a DBA or "doing business as" (also often referred to as a "fictitious firm name" filing). A DBA will allow you to operate your business under the name that you desire, while still keeping your LLC name the same. Filing for a DBA usually just involves a simple form and a small fee. Your company's legal name would remain the same; however, you wouldn't have to use it for business if you choose not to. If a simple DBA isn't going to fly, and you want to go for the firm name change, then your first step is to check your LLC's operating agreement and see what vote is required by the members (or managers) to make the change. If you don't yet have an operating agreement (tsk tsk!) you will need to check your state LLC laws for default or minimum requirements for making this sort of amendment. Or, even easier, just make sure to get the consent of all of the members. After you know that all of the members (or at least the ones required to approve the change) are on board, you need to create a written resolution. All of the members required to approve the change need to sign the resolution. Then, you will need to amend your LLC's Articles of Organization on file with the state. You should file and execute the appropriate certificate of amendment of articles within 30 days of the effective date of the written resolution, approving the change. There will usually be a filing fee associated with this change, ranging from $20 to $150, depending on your state. After your new name has been approved, you should notify everyone of importance about the name change. This includes your bank, creditors, local business authorities, vendors, and customers. You should also notify the IRS about your change. Although your LLC will keep its federal EIN, you have to amend the name on your tax return or otherwise notify them with a written letter.

Article / Updated 03-26-2016

LLCs (limited liability companies) are the perfect tool for planning an estate. Planning your estate is sort of like shooting at a moving target — you can't plan for a future that you are unsure of. Nothing is certain in estate taxes, and Congress may pass another tax act in the coming years that changes the estate tax structure. So who knows what the tax rates will be when you pass on? You need to take control of your estate and not leave everything up to the fickle whims of the U.S. government. With LLCs, you maintain control of your assets as the ownership passes on to your heirs, all while avoiding probate. You can also rest assured that your estate is protected from the roving eye of creditors and lawyers who want to take it away. LLCs avoid probate One of the greatest benefits of using LLCs in your estate planning is that your heirs can avoid probate, a lengthy and expensive process in which the court settles your estate for you. The court resolves all creditors' claims and distributes your assets according to law or your will (if you recorded one). Probate is managed by someone whom you designate in your will, called an executor. Probate often undermines all the tax-saving steps that you take (such as gifting) because the legal fees and court costs can become so high that the taxes are nominal in comparison. And if someone contests the will or the executor, the courts can take many years to execute the will, and there may not be much of an estate left to divvy up after it's all over. When you set up your estate in an LLC, the LLC just transfers to your heirs, and all is said and done. This way, you can rest assured that your loved ones won't be hit with any huge legal fees that eat up your estate before it's ever delivered into their hands. If you are married and live in one of the ten community property states (Alaska, Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin), all your assets will be transferred to your spouse upon your death. In this case, no probate is necessary. If your spouse is no longer alive, then your estate will enter into probate. Note: if you don't live in one of these community property states, then your estate will enter probate whether your spouse is alive or not. The best way to avoid probate is to create an LLC. LLCs provide asset protection The biggest problem with most estate planning techniques is that as you collect assets to pass on to your heirs, the assets aren't protected from creditors and lawsuits. As long as you're alive, without this protection, you're a walking target. Although most trusts help ease the transfer of your assets upon your death, they don't protect your assets from lawsuits or creditors like an LLC does. When you work with your attorney on an asset protection plan, he will probably suggest using a trust. (A trust is a legal situation where someone gives financial control over certain assets to a person or institution for the benefit of another person, the beneficiary.) When structured properly, LLCs offer the same benefits as trusts when it comes to avoiding probate and reallocating income, but many attorneys prefer trusts because they're the standard, age-old way of estate planning, and LLCs are newer entities. If you find this to be the case, you may want to have an open and frank discussion with your attorney as to why he doesn't wish to incorporate an LLC into your estate plan. If he doesn't have a concrete reason — such as the value of your estate is so small that it wouldn't warrant the extra fees — then you may want to get a second opinion. When you meet with your attorney to draw up an estate plan, make sure that your attorney incorporates asset protection strategies into the plan. Preventing your assets from being taxed after your death is pointless if your assets get seized by a creditor before your heirs can even get to them. An LLC, if used by itself, should do the trick because it offers many layers of asset protection. If you want to use a special trust in your estate planning endeavors, you can use an LLC (or two or three) to hold the assets, thereby protecting them from creditors. The trust will be the majority owner of the LLC to help avoid probate and reduce estate taxes. This way, if you get sued personally, the creditor can break the trust, however, the assets (which are inside the LLC) are saved by the LLC's charging order protection. When you work with your estate planning attorney, he may not look at the situation from an asset protection perspective. Or, he may look at it only from an asset protection perspective and ignore the tax implications. Make sure that you have all of your bases covered and that whomever you work with looks at both of these important aspects when planning your estate. LLCs give you control An LLC is incredibly flexible. You can structure the ownership, the management, and the profit allocations pretty much however you want by specifying these things in the company's operating agreement. Your LLC can be either member-managed, where all partners share equal control of the day-to-day affairs, or manager-managed, where one or a few people (who don't make up 100 percent of the partners) make managerial decisions. LLCs for estate planning are commonly manager-managed LLCs, with the parents taking the role of managing partners and the kids as nonmanaging (silent) partners. This way, as the LLC is transferred to the children, the parents can still manage the assets even if they no longer own the LLC. Basically anything goes, as long as you set up the LLC's operating agreement accordingly. You can have different types (classes) of membership, where some partners have more voting rights than the others. You can restrict the transfer of ownership so your kids can't sell their shares in the family estate. You can describe in detail how you want the succession to go after you pass away, and you can name the successor managers. You can even distribute the profits and losses however you want, meaning they don't have to be distributed according to the membership percentages.

