Establishing an LLC
Creating a business, registering a business, and organizing the proper structure for that business are important for every startup company. When a business opens, it should be incorporated under a name and documentation that allows the owners to deflect liability from themselves onto a business while also organizing and recording their responsibilities. There are many options, including the Limited Liability Partnership (LLP), the Professional Corporation (PC), and the Limited Liability Company (LLC).
The LLC is the most popular and flexible of the corporation styles, and most businesses can use this type of incorporation to perform any kind of work. As a business looks to establish an LLC, it should consult with an attorney who can explain how the process works, help the owners understand their liabilities and duties, and generate all the paperwork that is needed.
Skilled legal counsel can help a business owner choose the correct style of incorporation. Additionally, a lawyer can help when the company wants to open new businesses that should be managed under the umbrella of an LLC or need to be incorporated separately. The attorney should also be retained in the future if the LLC is faced with a lawsuit.
What is an LLC?
The LLC is a flexible and simple form of incorporation that shields the owners from the debts or liabilities of the company. The company can have as many owners as needed, and it can even forgo paying federal taxes by listing profits and losses on the income tax forms of the owners.
The LLC is formed under state law, but each state has slightly different requirements for these organizations. Companies in Pennsylvania will file a Certificate of Organization with the state, and those documents will remain in place unless the business is reorganized. An operating agreement is not required, but it is recommended because it helps the company remain organized.
The Certificate of Organization is straightforward, as it simply explains the name of the company, its address, its registered agent, and anyone who is involved.
The operating agreement will make clear the duties and responsibilities of every owner of the corporation. This delineation of job duties ensures that all partners are legally bound to the work they have planned to do. Any employment disputes of this type can be settled by referring to the operating agreement.
Additionally, the operating agreement can explain the percentage of profits to be paid to be each partner. If a minority partner takes only a 20 percent share of the business, the majority partner will be paid 80 percent of all profits. Businesses can expand quickly, and other partners may be engaged. Businesses can speak to an attorney to have the terms of the operating agreement changed if the percentages of ownership have changed.
The agreement also explains how the company plans to pay taxes and handle its liabilities. Although the company will pay a fee to file the Certificate of Organization, it will also need to file paperwork with the federal government and pay a fee to receive an Employer Identification Number (EIN).
Because the process can be complex, an employment lawyer should be consulted to handle the formation of the organization. All documentation can be submitted via the lawyer’s office, and the lawyer can also assist in the construction of the original Certificate of Organization and/or operating agreement. A lawyer will understand which corporation style is best, and they can explain the advantages of a basic LLC.
Why Do I Need to Establish an LLC?
A business owner must establish an LLC to ensure that their personal finances and property are held separate from the corporation. This is important because a business owner does not want to be held liable for something the business has done. For example, the manager of a restaurant operated under an LLC may have discriminated against employees resulting in a lawsuit.
Someone whose business is facing litigation in this case has not put all their personal assets at risk when operating under an LLC. Employees are suing the business instead of the owner, and the government is investigating the business instead of the owner.
The LLC can be used to establish any corporation no matter how large or small. For example, someone who owns a corner ice cream stand operates for only half the year. Even so, they need an LLC to ensure that their personal property or assets are not tied up with the business.
If the ice cream shop owner manages a Christmas shop the other half of the year, the Christmas shop must be managed under its own LLC so that the two businesses are not co-mingled. If the ice cream shop is performing well, its profits cannot be used to pay for the losses of the Christmas shop.
Do I Have Other Options for Starting a Business?
Although business owners can choose other corporations that may be specific to their needs, an LLC is the simplest way to incorporate. A PC may be used for someone who provides licensed services such as an attorney, therapist, or doctor. However, most business owners engage in forms of commerce that do not require state or federal licensure.
Another option for a company is to do business under another name. In most states, the term DBA is used to denote Doing Business As another name. For example, Joe Lewis, LLC might do business as Super Cheap Automotive Repair. In Pennsylvania, the business owner must register what is known as a fictitious name. This is not the same as registering a copyright or trademark on the name. The name must also be distinguishable from other entities in the state.
These alternative forms of incorporation may seem too complicated, and that is why an LLC is recommended for most businesses. An employment lawyer should be consulted when the business has considered registering a fictitious name or using a unique incorporation style.
Which Businesses Can be Established as LLCs?
Businesses can be established as LLCs in most instances. An LLC is the simplest way for the business owner to incorporate and protect their interests. Additionally, the LLC suffix lends credence to the company’s status, qualifications, and expertise.
Even though any business can be established as an LLC, the LLC does not provide the same benefits as other types of corporations. An employment lawyer can determine if an LLC is the right choice for the company.
Does an LLC Filing Expire?
The Certificate of Organization for the company must be renewed every year if the LLC provides professional services or operates as a foreign entity. In addition, the Certificate of Organization should be resubmitted if a partner leaves the company. The original Certificate of Organization includes people who may have retired, died, or started other businesses, and that document must be rewritten to reflect the company’s current operations.
