Small Business LLC Checklist
This past year I spent a lot of time researching LLCs and switched over a small business from a sole proprietorship to an LLC or Limited Liability Company. I’m not an expert, but with the help of Katie Quinn from Kate’s Accounts, I feel like I have a halfway-decent handle on the switchover. These are things I learned and if anyone has more to add, advice for other states, or corrections please comment below!
Why should I switch to an LLC?
Maybe you’ve been a sole proprietorship for years and you feel like you finally understand how your taxes work, so you don’t want to change the legal structure of your business—I get it. However! In a sole proprietorship you leave your own personal assets vulnerable. If (goddess forbid) something were to happen and you were to get sued, the prosecutor could come after your car, your TV…your house if by some miracle you own one of those.
If you switch to an LLC you separate yourself from your business legally. So if client decided to sue you, they would only be able to access assets associated with your business—still not awesome, but at least your personal things aren’t on the table!
Sounds like I need this! I literally have no idea where to start.
I hear you. This is where things get weird/complicated. I HIGHLY recommend talking to a tax professional. If you don’t already have a bookkeeper or accountant, you should get one. I worked with Kate’s Accounts in Beverly, MA and they were a LIFESAVER. Because get this: after you decide that yes, an LLC is for you, you then need to decide what KIND of LLC is right for you. Chances are it’s a Single Member LLC and you don’t want to be an S-corp. When you designate your LLC as an S-corp you need to be paying yourself a “reasonable salary” so that it can be taxed separately from your business profits. For the majority of us very small business owners this adds a layer of complication and record keeping to taxes that you probably don’t need. For your side-hustle your “profits” probably ARE your salary.
This means you most likely will end up as a Single Member LLC or Partnership LLC if your biz has multiple owners. (Obviously you should do your own research and talk to a tax professional and not just blindly trust that those are right for you or your business.)
You should also realize that registering your business as an LLC means you’re creating an entirely new business entity. You’ll need to treat it like starting a brand new business in some ways. It also can cost a couple hundred to register your LLC so be prepared for that!
Okay, cool, I have a bookkeeper now how do we do this?
Once you’ve got a trusty tax person to help you make sure you do this correctly this checklist can help you make sure you’re not missing anything.
Quick + Dirty LLC checklist:
1. Get an LLC EIN. A FEIN is a Federal Employer Identification Number. You should already have one if you’re running a small business, but it’s probably registered as a Sole Proprietorship. The IRS recommends that you get your new EIN January 1st so it doesn't make your Employment Taxes complicated. But! If you’re working with a bookkeeper, you can get it later, they’ll just need to file two separate tax returns: one for your old business structure (or ‘entity’) and one for the new LLC entity.
2. Declare your LLC with the state you do business in. NOW what I will say is that this is for Massachusetts. Not every state is the same. Look up your state’s LLC process on their .gov site. You can also call your Secretary of State’s office and they should be able to help you make sure you do everything correctly on a state level. If you’re doing business in multiple states, you’ll also need to declare your LLC to those state governments (I have no idea how that works, but this guide might help.)
3. The minute you get your new EIN stop filing under our old EIN. In order to tell the IRS that you're done with the old one you need to check a box on the 940 and 941 tax forms that essentially says "Final Filing." I didn’t do this myself, our accountant did. This is to ensure with your accountant that they do this at the correct time.
4. Alert the Department of Revenue. When you get the new EIN you will need to alert the Department of Revenue and get a new sales tax certificate. This might differ from state to state, so be sure to call and see what needs to be done.
5. Renew any Business Licenses. You need to file a ‘Doing Business As’ (DBA) certificate in your city or town. Remember that it’s like forming a new entity so you need to create a whole new legal persona for your LLC.
6. Open new business bank accounts. Do you recall setting up your business bank accounts? You did it with your EIN. That means you need a fresh set of accounts with your new LLC EIN. It’s super annoying and no, banks will not just change the EIN. (We asked.) You’ll also need new checks!
7. Alert your business insurance company. This is one place where you can just say ‘hey we changed the name!’ However, there’s some TRULY ANNOYING forms to fill out and this has been my least favorite part of the process.
8. Send updated W9 forms. You don’t want to forget to tell clients that you’ve updated your EIN. That could be a huge headache for them come tax season, paired with some not great customer feedback for you!
9. Any contracts will need to be updated. Ensure you enter any contracts as your LLC. Once your LLC is formed, be sure to enter all of your business contracts as your LLC. You will still be the signer, but the contracting party should be the LLC.
11. Update your lease. You’ll need to update your lease to reflect that your business is leasing the space, not you. This can be either a new lease assignment, or a lease amendment. (I still don’t totally get the difference but both seem to do the job.)
12. The old EIN. Your Sole Proprietor EIN is assigned to the individual so you can use it for another business in the future.
13. Ask lots of questions. What I found is that the process is so complicated that no one was upset about the millions of questions I had. The Secretary of the Commonwealth’s office was especially helpful, but the IRS is nearly impossible to get in touch with. This is why it’s so important to have a tax professional help you through the process!
This is definitely, by no means the only place you should do your research. Take a look at the LLC process in your state, for your industry, and whether some other business structure might be right for you.