Future-Proofing Your Business: Leveraging LLC Formation for Long-Term Excellence in the AI Industry
The AI field is incredibly volatile and exciting, seeming to take a big leap forward almost every day. For AI entrepreneurs, that volatility is promising and daunting in equal measure. While there is certainly a lot of potential for long-term AI success, there is just as much uncertainty, with the industry’s trajectory anything but predictable.
One way to exploit the promise of AI while safeguarding against its uncertainty is to select the right business structure. Specifically, establishing your AI business as an LLC can help you future-proof your success.
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What is an LLC?
The first thing you’ll need to know: What exactly is an LLC?
The LLC, or Limited Liability Company, is one of the most popular business structures in the United States. It’s been around since the 1970s, and since that time it’s proven to be an effective tool for businesses spanning virtually every industry.
So what makes the LLC structure distinct? Basically, when you start generating self-employed income, the government automatically classifies you as a Sole Proprietor. For AI entrepreneurs, Sole Proprietor status is probably not a great idea. When you’re a Sole Proprietor, there is no legal distinction between you and your business… meaning any risk your business takes on is also personal risk.
That’s not the case when you register as an LLC. By registering as an LLC, you create a whole new legal entity. This allows you to keep business assets and liabilities in one column, and your personal assets and liabilities in another.
The long and the short of it is, AI entrepreneurs need a way to shield their personal wealth (to say nothing of their family’s assets) from the risks associated with their field, including lawsuits and general volatility. The LLC structure makes that possible, in ways that other legal structures do not.
How Does an LLC Protect Your AI Business?
There are a number of specific protections that an LLC can offer, allowing you to future-proof your AI company. Here are just a few highlights.
Protection Against Lawsuits & Creditors
First and foremost, registering your company as an LLC allows you to invest in your company without placing your entire net worth on the line. Because LLCs create lines of separation between personal and business accounting, they help you shield your retirement accounts, family bank accounts, and other personal assets from potential lawsuits. And given the litigious nature of the tech world, this is truly an essential protection.
Enhanced Credibility
Something else to keep in mind: Anyone can say they’ve developed an innovative AI product, but not just anyone can register an LLC. There are certain legal requirements to establishing an LLC, and fulfilling those requirements bestows a sense of credibility. This credibility can be invaluable as you seek to earn the trust of customers and clients, investors, venture capitalists, shareholders, and partners.
Ample Flexibility
The LLC structure also provides plenty of flexibility with regard to how you run your business. This includes flexibility about how you manage the business, and how you structure your leadership team. It also includes flexibility about how you report to the IRS; for instance, LLCs can be taxed on a pass-through basis or on a corporate basis, depending on what’s most advantageous. These different kinds of flexibility are invaluable for AI entrepreneurs looking to remain nimble and adaptive in a fluid, dynamic industry.
How Can AI Companies Leverage the LLC Format?
Clearly, the benefits of the LLC structure are numerous. The question is, how can AI entrepreneurs establish their company as an LLC?
The requirements for registering can vary a little bit from state to state. So, forming an LLC in Texas might look somewhat different from forming one in California, or in Massachusetts. With that said, the basic steps are as follows.
Choose a Name for Your LLC
It’s legally required that you choose a name that isn’t already in use by another LLC in your state.
Select a Registered Agent
Your Registered Agent is in charge of receiving legal and tax documents on the business’ behalf. Your Agent can be an individual or an institution, so long as there is a physical mailing address in the state where you register. If starting an LLC in Texas, you can take advantage of Inc Authority’s complimentary registered agent services, as they’re free for the first year, according to this GovDocFiling review.
Create an Operating Agreement
Operating Agreements serve as blueprints, or charters, for your LLC. Basically, this is a document that maps out how you’ll run your AI company, including how you’ll allocate duties between partners. Operating Agreements can help you avert legal disputes later in time.
File Articles of Organization
This is the document that officially establishes your LLC. When you file with your state, you’ll need to pay the filing fee. This amount can be different from one state to the next, and may be anywhere from 20 bucks to a few hundred dollars.
Claim an Employer Identification Number
You’ll need your EIN before you can pay taxes or administer payroll. Thankfully, these numbers are available for free from the IRS.
Set Up a Bank Account
Sounds obvious, right? Crucially, though, you need a bank account that’s just for your business, not connected to any personal savings or checking accounts.
Keep Up with Fees
In most states, you’ll need to pay a small fee to maintain an active LLC status each year. In California, you’ll also be on the hook for an LLC tax, which is currently set to a flat fee of $800.
Use the LLC to Future-Proof Your AI Company
The world of AI is incredibly promising, incredibly tumultuous, and potentially quite lucrative. To position your company for long-term success, consider registering as an LLC.
Author Bio
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. She is also a thought leader in the field of small business ownership.
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