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LLC business registration: stepy by step guide

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This guide outlines how – and why – to set up an LLC business, including how to check if it makes sense for you.

Setting up an LLC business is an exciting experience and, in many ways, feels like you are propelling your business into the big leagues. Aside from the numerous advantages an LLC business legal structure provides, such as liability protection, you will often get better access to funding and be able to trademark your business name officially. Nevertheless, it is not quite as simple as paying some money, and hey presto, you’re now an LLC! Instead, it takes lots of preparation and understanding of the processes involved. This post will cover the main steps involved and some pitfalls to avoid.

LLC meaning: What exactly is an LLC business?

The abbreviation “LLC” stands for Limited Liability Company. This already makes one advantage of the LLC clear: Like the corporation, the LLC largely protects the private assets of the founder. Liability is generally limited to company assets. In addition, the LLC offers entrepreneurs great freedom when it comes to how an entrepreneur structures his company.

Why set up an LLC business?

It is a good idea to set up an LLC business, whether you are a start-up or an established business. It simplifies tax planning, reduces administrative burdens, and provides additional protection. An LLC businessoffers its owners limited liability protection, which is generally considered the main advantage of setting up a limited company. If the company goes bankrupt or defaults on its debts, it will not lose more than its investment. One other advantage of an Ltd is the chance to save on taxes. You will pay corporation tax on your company’s profits rather than the individual income and national insurance taxes that sole traders and partnerships have to pay. 

Steps for setting up an LLC business

Check if setting up an LLC business makes sense for you

There are many reasons why you should think about setting up an LLC business as your business entity. One reason is that an LLC business offers protection from personal liability, which can help your peace of mind when running your small business. Another reason is lower start-up costs associated with this type of business entity than other types such as sole proprietorships or corporations. Nevertheless, it might not always be the right choice. For example, in looking at the pros and cons of LLC structures, it could be the case that one of the other types of structure could provide more benefits to your particular circumstances. 

Select a name

Choosing a name is one of the most critical decisions an entrepreneur needs to make. The first impression you give to your customers reflects your company, and a good name will impact your company’s branding and marketing strategy. Ideally, the name should be original and easy to remember without already being trademarked by another company. It should also differentiate itself from other companies in the same field that offer similar products or services.

Nominate directors and a company secretary

These two positions are some of the most important of the LLC business, and as such, you should choose wisely. They play different but equally important roles, and they are both primarily responsible for the business’s wellbeing.

The company directors are appointed by the shareholders to represent them and provide leadership to the company. A director oversees and manages the company’s activities and performs any tasks that have been delegated to them by the shareholders. In addition to ensuring the company stays profitable, the director has to ensure that the LLC business meets all legal requirements. Additionally, they must make decisions about hiring staff, managing budgets, and setting company goals.

Among the company secretary’s responsibilities is protecting the interests of the LLC business. The secretary’s responsibility is to ensure that the directors and shareholders adhere to the laws and regulations in place. Additionally, the secretary ensures that all documents are filed with government agencies such as Companies House and HMRC. In addition, they will gather details about potential conflicts of interest that may arise, which may lead to a violation of company law.

Decide who will act as shareholders or guarantors

A shareholder of an LLC business owns shares proportional to their ownership percentage in the company. In some cases, there are certain matters that shareholders can vote on, such as the election of directors and even the company’s direction. There is a legal minimum of one shareholder but no legal maximum limit. However, you should remember that the more shareholders you have, the more diluted your shares will become. Moreover, shareholders can either be individuals or entities like other companies and charities.

LLC business guarantors are individuals responsible for its debts if it cannot pay them. If the company fails to make payments, the guarantor will repay the debt. In other words, they are responsible for any losses incurred by the business and may be required to repay any debts owed by the business. However, with this responsibility comes a lot of power, and they can be considered one of the most influential people in the company.

Prepare documents defining how your company will be run

There are two documents that you will need to prepare to set up your LLC business legally:

  1. Memorandum of association
  2. Articles of association

The memorandum of association is an important document that sets out the LLC business rules. It contains information on:

  • The company’s legal name
  • Address of its registered office
  • Its objectives
  • This company’s capital structure (e.g., shares with different voting rights)
  • Provisions for the management and regulation of the company
  • Conditions for the winding up or dissolution of the company

In a company’s articles of association, the rules governing the LLC business operation are laid out. This document includes information about how the company will be managed, its goals, and leadership.

Pitfalls to avoid 

While setting up an LLC business structure is often relatively straightforward, there are some things that you should attempt to avoid when progressing through the steps.

  • Choosing a name that already exists: This is one of the biggest mistakes people make when setting up an Ltd. Selecting a name that is already taken will require you to reapply from scratch.
  • Not providing enough detail in the required documentation: Because you are setting up a legal structure, you must give as much relevant information as possible. If you fail to do so, it will take much longer.
  • Not providing an appropriate business address: The office location you choose must correspond to the country you are incorporating. In the UK, this means one of the four constituent countries.
  • Selecting an unsuitable company director: If your chosen director is somehow ineligible, you might find your application rejected by Companies House.
  • Issuing too many shares: If you want to retain as much voting power as possible, you should be careful about how many shares and to whom you issue them.

As you can see, setting up an LLC business is not as challenging as it seems at first glance. As long as you follow the steps and avoid some of the more common mistakes, you will find yourself as the owner of an LLC business before you know it.

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