Overview of process: 7 LLC requirements

The process of maintaining an LLC isn’t hard. You have to:

• create your LLC’s central file
• keep your money and the LLCs money separate
• get all your required permits and licenses
• show off your LLC status
• document major business decisions
• file your LLC renewal (in most states)
• pay your LLC franchise tax (in some states)

But doing each of these LLC requirements correctly is the difference between having an LLC and having an expensive piece of paper.

What do I mean?

When you are a sole proprietorship or a partnership if anything goes wrong in your business, your personal assets are affected.

But once you start to accumulate personal assets you don’t want to risk those if something goes wrong in your business. And so by creating an LLC, those assets become off-limits. LLCs effectively put a fence between your personal life and your business life. (Read this in-depth guide if you want to know more.)

But if you don’t do these steps right (or fail to keep your LLC legit after it’s created), then you weaken your fence. And make it easy for lawyers to knock it down when anything goes wrong. This means, you might have an LLC on paper, but it carries no legal weight. And when that happens, your personal assets are back on the table.

This resource guides you through the items that you’ll need to complete to keep your LLC fence strong and follow all seven LLC requirements.

Create your LLC’s central file

One of the first things you should start doing once you have an LLC is keeping a central file of all the important LLC documents.

By law, the following documents should be in that file:

• Federal Employee Identification Number: The IRS provides you a letter that contains your EIN. Once you have an EIN, this letter should be stored in your files.
• Permits and Licenses: All businesses should keep a copy of any permits and licenses they are required to get but aren’t required to be displayed.
• Property List: All businesses should keep a list of business assets, including equipment, inventory, and supplies.
• Tax Returns: Businesses should keep in this file the past six years of tax returns for either all the owners personally or the business itself. For new businesses, this means that you’ll compile six and then can destroy the older ones as you file a new return.
• Business Books: The full books of your business should be kept for at least four years. (I personally keep them for six so I have the full books in case of an IRS audit.) Once again, new businesses will keep them until you have at least four and then you can delete the data as you accumulate the next year.                
• Articles of Organization: This document can go by a few names: Certificate of Organization or Certificate of Formation. But again is the document you filed with your state to become an LLC. Your file should contain a scanned copy of the certified paper copy, with the paper copy being filed in a safe place (if you got one).
• Operating Agreement: A copy of the original signed version of this agreement should be tucked away in a safe place, with a scanned copy included in your electronic files.
• Members List: LLCs should have a list of all the LLC members. This list should also contain their address, their contributions to the LLC, their percentage ownership, and their share of profits and losses.
• Members Meetings Minutes + Consents: While the requirements for an LLC are less stringent than a corporation, an LLC should still document major business decisions. This can be done via minutes from a meeting or through written consents.

Keep your money and the LLCs money separate

One of the most common ways LLC owners poke holes in their fence is by failing to keep an arm’s length between the LLC’s money and the business owner’s personal finances.

When you create an LLC, you create in effect a legal person. You and your business are no longer one and the same. This means in order to keep your LLC fence strong you cannot:

• “borrow” money from the LLC without documenting it
• pay yourself willy-nilly
• pay personal bills from the LLC account
• pay LLC bills from your personal account

If you fail to separate your finances, then your LLC fence will fail.

You also must not take any money out of the LLC bank account that’s necessary for upcoming expenses. 

And unless you elect s corp taxation, what you pay yourself IS NOT a business expense. And you can only pay yourself if the LLC bank account doesn’t have the money necessary to pay the next 30 days of expenses. (And ideally, it has 3-5 months of expenses covered.)

This means you need a bank account in the LLCs name and a system or process that documents when and how money passes from your LLCs account to your personal account.

Get all your required permits and licenses

The fact of the matter is that pretty much every business is required to have at least one permit or license from their City or County.

It doesn’t matter if your business is online-only.

It doesn’t matter if clients or customers never visit your home.

It’s required just for the privilege of owning your own business.

So your next step is to comply with all the permits, taxes, and other regulatory requirements that most businesses need to operate. These might include:

• obtaining a business license
• obtaining a federal employer identification number
• obtaining a seller’s permit
• obtaining a zoning permit
• filing for s-corporation status, if your accountant recommends it

S-corporations

Even though s-corporation includes “corporation”, you don’t have to be a corporation to elect it. s-corporation status (often shortened to s-corp or s corp) is a tax designation, not a legal one. And corporations, LLCs, and even partnerships can opt to be taxed this way.

Since s corp status is an IRS-only designation, not a legal one, the only person who can help you decide if choosing it makes sense is your accountant. You should go to your accountant and say, “Am I going to save money by making an s corp election?” So if they say, “No,” you’re not going to do it. And you’ll keep asking each year until the answer changes to “Yes”. 

And that’s because you don’t have a one-and-done window in order to make this election. You have two months and 15 days from when you create your LLC to file that form with the IRS, and then you have two months and 15 days at the beginning of every calendar year to also do it. 

