Starting an LLC: Where to begin?

gentlehound15 said:Actually, I don't think you can touch that initial $20,000; it’s gotta come from future earnings.

In my specific situation—while a notary was drafting our Articles of Incorporation of ABC LLC—one of the clauses was phrased like this: Members/founders of the corporation cannot demand that the corporation reimburse them for what they contributed as initial capital if doing so would result in a reduction of the corporation's base capital.

Then, in the very next section titled "incorporation costs," there's this line:
The corporation is required to reimburse founders for incorporation costs up to a maximum total of $3333, provided that these incorporation costs aren't paid out directly from the initial capital.

So, even though you might be able to spend that $6667 on whatever you need—office furniture, laptops, phone bills, all that good stuff—you can't just claim those setup costs against that specific pool of money.
Once the LLC starts bringing in its first $3,000-$$1333, then you can draw those incorporation costs back and record them under account 0100 (STARTUP EXPENSES) for example:
2444.80 incorporation costs - notary public
55.00 state registration fees
400.00 court filing fees
810.00 publication fees in local newspapers
Put those on the left (debit) side of your T-account, and under account 2134 (LIABILITIES TO OWNER) on the right side, using the same example:
2444.80
55.00
400.00
810.00

(The LLC is brand new, so I'm still picking this up from my accountant.)
The bottom line is that the notary really needs to anticipate this issue and bake it right into the Articles of Incorporation of ABC LLC.

Best,

I didn't write it like that, and I just paid the costs straight out of the capital. 🙂
I also didn't book those costs under 0100, I put them in class 4 so they count as expenses.

Has anyone ever booked sales tax on an "R" invoice received for "XYZ LLC in formation"?

I was looking at an example in Brkanić:

1. Startup costs 0100 19,826.72
Sales tax on received deliveries 1400 3,563.28 (total sales tax from all "R" invoices)
Liabilities to founders for current purchases 2330 23,390.00

Brkanić also mentions (in Entrepreneur Accounting, 2005) that fees during company formation should be paid via bank transfer. Why isn't cash considered acceptable here? I mean, if we're just recording the liability to the founders, why does it matter how they actually settled the bills?

Chris Ruiz10, I think under Sections 202 and 393 of the Business Corporation Act, you aren't allowed to directly reduce the company's capital. So—if I'm following this correctly—is that why we book the expenses to account 0100?

gogo

It’s not half bad, though I can't help but wonder if it actually holds up under legal scrutiny... I mean, what would the regulatory boards even make of it?
Creative, for sure.

I mean, if the other option is already looking this shady, why even bother waiting? It might be worth just going ahead and doing it now without any prior notice.

I’m guessing the debt owed to the founders would be listed right there on the balance sheet.

How is anyone supposed to issue an R1 invoice to an LLC that’s still in the incorporation phase and doesn't even have a Tax ID yet? I'm asking specifically regarding VAT input credits; it seems pretty impossible to claim those deductions when the company isn't even registered in the VAT system at that stage.

And as for the idea that startup costs can be drawn from the initial capital of $6.75, of course that's doable.

Betty Garcia3
Regarding that tax credit issue... I’m not entirely sure, but it might just come down to whose name is actually on the notary's invoice.

banderas
You hit the nail on the head regarding the billing. If you're setting up an LLC and aren't in the VAT system yet—well, technically, the LLC doesn't even exist as a legal entity at that exact moment, right? It isn't active. So, you can't exactly have an invoice issued to a company that hasn't been born yet.
In my specific situation, the bill was issued to us as the founders, though we included those extra clauses in the operating agreement I mentioned earlier ("Members/Founders of the Company may not request reimbursement from the Company for their initial capital contributions if such a reimbursement would result in a reduction of the Company's initial capital amount."
).

In the next section, under the heading "startup costs," there's this line:$3333 The Company is required to reimburse the founders for startup costs up to a maximum total of , provided that these startup costs are not paid out directly from the initial capital.

