So you and your friend have an exciting idea (we hope it’s investment related!) and you want to take the first step to formalizing your business: starting an LLC.
Well you’ve come to the right place! Many businesses are formed by close friends who had a brilliant idea and wanted to pursue it together. We’ve got 5 steps to set you and your friend up for success when starting an LLC.
- Make sure you’re ready to do business together
- Establish clear roles and responsibilities
- Communicate often!
- Work through conflicts
- Celebrate wins!
Related Article: The Limited Liability Company (LLC) Checklist
The Cost of Starting an LLC
Before we dive into the steps to start a successful LLC with a friend, we want to cover the cost of being an owner. It’s important to understand the costs of forming an LLC - as it amounts to more than the filing cost.
First, you’ll need to pay to file your LLC. You can file your LLC in any state, it’s really up to you. If you have a physical location for your business it will be important to file in the state where it is located. Otherwise, you can file in any state! We prefer filing in Ohio (OH-IO!) because the filing cost is $99 and they have a quick turnaround time of a few days.
After you file your LLC you’ll likely be presented with the option to pay for a Registered Agent and Automated Report Filing. These two services will keep your business compliant for years to come.
You will need to have a registered agent for your LLC. The registered agent can be an individual or entity designated by the LLC to receive service of process notices, government correspondence, and compliance-related documents. This fee is usually a few hundred dollars - Tribevest can be your registered agent for $150 for the first year and $198 for additional years.
Annual report filing requirements vary from state to state and they can be time consuming and complex. To take the pressure off, you’ll likely want to have an entity submit the required report filing for you. This fee is usually a few hundred dollars - Tribevest offers Automated Report Filing for $135 per year.
Once these items are in place, you’ll likely want to have an operating agreement in place that will describe how your LLC is run, roles and responsibilities, and how decisions will be made. Anyone can create an operating agreement for free, but when you are dividing profits and losses among multiple owners, you’re going to want to make sure it’s done correctly. You can hire an attorney to help with this document or using a service like Tribevest will provide you with a template and e-signature collection for all of your owners.
The total cost of starting a new business can be more than originally anticipated in order to stay compliant and have the proper documentation in place. You’ll be looking at $500 or more depending on your business needs.
Make Sure You're Ready to Do Business Together
You and your friend are excited because you have a big idea and think it’s a worthwhile business venture. It could be an idea to build a company, start an investor group, or open a local shop. In all the excitement, it’s important to make sure you’re ready to go into business together.
You’ll be spending a lot of time together with your friend. The last thing you want is to ruin your friendship. It’s important to make sure you are in agreement with your friend about expectations. Asking good questions is important. What are the goals of your business?
Understanding roles and responsibilities, ownership, and how decisions will be made is important. By putting a solid operating agreement in place, it will help mitigate the risk of losing your friendship over business.
Establish Clear Roles and Responsibilities
Once you’re ready to do business together, you’ll want to establish the roles and responsibilities of every owner. Establish means to get it in writing and not just take each other’s word! The last thing you want is an argument over what was “said.” Getting everything into an operating agreement that is signed by all the owners is the best way to be on the same page.
These roles and responsibilities should include initial contributions, additional contributions, profits and losses, distributions, management of the business, members, power of the members, dissolution, records, etc.
Communicate Often!
We can’t stress this enough. Communication is paramount when going into business together with your friend. Don’t assume that one or the other knows what you are thinking. You’ll have to rely on good communication to grow your business.
Have a conversation about what each other’s best communication methods are. For some it might be in-person and others it might follow up via video recordings or text messages. It’s important to understand how each other communicates so you can work through the good times and the hard times. Not every conversation is going to be easy, but it’s necessary to work through it together to keep your friendship and business relationship.
Work Through Conflicts
Speaking of not so easy conversations, you’ll need to be able to work through conflicts. Without a doubt, there will be conflicts that arise. Keep in mind that you and your friend will need to do what’s best for the business, even when you might disagree on things.
Don’t let conflicts fester. Talk and work it out. Go for a walk or disconnect if the frustration is building. Sometimes it might be best to remove yourself from the situation and delegate it to someone else. Conflicts are important to work through. In the end, working through conflicts will make your business and friendship stronger because you were able to navigate to the other side. If you can work through the tough times, you’ll be better for it.
At times when conflicts come to a head, just know that you have an operating agreement in place to reference and help provide resolution.
Celebrate Wins!
This might be one of the most important pieces of running a business with a friend. It can be really hard to celebrate wins when you’re trying to build a business. There are so many moving pieces and you’ll always be running onto the next thing.
Make sure to take the time to celebrate wins as a team. Give a kudos or shoutout across your company communication channels or if you’re in-person, go celebrate by playing Top Golf or going to a happy hour.
Do not miss out on these opportunities. It will build up the team to keep moving forward to the next goal.
Starting an LLC With Your Friend
Starting a business won’t be easy, but if you put in the work and effort and have a formalized structure in place you are already well on your way to success.
If you’re launching an LLC to form an investing business, there’s no better place to formalize than with Tribevest. We help you file your LLC and stay compliant for years to come, giving you the tools to operate and communicate with transparency with your friends and family.