Article / Updated 03-26-2016

If your limited liability company (LLC) elects a form of pass-through taxation — for example, partnership taxation, s-corporation taxation, or a single-member LLC electing disregarded taxation — then the LLC itself will not pay taxes. For example, you and your partner are the members of Good Times, LLC. You have a 20 percent membership interest and your partner has 80 percent. If Good Times, LLC's profits and losses are divided or allocated between you and your partner based on the percentage of membership interest, then they will be split 20/80. This year, Good Times, LLC made a profit of $1,000, so $200 is allocated to you. Regardless if you ever received the actual cash (called a distribution), you have to report the $200 as income on your individual tax return and pay the taxes. To safeguard against forcing members to dig into their own pockets to fork over taxes on the company profits, an LLC can choose to require mandatory tax distributions to the members. This tax distribution will cover whatever you owe to the IRS based on your share of the company's profits. In the case of the Good Times, LLC example, your distribution would equal whatever taxes you are forced to pay on your $200 share of the company profit. If you and your partners make this a firm requirement in your company's operating agreement, you won't be able to take full advantage of your LLC's charging order protection and force any creditors to pay your LLC's taxes, while withholding distributions. Another thing you need to know about mandatory tax distributions is that, by law, a distribution is considered improper if it results in the LLC not being able to pay its debts. If Good Times, LLC needs every penny of its profits, then it is unwise to make any distributions to the members. If you approve or receive an improper distribution, then you could be held personally liable. When drafting your LLC operating agreement, it's a good idea to address the idea of tax distributions, however, make them optional. That way, when the time comes, depending on the financial state of your LLC, you and your partners can decide whether or not to take one for the team, or to be reimbursed for your tax burdens.

