A limited liability company (LLC) is a popular type of business structure that provides the simplicity of a sole proprietorship or partnership but without the legal exposure. When a business is incorporated as an LLC, the owners' or partners' personal assets are generally protected from litigation or from being used to repay the company's debts.
LLCs may decide to buy stocks for several reasons. Here are the steps to do so.
An LLC can buy stocks just like individuals
Naturally, the first step to buying stocks on behalf of an LLC is to form the company. Once organized under state law, an LLC can do many of the same things individuals do, which includes buying stock.
LLCs are registered by the states -- usually by filing LLC articles of organization through a secretary of state's office. This is typically a short form and will establish information such as:
- The name of your LLC
- The LLC's business address
- Names and addresses of the LLC's organizers, managers, and designated agent
- The effective date of formation and the term for which the company will operate (if applicable)
You'll need to submit this form along with a filing fee and wait until the application is processed. It's also a good idea to obtain an employer identification number (EIN), which is a tax ID number specific to your LLC, from the IRS. You can do this on the IRS website -- it's fast and free.
Once you've established your LLC
An LLC's operating agreement can give just one of the owners/managers the authority to purchase stock on behalf of the company, or it could give this power to several or even all the parties involved. Whichever is the case with yours, it's a good idea to clearly express this authority in the operating agreement.
Related investing topics
Next, you'll want to open a brokerage account in the name of your LLC. Most major brokerages offer this option. For example, Fidelity offers business accounts for various business structures, including LLCs, as shown in this screenshot from its business account application form.
Once you've opened and funded your investment account, you can buy stocks just as you would through your personal brokerage account. Of course, thoroughly research all stocks and ensure they fit your LLC's objectives and risk tolerance before you buy.
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