Maybe that's why the sales tax can't be recovered. And, at least in my case, I can't pull the startup costs from the initial capital either—mostly because the expenses aren't billed to the LLC itself, but to the individual founders.

As far as I'm concerned, I'm just happy that the startup costs can be reimbursed eventually (at least from future earnings).

Best,

So, a colleague just mentioned today that he’s also been booking things under Gogo account 4 instead of 010.
He also told me that once he finished his business registration and filed for his sales tax permit, he went ahead and requested an R-1 from the advertising agency, and they actually provided one.
If I’m reading this right, for any invoice issued by a company registered for sales tax, you can technically request an R-1 or R-2 later based on the original invoice. It seems to me like it might be possible to ask for a retroactive R-1 including the tax ID, especially since that number doesn't really impact the issuer's side—it doesn't change their actual tax liability at all, does it?
I'm honestly not sure how he handled the invoice from the notary.

Betty Garcia3 said:So, a colleague just mentioned today that he’s also been booking things under Gogo account 4 instead of 010.
He also told me that once he finished his business registration and filed for his sales tax permit, he went ahead and requested an R-1 from the advertising agency, and they actually provided one.
If I’m reading this right, for any invoice issued by a company registered for sales tax, you can technically request an R-1 or R-2 later based on the original invoice. It seems to me like it might be possible to ask for a retroactive R-1 including the tax ID, especially since that number doesn't really impact the issuer's side—it doesn't change their actual tax liability at all, does it?
I'm honestly not sure how he handled the invoice from the notary.

Well, yeah. You use 010 if we're talking major expenses, but I'm pretty sure I saw in a small business accounting guide that you don't actually do that—it goes to 4 (period costs). Otherwise, you'd be depreciating startup costs over several years. Seems pointless.

Usually, you wouldn't be able to claim the input tax credit, but if they issue an invoice datedAFTER you've registered the company for sales tax, just claim the credit.🙂

Betty Garcia3 said:Has anyone ever booked sales tax on an "R" invoice received for "XYZ LLC in formation"?

I was looking at an example in Brkanić:

1. Startup costs 0100 19,826.72
Sales tax on received deliveries 1400 3,563.28 (total sales tax from all "R" invoices)
Liabilities to founders for current purchases 2330 23,390.00

Brkanić also mentions (in Entrepreneur Accounting, 2005) that fees during company formation should be paid via bank transfer. Why isn't cash considered acceptable here? I mean, if we're just recording the liability to the founders, why does it matter how they actually settled the bills?

Chris Ruiz10, I think under Sections 202 and 393 of the Business Corporation Act, you aren't allowed to directly reduce the company's capital. So—if I'm following this correctly—is that why we book the expenses to account 0100?

Sure, but look at what it actually says here:

Section 202
The board can manage stock subscriptions once the company is registered with the Secretary of State. You aren't allowed to use the corporate capital to pay out special fees, refunds or bonuses. Founders don't get to touch those stock subscription funds.

Obviously, someone can't just deposit money and then grab it back. But still...

Section 393
(1) Founders cannot be paid reimbursements from the base capital for prep work or incorporation costs, and you definitely can't count those costs as part of the initial capital contribution.

(2) Reimbursement for incorporation costs is only allowed up to the maximum limit set in the articles of incorporation. Unless the bylaws say otherwise, founders cover incorporation costs proportional to their initial stakes.

So, if you had to fly to Germany ten times to set up your business, you can't write off those plane tickets. But you could probably claim the notary fees or the legal paperwork costs—provided you actually put that stuff in the articles of incorporation.

Hey everyone,

Is it possible to use real estate as initial capital for an LLC if I just bought it with a mortgage and I'm barely even through the first few payments?
From what I understand, you usually have to put down some actual $3.25 cash, while everything else can be accounted for as assets.