Article / Updated 03-26-2016

LLCs (limited liability companies) are pretty powerful entities that you can do some pretty amazing things with. But you know how the old saying goes: "With great power comes great responsibility." In other words, if you don't watch out, you can get yourself into trouble. Fraudulent conveyance of assets If you just got sued and want to protect your assets, I'm sorry to say that it's too late. If you were to transfer your assets into an LLC, you would be fraudulently conveying them. According to the law, you are fraudulently conveying assets when you do one of two things: Sell or transfer the assets at less than fair-market value, which results in a creditor being defrauded Transfer the assets so a creditor can't seize them to recoup his claim Fraudulent conveyance is a civil offense and can cost you a lot more money in the long run than if you were to just hand over your possessions. If you formed an LLC with the intent to defraud a creditor (as opposed to forming an LLC not knowing that your assets were immediately at risk), you're even worse off. Not only will the creditor still be able to get your assets, in some states, you may be subject to penalties and even imprisonment. Futhermore, federal laws say knowingly committing fraudulent conveyance can be a criminal offense. You can even unknowingly fraudulently convey assets. This can happen when you're setting up your asset protection strategy and transferring your assets into an LLC or two, and little to your knowledge, a lawsuit is already pending against you. Even though you don't know about the pending lawsuit, the assets still have been fraudulently conveyed. You probably won't get criminal charges in this instance, but you still may be required to turn over the assets that you thought were protected. Evading taxes Although it's prudent for you to take every action within the law to reduce your tax burden, actually evading taxes is a huge no-no. Tax evasion is when you dodge paying taxes by illegal means. Tax avoidance, on the other hand, is perfectly acceptable and legal. This just means that you legally reduce the amount of tax that you owe. For instance, putting your retirement savings in a Roth IRA, which allows you to defer taxes, is considered tax avoidance. It's a perfectly legal way to reduce your tax burden. To determine whether you are avoiding taxes or evading them, remember this: Tax avoidance occurs when you avoid the creation of tax liability in the first place. However, you're guilty of tax evasion when you have done something to owe taxes and you don't pay them. Then you'll probably end up in jail. The scariest thing about tax evasion is that it's a criminal offense — a felony — which has no regard for how much tax you even evaded. Evading $500 in taxes is the same as evading $5 million in taxes in the eyes of the law (although, one hopes the judge will be more lenient in the former case). Choosing a bad partner Partnerships are like marriages — you should jump into them with your eyes open. Fifty percent of marriages end in divorce, and the numbers are much worse for business partnerships. This shouldn't be a deterrent — after all, when you have a partner whom you work well with, your efforts are compounded tenfold. You just need to make sure that You know the person whom you're going into business with. You have policies and procedures to go by when disagreements come up — and they will come up. When you're first getting into business, you'll sit down with your partner and agree on where you both want the company to go and what you want your ownership percentage and different roles to be in the company. The problems usually occur many years after inception, when your or your partner's life goes in different directions. For instance, you may want to expand into a new market, but your partner is happy with the income he has and just wants to let the business coast along. Or your partner needs cash and wants to sell out, but you don't have the money to buy out his share. In these moments, you need to have a plan to follow. You need to have a partnership agreement, which can be a part of your operating agreement. You must take the time to sit down with your partner and plan your partnership all the way to the end. Ignoring the bureaucratic paperwork State filings, tax returns, permits, and so on — they're all time consuming, bureaucratic, and you hate doing them. Trust me, you're not alone. But unfortunately, it's imperative that you don't drop the ball and that you stay on top of these things. This especially goes for state filings. Here's the thing: Your LLC is registered under the laws of the state, and that which giveth can taketh away. If you don't keep up with your filings, the state will revoke your LLC, and you'll (often unknowingly) be operating as if you were a sole proprietorship. You'll have zero liability protections if you get taken to court. Trademark infringement Infringing on another company's trademark is one of the easiest pitfalls in business and can end up costing you a fortune. Be cautious about trademark infringement because not only can you fall into this trap without any knowledge of it, but a lot of Fortune 500 companies hold hundreds of trademarks each. They have attorneys and paralegals who spend their days scouring the Internet and local communities for small businesses that may be infringing on a trademark they own. The company is then nice enough to send a cease-and-desist letter. When you receive one of these letters, you have two options. If you're an upstart and don't have a lot of money wrapped up in the name that the company is disputing, stop using the name and choose another one. If you have spent a lot of time and money marketing the name and feel as though you have the right to use it and that it doesn't confuse consumers in any way, then you may want to consider hiring a good trademark attorney. Your trademark attorney can point you in the right direction. Just keep in mind that if you end up going to court, you'll be shelling out lots of dough, especially if your opponent has much deeper pockets. Not creating an operating agreement Even though operating agreements aren't legally required, you'd be absolutely crazy not to have one! LLCs can make up a lot of their own rules — you just have to put them in the operating agreement. If no operating agreement exists, then the state laws automatically apply by default. Letting your state government tell you how to run and structure your business isn't a smart practice. You not only miss out on one of the LLC's most major benefits — flexibility — but you also aren't in control of your business. Create a real operating agreement that is unique to your company, and then use it! You should read it over on occasion so you know your company's policies when it comes