Companies should ask an employment lawyer for assistance when the Certificate of Organization must be renewed or amended. A business that does not maintain these documents properly may encounter issues in the future if a partner has left the business and their name is still filed with the state.
Not only does that partner no longer wish to be associated with the business, but also the LLC does not want to be sued by a former partner who has somehow been dragged into employment litigation or an internal business dispute. Even more troubling is the confusion and legal trouble caused when someone who is deceased is listed as an owner of a business.
Do I Need a Business License or Permit?
An LLC filing does not take the place of the proper business licenses or permits. Local businesses are required to register with the county or city. The company may need a special permit to work in certain areas, and the company needs a license to do business in that area.
For example, a restaurant in Philadelphia must receive a permit to operate its kitchen, and that business will be subject to health inspections. The restaurant also needs a mechanical permit to install a walk-in freezer. The business license identifies the business as operating in the city, and the city will ask the LLC to pay certain taxes based on local laws.
In Philadelphia, for instance, a city wage tax is charged to all non-residents and the business must understand how to collect those taxes. Moreover, the owners of the business want the LLC to be liable for any taxes that may not have been collected. An employment lawyer can explain how taxes should be collected and paid to the proper authorities along with obtaining the appropriate licenses or permits.
Why Do I Need a Lawyer’s Assistance?
The state of Pennsylvania does not require a lawyer to write the Certificate of Organization or assist a corporation as it is established. The business owner, however, may not know of all the legal issues that are involved. An employment lawyer can walk the business owner or owners through the process, go through each part of the Certificate of Organization, and help the business choose a registered agent.
The registered agent is the person to whom all legal documents will be sent regarding the LLC. This person is most often the owner, but that may not always be the case. The state of Pennsylvania publishes the name and address of the registered agent for each business. Those who would prefer privacy or anonymity should hire a registered agent who can serve as the official address for the business.
Additionally, the attorney can explain that an address and not a post office box should be used for the company’s address. Anyone who files these documents alone might miss these minor but important details.
The attorney will ask if the proper domain name for the business is available for purchase. An attorney may also research potential business names already incorporated in the state. Because businesses must distinguish themselves from one another, the business owner should choose a unique name before the Certificate of Organization is filed.
How Many Employees Must I Employ to Qualify as an LLC?
Although there is no requirement regarding the number of employees an LLC must maintain, the business owner must remember that the company will pay the staff every month. The corporation will need to register with the state to pay sales taxes and handle payroll taxes. The company also needs to file paperwork with the federal government to obtain an EIN, which can be used when paying employees.
The bottom line is that the business must create a procedure for handling money. The state and federal government will need to know that the business exists, and the federal government must know how to identify the corporation when taxes are paid. Even more important are the intermittent tax payments the business might make during the year. Those payments should be made under an EIN to avoid any confusion.
An employment lawyer can assist in completing all the necessary steps so that payroll and taxes can be reconciled properly every month.
Can I Do Business in My Name?
When a business owner has started an LLC, they must operate their business like an LLC. The business owner cannot co-mingle their finances with the business. For example, taking money out of the register in a restaurant is not the appropriate course of action for a business owner. The owner has been paid by the LLC, and all their money comes from the salary the LLC pays.
The business owner also does business in the name of the corporation. For example, an LLC might sign a contract with a major supplier. The owner of the LLC will sign in the name of the LLC because the contract is between the supplier and the LLC. The owner established the LLC to avoid direct liability, and the purpose of the LLC is undermined when the business owner is signing their own name instead of the company’s name.
How Do I Handle Being Sued?
If the LLC is named in a lawsuit, the registered agent for the business will receive all legal documents pertaining to the suit. Although the registered agent receives pertinent documentation regarding the suit, these documents should be forwarded to an employment lawyer for review.
The LLC shields the owners of the business from personal liability, but all legal matters must be handled in a timely manner. Business owners do not want to be seen as negligent in their response to legal proceedings. The registered agent should be prepared to alert the business owner of any legal trouble, and those documents should be saved until an attorney can review them.
This is yet another reason why a business owner may not want to list their home address when incorporating. All processes of service will be sent to the address on record; it can be embarrassing or traumatic to have a strange person come to the front door, hand over documents for a lawsuit, and walk away.
An employment lawyer should be consulted as soon as possible. Many business lawsuits involve employment issues, and an experienced attorney should take over the case, begin to review any relevant evidence, and advise the owners of the LLC of the best course of action. This is especially important, as the attorney who helped form the LLC is often most familiar with the business and how it operates.
Philadelphia Employment Lawyers at Sidney L. Gold & Associates, P.C. Help New Business Owners
Contact the Philadelphia employment lawyers at Sidney L. Gold & Associates, P.C. when you need assistance establishing an LLC. Our employment lawyers offer experience and knowledge and will thoroughly explain the process. We also provide competent representation in the event of litigation. Call us today at 215-569-1999 or contact us online for a free consultation.
Located in Philadelphia, Pennsylvania, and Pennsauken, New Jersey, we serve clients in Wilkes-Barre, Scranton, northeast Philadelphia, Bucks County, Chester County, Delaware County, Montgomery County, and Cherry Hill, South Jersey.