Arthur Mendoza5 said:.keskin. So why on earth would you go the LLC route specifically?
The overhead is going to hit you way harder than if you just started as a sole proprietorship, though the upside is you’re immediately plugged into the IRS system for tax credits and stuff.
I don't even know what kind of business you're looking to launch, but if you're planning on heavy upfront investments—you know, buying equipment, machinery, or fleet vehicles to get the job done—then honestly, why wouldn't you just stick with a sole proprietorship?
What kind of degree or training are we talking about here??
And what exactly is the game plan for the actual work?
Look, you can totally run an LLC while being a W-2 employee at some other company, and you could do the exact same thing with a sole proprietorship, so that's not really a deciding factor.

This whole topic is a bit of a rabbit hole, honestly; there are costs hiding everywhere, and you really need to have a solid grasp on both accounting and the legal side of things before you decide what you actually want to deal with.
Anyway, if you've got more questions, just throw them my way, I'm happy to help out.

If I can jump in here... If I already run a sole proprietorship and then decide to set up an LLC, could I serve as the manager of that LLC without being officially employed there? I'm wondering if I'd have to pay additional payroll taxes or social security on top of what I'm already paying for my small business.

Andrew Wells58 said:If I can jump in here... If I already run a sole proprietorship and then decide to set up an LLC, could I serve as the manager of that LLC without being officially employed there? I'm wondering if I'd have to pay additional payroll taxes or social security on top of what I'm already paying for my small business.

Yeah, you can.

Can you use real estate as initial capital for an LLC if it was bought with a mortgage and you just started paying it off?
From what I gather, you always have to pay $3.25 in cash, and everything else counts as assets.

I guess you might not be able to use property that still has a mortgage on it. You could do 10 grand in cash and another 10 in assets. Just watch out, because there's usually at least a 50-50 ratio required. So if you want to start a company with property worth $167, you’d probably need to put in 500,000 in cash.

Hey everyone!
I stumbled onto this forum while digging around for some info, and honestly, I’m pretty impressed with what I've found so far. 👍

I could really use some advice from the veterans here.
I’m looking to launch a business and set it up as an LLC. My main focus would be centered around xy. Now, if the company were handling wholesale and retail, plus the design and manufacturing of xy products, and even consulting on how to actually use them... can I just run all of that under one roof? Or am I going to need to open separate business units or something? To be honest, I don't even know if that's a thing you can do.
The second thing on my mind is this:
Since part of the production would happen right here in the States and the rest would be outsourced overseas, what does that process actually look like? If anyone here has experience running a company that juggles both the domestic market and international trade, please, hit me with some wisdom.

Look, you can actually handle pretty much everything under one single company roof if you just make sure you register it for all those different business activities from the jump!
🙂

If you're looking at different business sectors, there's a standard North American Industry Classification System (NAICS) you should consult. I always found it helpful to brush up on those specific codes before meeting with a notary or legal counsel to draft your founding documents; it prevents you from accidentally registering something that doesn't quite fit your vision.
Keep in mind that certain industries—think major financial institutions or insurance providers—require specific permits or meeting strict regulatory requirements before you can even get off the ground.
The beauty of the American system is that you can actually run several different types of operations under a single corporate umbrella. If you need more structure, you can always establish a branch office or simply designate a separate division, which can even maintain its own dedicated bank account linked back to your primary one.
When it comes to expanding your reach internationally, you have a few solid options: you could launch an entirely new entity abroad, set up a foreign branch by registering it both locally and in your home state, or perhaps just open a representative office to test the waters.

Huge props to copperraven55 for laying that all out so clearly!👍

Since I’m planning to run my business entirely from my home office—basically a full-on remote setup—I’ve been wondering about how software audits actually work. What kind of equipment am I required to own versus what isn't necessary, and can anyone actually show up at my place? Like, is it possible for someone to just walk into my house under the guise of a business inspection and go through my computer?

Yeah. I could probably take a look at your software setup if you want. Just make sure you're buying legitimate stuff.

I can, I really can. They already came by my place once. I ended up getting a summons, but I managed to get through it with just a warning and having to cover the court costs.