Image source: Wikipedia user Kalkine12.
A limited liability company, or LLC, is a popular type of business structure that combines the simplicity of a sole proprietorship or partnership but without the legal exposure. When a business is incorporated as an LLC, the owner 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 a variety of reasons, so here are the steps toward doing so.
An LLC can buy stocks, just like any individual
Naturally, the first step to buy 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 as individuals, including buy stock.
LLCs are registered by the states -- usually by filing LLC articles of organization through the 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.
- 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 EIN (tax ID number) from the IRS that's specific to your LLC. 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 may give this power to several or all of the parties involved. Whichever is the case with yours, it's a good idea that this authority is clearly expressed in the operating agreement.
Next, you'll want to open a brokerage account in the name of your LLC. Most major brokerages offer this option -- for example, TD Ameritrade offers business accounts for a variety of business structures, including LLCs, as you can see in this screenshot from its application page.
Image source: TD Ameritrade.
Once you've opened and funded your investment account, you can buy stocks just as you would through your personal brokerage account. Of course, be sure to research all stocks thoroughly and be sure they fit your LLC's objectives and risk tolerance before you buy.
Are you ready to start investing? Head over to The Motley Fool's Broker Center and get started today.
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