As a current or soon-to-be business owner in the state of Missouri, you have several potential headaches in store for you if you fail to use the correct legal structure for your operations.
While the old saying would tell you that only two things are certain in this life – death and taxes – in business there is a third: liability.
To protect your assets, your business, and your sanity, you’ll want to pick a business entity that best serves your needs.
One of those structures is the popular LLC, or limited liability company.
The LLC Versus Other Structures
An LLC is only one approach among many business operating structures. Here’s a table which shows the key pros and cons of an LLC versus other business operating systems:
|Liability Protection||Personal Liability Protection||Unlimited Personal Liability||Unlimited Personal Liability||Personal Liability Protection||Personal Liability Protection|
|Taxation||Your Choice||Pass-Through||Pass-Through||Pass-Through||Double Taxation|
The Key Benefits of an LLC
As shown in the table above, LLCs provide business owners with liability protection and taxation flexibility not found with other types of legal operating entities.
The ability to choose your taxation regimen, whether that is pass-through taxation or a corporate-style tax approach gives you additional choices in how you organize your business.
Additionally, an LLC has far less burdensome record-keeping requirements compared to more traditional S and C corporate structures.
As for cost, LLCs require significantly less time and money to form. Overall, an LLC is an excellent way to organize a business, and one that is becoming increasingly popular among even the largest companies in the world.
The Drawbacks of an LLC
There are two primary drawbacks to LLCs, particularly compared to the informal sole proprietorship and partnership structures.
Drawback 1: Expense
LLCs have a monetary cost associated with their formation by filing the Articles of Organization with the Missouri Secretary of State. The LLC filing fee in Missouri is $50 for online filings and $105 for paper filings.
Other types of miscellaneous costs include having a Registered Agent, annual reporting, and other maintenance fees depending on the state. Each state’s Secretary of State’s office website should have the specific fee schedule delineated for business owners.
Drawback 2: Difficulty in Transferring Ownership
Under a typical corporate entity, shares of stock are issued to equity holders. These shares can then be bought and sold like any other tangible asset, assuming a market exists for the shares. However, an LLC typically requires that its owners manually alter ownership percentages in order to bring in new owners or transfer ownership. This problem is also why publicly-traded companies use the C corporation legal entity.
Choosing the Right Legal Entity for Your Business
Ultimately, an LLC may be right for your business if you need the benefits of tax flexibility, liability protection for your personal assets, and do not plan to have a large number of shareholders or frequent transfers of ownership. If you plan to engage in frequent ownership transfers or would prefer a less formal operating arrangement, other structures may be a better choice.
How to Form An LLC in Missouri
Now that you know the benefits of an LLC and which drawbacks to consider, you may be ready to take the first step. Luckily, this is easier than ever.
What you need to form an LLC in Missouri:
- Find the Articles of Organization. Filing the Articles of Organization online is the fastest and is much less expensive than mailing in the paperwork. Even easier would be to use an entity formation service like ZenBusiness to create and file the paperwork, so there are no mistakes.
- Choose a business name. You have to choose a business name that isn’t used by any other Missouri LLC. Start by checking name availability on the Secretary of State’s website. Naming guidelines also require that the LLC name must use an approved entity designator at the end of the business name, such as Limited Liability Company, Limited Liability Co., Limited Company, or an abbreviation.
- Select the duration of the LLC. Most don’t have a termination date in mind when creating their LLC, and would choose “Perpetual”
- Designate whether the LLC is Member-Managed or Manager Managed. Member-Managed means the LLC is managed by the members, which Manager-Managed means the members have hired a manager to run the entity.
- Enter the business purpose. Include some basic information about what the business activity of the LLC is.
- Choose the effective date. This is the date when you want the LLC to start. If left blank, the LLC will start as soon as the entity is registered with the Secretary of State. Otherwise, a date up to 90 days in the future can be entered.
- Identify a Registered Agent. A Registered Agent can be any individual over 18 years old or a Registered Agent service in the state. The agent will need to have a physical street address in Missouri (PO Boxes are not allowed) and act as a point of contact during normal business hours to receive legal papers, annual reports, summons, legal, etc. on behalf of the LLC.
While not specific to forming an LLC, there are a few tasks and registrations with government agencies that need to be completed before the LLC is legal to operate.
- Create an LLC Operating Agreement. Required for all LLCs, the operating agreement is a document that governs the framework of an LLC. The operating agreement includes ownership rights, member responsibilities, how profits and losses are distributed, and more.
- Apply for an Employer Identification Number (EIN). The EIN is a unique nine-digit number assigned by the Internal Revenue Service (IRS) to identify a business. The EIN is similar to a Social Security Number for an individual, except it’s for a business. Apply for an EIN directly with the IRS at no cost.
- Open a business bank account. Open a new bank account for the LLC.
- Submit the Missouri Tax Registration Application. Business Tax Registration with the Missouri Department of Revenue will be needed for businesses collecting sales taxes or withholding taxes from employees. Register by visiting MyTaxMissouri or sending Form 2643.
- Apply for Business Licenses and Permits. The state of Missouri doesn’t have a state business license, however, they are often needed at the local level. Check with your City Hall or Chamber of Commerce for more information.
- Hire Employees. Hiring new employees requires several steps such as New Hire Reporting, verifying employees are eligible to work in the U.S., income tax withholding, unemployment insurance, unemployment taxes, and payroll taxes.