Business Startup Checklist: One-Person LLCs

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1

Get New ID Numbers

Since a one-person LLC is considered a "disregarded entity," for simplicity purposes you may use your social security number as its federal tax ID number. However, for privacy purposes you may obtain a separate tax ID number for the LLC. Your other existing business tax numbers to the LLC are only rarely transferable, so new numbers may have to be obtained (this varies from state to state and agency to agency). I strongly suggest you coordinate obtaining these numbers with your attorney and/or CPA, since failure to get all your new numbers will create major headaches with any number of federal and state tax and regulatory agencies.

2

Establish New Bank Accounts

You cannot use your personal bank account for the LLC, since that would be considered a "co-mingling of assets" that can destroy the tax and limited liability benefits of being an LLC. If you use your social security number as the tax ID number for the LLC, and you have an existing business bank account, the bank should allow you to rename that account. If you get a new tax ID number for the LLC, or used a tax ID number for the business for the old account, you need a new account regardless, since the old account is associated inextricably with your social security number and/or previous tax ID number.

3

With Optional S Election, Set Up Payroll System

A one-person LLC generally does not need a payroll system; you can write yourself periodic checks and make quarterly estimated tax payments. However, if you have made an S election for your LLC, then you are considered an employee, and therefore the LLC must withhold payroll taxes from your paycheck, concurrently pay its own share of payroll taxes, and file quarterly and annual payroll tax returns. Failure to withhold and pay payroll taxes in a timely manner has serious penalties for which the LLC does NOT have limited liability - anyone who can sign a check for the LLC is personally liable. If you are not experienced in payroll issues, I strongly suggest you hire a payroll company to complete these duties for you (I use Paychex for my corporation).

4

Transfer Licensing & Permits

You will need to change your business license, and any government permits needed to operate your business, to the name of the LLC. If you have a professional license (dental, contractor, etc.) and your state allows you to practice that profession as an LLC or PLLC (I hope you checked this beforehand), you may also have to register with the state licensing board that you are now operating as such.

5

Transfer Vehicle & Equipment Registrations

Unless you have a formal lease arrangement with the LLC, you need to change the registration of tangible business assets to the LLC (such as vehicles and registrable equipment). If a tangible asset hasn't been put in the LLC's name, and it is involved in an accident, you can be held personally liable for your responsibility as owner.

6

Transfer Name Registrations

You also need to formally assign your fictitious business name and trademark registrations to your LLC. If you do not do so, any actions taken under that name or mark could be attributed to you personally (it's a matter of public record). Also, formal assignment of the name to the LLC is required to permit the LLC to use that name. For example, the bank will require proof that formal assignment has occurred before it allows you to set up a new LLC bank account using that fictitious business name.

7

Notify Customers & Insurance Panels of New Name & Tax ID Number

Payments to your business (such as capitation payments and insurance reimbursement for patient treatment) need to be made in the name of the LLC to avoid the "co-mingling of assets" problem. Although some banks permit deposit of 3rd party checks (checks made to you personally but deposited directly in the LLC account), many do not. Dentists and doctors: transferring your capitation and PPO contracts to the LLC can take anywhere from a few days to six months, so you need to get started the process immediately after the LLC is formed and you have your federal tax ID number. Also, if your payor gives you a 1099 at year-end for payments made, you want that 1099 directed to your LLC rather than you personally. If you get a personal 1099, you need to give a personal 1099 to the LLC for that amount; otherwise, you might be subjected to an unnecessary tax audit for unreported income.

8

Change Account Names with Vendors & Service Providers

Business vendors and service providers should convert their billings to the LLC name (e.g, the premises lease, equipment leases and vendor accounts), although they are not required to do so, to maintain the limited liability protection of the LLC. Insurance policies also need to have the LLC's name included, otherwise claims against the LLC may not be covered.

9

Establish New Credit Cards and Credit Lines

If you have business credit cards and lines of credit and your lenders will not allow you to convert them the name of the LLC, you will need to obtain new ones. Again, the purpose is to avoid the "co-mingling of assets" problem. If your LLC has assumed the prior business debts along with the assets, it can pay those old debts - but (for limited liability purposes) that assumption should only give you, and not the creditor, the right to require the LLC make payments.

10

Convert to "LLC" Public Persona

The limited liability benefits of being an LLC are lost if you don't represent to the public that your business is an LLC. Therefore, to the extent you used your personal name as your public persona, you need to transfer that persona into the name of the LLC. We're talking web pages, telephone and internet directories, advertising, signage, business cards, letterhead, billing statements ... everything!

11

Disclaimer - Legal Stuff

IMPORTANT: This Legal Guide is made available for educational purposes only. There is no attorney client privilege between you and the attorney author. This Legal Guide is not a substitute for competent legal advice from a licensed attorney that specializes in this area in your home state and with whom you have an attorney client relationship. Also, law changes frequently and varies from jurisdiction to jurisdiction. The information and materials provided are general in nature, and may not apply to a specific factual or legal circumstance described in the question. Copyright 2011 by Robert W. Olson, Jr. - all rights reserved.

Additional Resources

Tax Comparison: Corporation vs. LLC

Safely Choose a Tradename for Your Business

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