to certain issues. If you decide to change your policies, that's fine. Just make sure that you have a meeting with the other members and vote in the changes. Meeting procedures can be found in none other than your LLC's operating agreement. Not documenting company activities LLC law is pretty lenient when it comes to keeping records, but don't let it fool you. Documenting your company activities is still incredibly important. At some point, your business decisions will be questioned, and you'll be relieved when you have your company minutes there to defend your reasoning. Not only this, but your company records prove that you do things by the book. So, if an angry member sues because he didn't get his way at the last meeting of members, you can show that the proper vote was taken and that correct formalities were practiced. Here are a few good reasons to keep your company records in order: When applying for loans or creating other banking relationships, your record-keeping practices allude to your reliability as a business owner. The most common lawsuits among partners in an LLC happen when one or more members disagrees with a course of action that another member has taken. By properly documenting your actions, you can prove that you went through the proper channels and made and acted upon decisions according to your powers as described in the operating agreement. Should you ever wish to sell your company, take it public, or enter into a joint venture, you need to have all of your previous company actions properly recorded. If you're ever audited, the IRS will look at your corporate records to see your intentions behind various transactions. Treating your LLC like a personal piggy-bank This is really simple and really important: Only use your company's money for company-related expenses. This sounds elementary, but it's a common mistake and can cost you a lot in the long run — not only in penalties to the IRS, but it could also cost you your liability protection. It's often tempting to write checks or use a debit card from whichever account has the most money in it — but don't do it. Personal expenses that you'll especially want to avoid are things such as your mortgage or groceries. Restaurant bills are okay, as long as the dining experience was business-related. If you really need to pay for a personal item out of your company bank account, then do it. Just make sure that this doesn't occur very often and that you properly document the transaction and classify it as a loan or officer income. If the transaction was a large one, then you'll also want to document it in the company minutes. Neglecting to foreign file Transacting interstate business has gotten easier as the world has gotten smaller. Each state has a different idea of what "transacting business" actually means. Regardless, you're still required to register to transact business (foreign file) in every state that you operate in. Here are some questions to ask yourself to help you determine whether you're transacting business in a certain state: Does your LLC have a physical location in the state, such as a corporate office or manufacturing facilities? Do you accept orders in, or originating from, the state? Do you have employees (not independent contractors) in the state? Do you have a bank account in the state? Refusing to delegate Some people trust no one to help them and do everything themselves. This is because, in their mind, no one can handle the job as well as they can. This is a disease of the self-employed, and it can weaken you substantially. Why? Because you can only do so much, and until you start to delegate, your organization will never grow — not to mention that you'll most likely get burned out before you know it. You have to delegate some things in business, or else you can get into some pretty big trouble. For instance, tax laws are incredibly complex, and unless you studied to be an accountant, there's a good chance that if you handle your own taxes, what you don't know will destroy you, especially if your business is on the larger side, has employees, and is somewhat complex. The same goes for attorneys. Don't try to represent yourself in court. Lawyers, although they can be expensive, are incredibly necessary to a small business. Don't operate on assumptions — seek the knowledge of a competent lawyer when legal matters come up. When handling your corporate filings, especially if you are registered in multiple states, have your registered agent assist you. Not only is a registered agent required by law, but he also has more knowledge and resources in corporate matters than you do. Use a registered agent who is part of a competent incorporating company. That way, you can save legal fees when seeking information about simple, non-complex corporate matters or getting answers about your filings. Don't be a jack of all trades. Master one thing, and then delegate the rest. For instance, if you aren't so hot at sales, don't worry! Hire a great sales manager and empower her to take the reins and build a phenomenal sales floor. Even if you are decent at something, find someone who is better than you and recruit him. When you find these people, take a leap of faith and don't undermine them. After all, your business is only as good as the people in it.

Article / Updated 03-26-2016

Before you can file any formation paperwork for your LLC, you need to choose a registered agent (sometimes known as a resident agent or statutory agent or by its acronym RA). A registered agent is a person or company that’s always available during business hours, every single day, to accept formal legal documents for your company in the unfortunate instance that you are sued. Your LLC needs a registered agent in its home state (its domicile) and every other state in which it transacts business. Most registered agents allow you to use their office address for all your mail and other correspondence. A good registered agent should also stay on top of your state filings for you and make sure that you remain in good standing in each state in which you are registered. If you are registered in many states, this task can be onerous, so you’re better off leaving it to a professional service company or an attorney (a more expensive option). Even if your state allows you to serve as your own registered agent, it's not a good idea. Unless you plan on being at your office during business hours every single day, without exceptions, and you have a good grasp of all the state filings that need to be done, you should leave it to the pros. If you are not available when a lawsuit is served, you could lose the case by default — without knowing about it until it’s too late! Another consideration is that if you were sued, would you really want a process server or sheriff serving you a lawsuit in front of your customers?