So maybe it doesn’t make sense when you first create your LLC to become an s corp, but two years from now, it does make sense. And so you’ll have the option, that window again opens up again at the beginning of every year to go ahead and make that election, to say, “You know what? We want to do it for next year because it’s going to save us money. Our business is growing at the rate that it’s going to save us money.” 

The big pro of electing this status is a financial one, that you will save money come tax time.

But there are some big cons of being an s corp, including:

• required to pay yourself via payroll
• required to pay yourself a reasonable salary according to the marketplace (even if you are barely breaking even)
• additional tax returns and filings

But your tax professional can help you decide if the money you’ll save by making the s corp election justifies the additional expenses and headaches that go along with it.

File your Beneficial Ownership Information Report

In case you haven’t heard, in 2021, Congress passed the Corporate Transparency Act. The public policy behind this law is to prevent criminals from using anonymous shell businesses for illegal activities.

Since LLCs and corporations are created on a state-by-state basis, there is no federal database of who owns these businesses. That’s why Congress passed this law: to create a federal database of who owns an LLC or corporation, so if these businesses participate in financial crimes, the government knows who is responsible.

The Financial Crimes Enforcement Network (FinCEN) enforces this law. They are responsible for protecting our financial networks from money laundering, fraud, terrorist financing, or corruption.

And the law went into effect on January 1, 2024.

Simply put, all LLCs must comply with this law.

There is a grace period that you are allowed to file your BOI report. 

• If your LLC was created on or before December 31, 2023, then you have until January 1, 2025, to file your initial report
• If your LLC is created in 2024 (January 1 to December 31), you have 90 days from your LLC being approved by your state to file this form.
• If your LLC is created on or after January 1, 2025, then you have 30 days from your LLC being approved by your state to file this form.

And if you fail to file this report within these grace periods, it can lead to stiff civil and criminal fines and penalties. Including:

• For each day you haven’t filed a civil penalty of $500 per day
• Up to a $10,000 criminal penalty and/or two years in prison

Needless to say, spending less than 10 minutes to avoid these penalties is a wise use of your time.

Because filing this form involves multiple steps, I put together a detailed step-by-step guide on how to file your Beneficial Ownership Information report.

Show off your LLC status

Now that you have done all the hard work to build a fence between your personal life and your business life, it’s time to show that LLC status off!

And you do this by making sure that everyone who interacts with your business has the chance to learn that you are an LLC.

This means you’ll want to update your:

• website like your footer, contact page, terms of service, or e-commerce receipts
• customer communications like your invoices, e-commerce receipts, letterhead, or email signature
• marketing materials like your business cards, hang tags, packaging, or inserts
• contracts so that the contract is with LLC and signed by you on behalf of LLC
• signage like your business name in your studio directory

The one caveat is that I don’t want you to waste money. So if you just ordered business cards, hang tags, or other printed material and have significant stock left, use up what you have and when you re-order make sure the LLC name is on there.

Document major business decisions

Once you become an LLC there are some added expectations.

Yes, an LLC doesn’t have the detailed record-keeping requirements that a corporation does, but it does have some.

And that’s because documenting major business decisions is another critical piece of evidence you’ll present if you need to solidify your fence and prove that it shouldn’t be bulldozed.

Luckily, you don’t have to do anything complicated to document them. (And you don’t need to justify your decisions, just say that you made them.)

The general rule of thumb I give clients is that you need to document decisions that:

• cost more than your average purchase (e.g. you should document buying a computer or piece of equipment, but there’s no need to document buying printer paper)
• open or close revenue streams
• result in significant on-going financial obligations (hiring an independent contractor, new employees, lease space, getting a loan)

And because I have a hard time remembering all the things I do in my business, I write these on a quarterly basis. (This is another recurring Asana task, so I don’t forget!)

You document these decisions by writing either Unanimous Written Consents or having a meeting and documenting that meeting using minutes.

File your LLC initial forms and renewal forms

In some states, you must file follow-up forms shortly after your LLC is created. For example, in California, you must file a form within 90 days. In Nevada the next month after creating your LLC, you must file a form. Once again these requirements will be on your state website.

Most states also require that you renew your LLC status either annually or every other year. In some states, you are required to file a form, but there is no filing fee. While in others (like Massachusetts), there is a significant renewal fee of several hundred dollars that must be paid along with filing your form.

Pay your LLC Franchise Tax

The final step is to pay your LLC franchise taxes when required by your state.

Like the LLC renewal, if you need to pay this and how much you’ll have to pay varies widely from state to state. In some states, it doesn’t exist, but in California, it’s a minimum of $800. (Even if your LLC loses money!) This isn’t something that should be skipped because not paying can result in fines, penalties, or even cancellation of your LLC.

Whew! That covers it. Now you have an action plan for how to keep your LLC on the legal up and up and following all seven LLC requirements.