There are a number of factors that can contribute to the success of your B2B company. For instance, there’s
your lead generation campaign. There’s your marketing. There’s the need for competitive pricing, and for a
scalable business model.
Something that’s often overlooked is legal structure. The structure you choose for your B2B company can have a direct impact on your ability to grow the business in a sustainable way. And while there are a number of legal structures to choose from, most B2B companies find the LLC model to be most advantageous.
So what is it that makes this legal structure so beneficial? And what legal requirements should B2B companies follow as they establish their LLC? Consider a few legal guidelines that can ultimately spur significant growth.
A good place to begin is with a simple definition. An LLC, or Limited Liability Company, is one of the most widely used structures for small and medium-sized businesses. A big part of its appeal is that, unlike formats such as Sole Proprietorships and Partnerships, the LLC actually creates a whole new legal entity. In other words, it establishes your business as its own unique thing, distinct from the business owner.
This is important for a few reasons, but the most significant is that all of the company’s assets and liabilities are kept separate from the business owner’s personal assets and liabilities. The long and short of this is that, if your company faced a creditor or some form of litigation, your personal assets can be kept safely off the table. This personal wealth protection can be incredibly reassuring to business owners.
Why an LLC Can Propel B2B Growth
There are a number of ways in which the LLC format can help B2B companies prepare for supercharged and sustainable growth. Consider just a few of them.
One of the big advantages to choosing an LLC is that there is built-in flexibility with regard to taxation. By default, LLCs are taxed on a pass-through basis, meaning members simply declare profits and losses on their personal tax returns.
However, the LLC’s members can also elect to be taxed as a corporation, should they so choose.
This flexibility can be great for B2B companies that grow at an extraordinary rate, and may eventually reach the point at which it’s no longer in members’ best interest to be taxed individually.
Taxation isn’t the only area in which LLCs offer some flexibility. There’s also some leeway built into management structures. Basically, when it comes to how you run your LLC, and how you distribute profits, there are a number of options available to you.
You can run things solo. You can split up ownership between multiple members, whether that’s an even or a disproportionate split. You can also elect to bring in an external management company.
Crucially, you can amend your management structure as the business grows and evolves, which makes it easier to scale and adapt your B2B company.
Personal Wealth Protection
Again, the single biggest advantage of the LLC is probably the fact that it comes with built-in protection for personal wealth. As a member of the LLC, you can rest assured that your personal assets, including family bank accounts, are off-limits to lawsuits and creditors.
This matters very much when it comes to scaling a B2B company, because it means that you can make strategic investments in your business without worrying about personal ruin. In other words, the LLC structure allows for some risk management even as you fuel ongoing business growth.
Additional Benefits to the LLC Structure
There are a few further reasons why the LLC structure benefits B2B companies, including:
- Unlike corporations, LLCs have very limited reporting requirements, allowing you to protect your confidentiality.
- LLCs require you to have a Registered Agent to receive and organize legal and tax documents. Far from being a limitation, this actually frees you to spend more time focusing on the strategic direction of your company.
- LLCs have an air of legitimacy to them that Sole Proprietorships do not have, which can make it far easier to bring on partners or to find investors for your business.
For these and so many other reasons, the LLC structure can be a huge boon to your B2B company. Now the question is, what’s the best way to establish your LLC?
Legal Guidelines for Establishing an LLC
While the requirements for establishing an LLC can vary from one state to the next, here’s a basic summary of the legal trajectory. (And for examples of state-by-state guidelines, consider the requirements to form an LLC in California.)
Decide Which State You’re Going to Register In
Technically, you can register your LLC in any state you want. However, it’s always advantageous, from a tax perspective, to choose the state where you live, work, and make money. The only time it makes sense to “shop around” for the best state to register your LLC is if you’re not a resident of the U.S., and thus don’t actually have a home state in which you can set up shop.
Choose the Right Name
The name you choose for your B2B company isn’t just important from a marketing and branding point of view. It also carries some legal weight. Specifically, LLCs are usually expected to have names that are not already in use by another LLC within the same state. Most states have an online directory where you can determine whether the name you desire is available or not.
Be aware that you can also register any number of DBAs, or “doing business as” names. These are effectively informal brand names that can exist under the umbrella of your official, legal name.
Hiring a Registered Agent
As noted previously, LLCs are required to have a Registered Agent, someone appointed to receive all legal and tax documents on the company’s behalf. No matter which state you’re in, a long list of credible LLC services is only a Google search away.
File Your Paperwork
To officially establish your LLC, you’ll need to put together a legal document called the Articles of Organization, then file it with your state.
While the specifics of this document can vary from one state to the next, the general requirements are for you to provide information about your business name, its basic purpose, your members, your contact information, and your Registered Agent.
As you file this document, you’ll also need to pay an LLC registration fee. Most states charge very modest fees, sometimes as low as $20 or so.
Draft an Operating Agreement
An Operating Agreement is sort of like a constitution for your business. It is not legally required, but it can help you run your business more smoothly.
Some of the topics you might cover in your Operating Agreement include:
- How you and your partners will allocate day-to-day management duties.
- How you will divide up profits between your members.
- The process of bringing in a new partner or handling the departure of a current partner.
- The process by which your members will vote on important decisions, such as changing your company’s tax status.
Again, this is not a necessary document, strictly speaking, but having one can be an effective way to establish a foundation for ongoing business growth.
Get Your Banking in Order
There are a couple of important steps you can take to make sure your banking procedures are legally sound.
- First, be sure you claim an employer identification number, or EIN, from the IRS website. If you are a citizen of the U.S., you can claim an EIN for free. You won’t need this number right away, but you will need it before you process payroll or file income taxes.
- Also make sure you have a business bank account, providing a place where you can keep business assets totally separate from your personal assets.
Remember Basic Rules
As noted, one of the primary benefits of the LLC is that it allows you to safeguard your personal assets from legal liability. This is only the case if you remember some basic financial rules, however. Basically:
- Never use business funds to pay for personal debts; and
- Never use personal funds to pay for business debts.
Abiding by this basic rule of thumb can go a long way toward keeping your B2B company’s legal protections in place.
Establish the Right Legal Structure for Scalable B2B Growth
As you consider practical ways to generate B2B growth, few things are more important than your company’s legal structure. Generally speaking, LLC is the way to go.
Make sure you study up on the benefits of the LLC structure, and follow the right guidelines for registering your company. With any questions, don’t hesitate to contact an experienced business attorney, consultant, or coach.
Amanda E. Clark is a contributing writer to LLC University. She has appeared as a subject matter expert on panels about content and social media marketing.