How to Open an LLC for a Marketing Agency
A limited liability company (LLC) is an excellent business entity choice for a marketing agency. An LLC offers many benefits, including pass through taxation and personal liability protection for members.
To open an LLC, you have to follow several steps, which are detailed in this handy guide.
Name Your LLC
The first step is to choose a name for your marketing agency’s LLC. Good LLC names are generally short, unique, and easy to remember, but they also need to meet your state’s business name regulations. In all states, your LLC name must include either the words “limited liability company” or one of its abbreviations.
Your state also likely prohibits names that could confuse your business with a government agency, or that contain words like bank or university. You can generally find your state’s rules on the Secretary of State’s website.
You’ll also need to make sure that your chosen name is available by doing a business name search on your Secretary of State’s website. Then check the USPTO website to make sure the name is not trademarked.
Select a Registered Agent
An LLC is required to have a registered agent, which is an individual or business authorized to accept your LLC’s official correspondence. You can appoint yourself as the registered agent, but a registered agent is required to be personally available at their registered address during normal business hours.
Many business owners find that requirement too restrictive, so they instead hire a registered agent service. The service will accept your correspondence, notify you, and make it available to you by email or on an online dashboard. Costs for such services are usually between $100 and $300 per year.
Determine Your Management Structure
LLCs can have one of two management structures.
- Member-Managed – In a member-managed LLC, all members are appointed as managers of the LLC, and have management powers, including handling bank accounts and signing contracts on behalf of the business.
- Manager-Managed – A manager-managed LLC can have one of three scenarios.
- Some members are appointed managers, while others are silent partners.
- Every member is a managers alongside a non-member manager or managers.
- No members are managers, and non-members are appointed as managers.
In some states you have to disclose your management structure on your LLC formation documents, so you need to make your decision early.
Register Your LLC with Your State
To officially form your marketing agency’s LLC, you’ll file a document with the state. The document is usually called the articles of organization but may be called a certificate of formation or a certificate of organization.
Most states allow you to file the document online on the Secretary of State’s website. LLC formation fees vary by state and range from $40 to $500.
Draft an Operating Agreement
Most states do not require an operating agreement for an LLC, but drafting one is not a step that you should skip. An operating agreement defines the ownership and management of the LLC, profit allocations, voting rights of members, how disputes are resolved, and more.
This document is critical because the ownership of your LLC is NOT defined on the LLC formation documents, so without an operating agreement, you have no documentation of member ownership percentages.
You can find operating agreement templates online, but it’s often advisable to have it drafted by an attorney, or, at the very least, reviewed by an attorney. He or she can ensure that the rights of all members are protected.
Choose Your LLC’s Tax Status
LLCs are unique in that you can choose your LLC’s tax status. By default, if your LLC has a single member, it is considered a sole proprietorship by the IRS. If it has more than one member, it’s considered a general partnership. In both cases, profits pass through to the members to be taxed at their personal tax rates, and the LLC itself is not taxed.
However, members are required to pay self-employment taxes. But you can instead elect to have your LLC taxed as an S-Corp, which still offers pass-through taxation but can provide some self-employment tax savings. An S-Corp, however, comes with some additional administrative expenses.
Generally, when your LLC reaches a certain level of income, S-Corp status becomes beneficial because the self-employment tax savings will exceed the additional administrative costs.
If it sounds complex, it is, which is why the tax status decision should be made with the help of your tax advisor.
Obtain Business Licenses and Permits
Your marketing agency may need various business licenses and permits at the state and local levels. Check with your state and local governments for requirements to make sure that you keep your agency in compliance. Operating without the proper licenses and permits can lead to fines or even the dissolution of your LLC.
Insure Your Business
Finally, have a conversation with your insurance agent about the types of coverage your agency may need. You’ll likely need at least general liability and professional liability coverage.
You’ve made a great choice by deciding to form an LLC for your marketing agency, particularly because of the personal liability protection that it offers. Just be sure to follow all the steps to ensure that your agency’s launch goes smoothly and to avoid issues down the road. Then you’ll be free to focus on getting clients and leading your marketing agency to success!