The template business is exploding. Simply put, designing and selling custom templates offers limitless opportunity, allowing you to provide a necessary service for authors, email marketers, and beyond. But of course, there’s more to a successful template business than just the products themselves. It’s equally critical for your business to have the right legal foundation, ensuring it is equipped for long-term success.
So which legal structure is best for your template startup? There are multiple options and no cookie-cutter solution, as all companies have unique needs and goals. All else being equal, though, most template startups benefit most from the LLC model.
In this post, we’ll provide more detail about what LLCs are and how they work, and also outline the steps for registering one of your own.
LLCs Explained
First, an overview of the LLC structure itself.
LLC stands for Limited Liability Company, and it represents one of the most popular business structures in the entire country. It’s been around since the 1970s, and each year its popularity rises.
To fully understand what an LLC is, it’s important to compare it to some of the other options for legal structure. For instance, when you first start selling templates and generating income, the government will automatically classify you as a Sole Proprietor. The thing about Sole Proprietorships is that they do not create new legal entities; in other words, there’s no legal difference between the business and the business owner.
That’s not so with LLCs. When you register your company as an LLC, you actually do create a new legal entity. As such, you can put all your business assets and debts in one bucket, and keep your personal assets and debts somewhere separate.
What are the Benefits of the LLC?
This distinction between personal and business assets/liabilities is a big part of what makes the LLC structure so beneficial to startups of all kinds. Consider just a few of the unique advantages that an LLC offers.
Personal Wealth Protection
One of the most significant benefits of the LLC is that you can keep your personal assets off the table should your company ever get slapped with a lawsuit, or targeted by aggressive creditors. This allows you to invest more confidently in your template startup, knowing that your personal and familial wealth can be safeguarded.
Flexibility with Taxation
Both single-member and multi-member LLCs are counted as disregarded entities by the IRS. This just means that the LLC doesn’t have to file its own tax return; as the business owner, you declare profits and losses on your personal tax return (Taxcaster is a good tool to have if you need help), and pay your normal rate. But you can also opt into corporate taxation if you deem it advantageous to do so.
Credibility
In order to start an LLC, you have to submit to a legal approval process, basically certifying that your business is legitimate. As such, running an LLC allows you to convey to your customers that yours is a “real” company, not something you’re doing as a hobby or as a side hustle. This can help win the trust of customers. Crucially for startups, it can also help earn the trust of investors.
Administrative Ease
LLCs are also fairly easy to run, affording you plenty of space to determine how you want to allocate duties and responsibilities between yourself and your partners. And while there are some annual reporting requirements, these requirements are exponentially easier than what you’d experience with a Corporation. Similarly, you do not need to issue shares or hold annual shareholder meetings.
These are just a few reasons why the LLC structure makes sense for startups, and in particular template companies. Now the question is, how do you start one?
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Registering Your Company as an LLC: A Step-by-Step Guide
The requirements for registering an LLC vary from state to state. A detailed guide for California LLC formation may look a bit different than the guide for Wyoming or for Florida. As such, it’s always best to confirm specific guidelines with your Secretary of State.
With that said, the process follows a few familiar beats no matter which state you’re in. Here’s a general overview of what it takes to register your template startup as an LLC.
1) Choose the right name for your company.
Your template business needs a name, and that name has to comply with certain legal parameters. Specifically:
● You have to choose a name that isn’t already in use by another LLC in your state. Most states will offer you a searchable directory, allowing you to verify whether the name you want is still up for grabs.
● You have to include “LLC” or “Limited Liability Company” somewhere in your business name. However, you can use any number of “doing business as” (dba) names to brand your business. The official LLC name is only required for legal and tax purposes.
2) Name a Registered Agent.
Every LLC has to choose a Registered Agent, someone who can receive all tax and legal correspondence on your company’s behalf.
● This can be an individual, or it can be an organization.
● Some states will let you serve as your own Registered Agent, but it’s more common to hire a third-party service.
● Third-party LLC services typically run between $50 and $300 annually.
● When choosing a Registered Agent, it must be someone with a physical mailing address in your state of residence. A P.O. Box will not work!
3) Create an Operating Agreement.
Your Operating Agreement serves as a kind of constitution for your company. Having this document in place can help you run your startup smoothly and efficiently, while also ensuring that you can easily resolve any legal disputes that might arise between you and your business partners.
Some of the specifics that you can include in your Operating Agreement are:
● How you and your partners will share managerial duties and business revenues.
● How you will bring in new partners.
● How you will handle the departure of a partner.
4) File your Articles of Organization
The most important legal paperwork you’ll complete is the Articles of Organization. This is the document you’ll file with your Secretary of State, officially creating your LLC.
● Your Articles of Organization should include information like the name of your business, the scope/mission of your business, your contact information, and the name of your Registered Agent.
● When filing, you’ll also need to pay the filing fee. This can vary by state, and you can expect it to be anywhere from $15 to $300.
● The LLC approval time averages out to three or four weeks. Most states will allow you to pay for expedited approval.
5) Get an Employer Identification Number.
Your EIN functions in much the same way as a Social Security Number, only its for businesses as opposed to individuals. You may not need your EIN right away but you will need it before you can process payroll or file your taxes. Thankfully, claiming an EIN is easy, and for US residents it happens to be free. Just visit the IRS website to learn more.
6) Set up your bank account.
To maintain the separation between business and personal assets, be sure you set up an LLC bank account that’s not linked to any personal checking or savings accounts.
7) Keep up with annual reporting.
There are a few annual requirements that all LLCs are subject to.
● Make sure you keep up with your state’s reporting requirements. Usually, this simply involves reaffirming the name and contact information for your business, and paying a small LLC renewal fee.
● Notify the state if you change your Registered Agent. Also let them know if your Registered Agent has a change in their contact information.
● If you’re in California, make sure you pay your LLC taxes. Right now, California is the lone state that has an LLC-specific tax, which is a flat rate of $800.
Position Your Startup for Lasting Success
Template companies have plenty of opportunity for expansion and growth. First, be sure you have the right foundation. Choosing the right legal structure is essential, and more often than not the best way forward is by registering your company as an LLC.
Amanda E. Clark
Amanda is a contributing writer to LLC University. She has appeared as a subject matter expert on panels related to small business ownership, and also about content and social media marketing.
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