Setting up an LLC: the basics

Many people start calling themselves a CEO as soon as they start their business... but if you’re not actually making CEO moves, then are you really a CEO? There are lots of things you need to take into consideration when setting up your business and really own your inner CEO, and that includes taking care of the legal side. 

A lot goes into setting up a business, from lawyer-drafter contracts (which should always be a top priority, especially for service-based business owners), to setting up trademarks (when you want to take ownership of a business or program name, and licenses that may be required either at the State or County level - especially for product-based businesses). But one thing that’s high up on most people’s list is setting up an LLC.

What is an LLC?

A Limited Liability Company (often just shortened to LLC) is a type of legal entity that can be formed to operate a business. It offers business owners the same limited liability protection as a bigger corporation, but is much easier and cheaper to form and run.

The purpose of an LLC is for liability protection, so that you can protect your personal assets such as your house, car, and investments from potential liabilities or creditors. It’s a way to separate you from your business.

For many people, they think they need to jump right into the process of filing for their LLC when they start their business, but they’re not really sure why or how to do it. And while it’s important to ask for help, you have to be careful not to seek out advice from people who aren’t lawyers to avoid any misinformation being spread.

You need to make sure that you’re doing everything correctly with your LLC, because even though an LLC is the same throughout the US, every state has a different fee and filing process. This is why as part of my services, I offer a workshop for new business owners to explain everything there is to know about setting up an LLC yourself, to ensure that you’re getting as accurate information as possible.

When should I set up an LLC?

Before you set up your LLC, I would sit down to think about what goals you have for your business. If you only foresee it as a project or side hustle that exists as a hobby alongside your existing work, then an LLC won’t always be necessary. But if you’re serious about it becoming a fully-fledged business that you want to scale, I would definitely look into setting up an LLC sooner rather than later, because you do need that liability protection to really separate you from your business.

How early you set it up can depend on the type of business you have. If you’re in any type of regulated industry - like hair, skin, or food - then you definitely want to set up your LLC sooner rather than later. Let’s say you’re an aesthetician: there is more risk associated with your business because if something happens to a client’s skin, the outcome could result in higher damages and potentially cost you a lot of money. But this is less likely to happen if you're a business coach whose client took a course of yours that they didn’t like.

Generally speaking, regardless of your industry, I would definitely try and file an LLC in your first year to make sure you’re treating your business as a serious asset.

Do I need to hire a lawyer to set up an LLC?

Not necessarily. In my opinion, I would rather you spend your money on lawyer-drafted contracts than hiring a lawyer specifically to set up an LLC for you. Unless you have an endless supply of money (which most new business owners don’t), your money is much better spent on contracts to protect you and your business, and a workshop led by a lawyer (like mine!) that carefully explains everything you need to do to DIY your LLC, because the process is pretty straightforward.

Bear in mind that this advice is specific to if you are filing for a single-member LLC, and not when you’re setting one up with multiple people. In this case, I would recommend hiring a lawyer to at least do your operating agreement, to help you figure out the different duties in the business and who owns what percentages.

But if you’re a single member, there is no reason you can’t set up an LLC by yourself, without hiring a lawyer. In most states, you can even do it online. In my workshop, I go over which states don’t do it online, what process you have to follow to file your LLC, and any other expectations or deviations from the normal process.

How do I set up an LLC?

My workshop is pretty comprehensive, and goes through the whole process of setting up an LLC, from figuring out if an LLC is the right entity for you, the purpose of an LLC, how you’ll be taxed through the IRS, and everything you need to do after setting up an LLC. A lot of business owners think that they’re good to go once the LLC has been purchased, but there are certain things you need to keep in mind after it has been obtained, that make or break the point of even having an LLC in the first place.

Remember that while it is good to set up an LLC for liability protection and letting the state know that you’re doing business, it still doesn’t give you ownership rights over your business or program names. I go through this in my blog post about trademarks, which you can read here.