Get an LLC for Your Direct Sales Business

Should I start an LLC as an independent distributor?

When you sell product from direct sales or network marketing companies, you are not hired on as an employee. Instead, you are considered an independent contractor or an independent distributor. In the eyes of the state, this makes you the sole proprietor of your business.

Luckily, as a sole proprietor in Utah you can legally do business in the state without having to create a formal business structure, like an LLC or corporation. In fact, you can operate as a sole proprietor for the life of your business. However, it may be a good idea to form an LLC, especially if your business is already large or growing significantly.

As sole proprietor, you are personally liable for your business. What does this mean? If you as an independent distributor face financial hardship or legal issues, you are liable and your personal property will be at stake. Forming a Utah LLC for your business is a good step to take when trying to further separate you from your business in order to protect your personal assets.

One of the best things about working in direct sales is the flexibility it offers. Because of this, no two businesses look the same. While being a sole proprietor might work for an independent contractor who’s business is still small enough to operate with limited risk, an LLC may be a good idea for a seller with a larger business and a wider client base. When choosing which is right for you, consider the following:

Sole Proprietorships vs. LLCs

How do I start an LLC in Utah?

If you’ve determined that forming a Utah LLC is the right move for your business, there are a few steps you’ll need to take to officially form your LLC with the state.

1. Choose a name for your Utah LLC

Before filing your formation paperwork with the state, you’ll want to choose a name for your LLC. This may sound simple enough, but the Utah Secretary of State has certain requirements when choosing a name for your business. For example, your name must include the appropriate entity identifier (like LLC, L.L.C. or Limited Liability Company) and cannot include any words that imply a different entity type (like “corporation”) or a protected industry (like “university”).

The most important requirement, however, is that the name you choose must be distinguishable from other Utah businesses. This means you cannot use any trademarked brands or the name of an existing business. This includes the name of the company who makes the product you’re selling. Check out the state statute Code 48-3a-108 for a more detailed list of Utah’s business name requirements.

Once you have decided on a name for your company, use the state’s Business Entity Search to make sure that your chosen name isn’t already in use. If it is, you will need to choose a different one. If not, you’re ready to move on to the next step!

2. Appoint a Utah Registered Agent

Per state law, all Utah LLCs are required to appoint a Utah registered agent on their Certificate of Organization. Your Utah registered agent is an individual or a commercial agent that you appoint to accept any service of process and important state notifications on your company’s behalf.

Your registered agent can be any individual who is a Utah resident, as long as they are eighteen years or older and available at their listed Utah address during all regular business hours. You can also hire a commercial registered agent, which is a company that will accept all service of process for your business and notify you when those important documents are delivered.

When you sign up for our LLC formation service, 1 year of our Utah registered agent is included. As your registered agent, we’ll immediately scan all of your legal and state mail, upload it into your secure online account, and notify you as soon as it is available. Plus, our local agents are available to offer their support when you need it. All for just $49/year, every year.

3. Complete and File your Utah LLC Certificate of Organization

Once you’ve chosen a name for your business and a registered agent, you’re ready to fill out your Certificate of Organization and file it with the Utah Department of Commerce, Division of Corporations & Commercial Code. The form requires the following information:

1. The name of your LLC
2. Address of your LLC’s principal office
3. Your registered agent’s name and address
4. Organizer signature

You also have the option to list other information, like the names and addresses of your LLC’s members, the duration of your company, and your company’s purpose.

When considering whether or not to include the optional information, keep in mind that everything you include on this form will go on public record as soon as your filing is processed. This means that if you list your member’s names and addresses, that information will be available to public.

Your LLC’s Certificate of Organization can be file in-person, by mail or fax, or online. No matter what method you choose, you will also need to submit the state’s $59 filing fee. It’s important to note that if you choose to submit a paper filing, either through the mail or via fax, you will need to account for a longer filing time.

Once your Certificate of Organization has been approved and processed, the state will send you a Certificate of Organization to the principal address listed on your formation paperwork. Make sure you to hold on to this document along with any other important internal company documents.

How do I maintain my Utah LLC?

After forming your LLC, there are some other steps you’ll need to take in order to maintain your business and keep it good standing with the state. Aside from filing your Utah LLC’s annual report every year, you’ll also want to consider some other actions to further distance yourself from your business and avoid “piercing the corporate veil.”

What does “piercing the corporate veil” mean? It’s a legal term that refers to when the limited liability status of a corporation or LLC is disregarded by the courts, and the owner of the company is held personally liable for any debts or obligations. While forming an LLC helps prevent this from happening, there are still some things you can do as a business owner to further avoid this possibility.

Create an LLC Operating Agreement

Your LLC’s operating agreement is an important internal, legal document that outlines the structure of your LLC and how it operates. Essentially, it acts as a contract between the LLC’s members that details their rights, responsibilities, and ownership interests. It’s important that your LLC has an operating agreement, even if it only a single-member LLC. This document can also dictate what happens in the event that you can no longer run your LLC.

The state of Utah does not legally require LLCs to submit an operating agreement, but often other entities, like banks, will require one as proof that your business is legitimate.

Check out our operating agreement page for a free operating agreement template! Even better, when you hire us to form your LLC, we provide a professionally drafted operating agreement that is customized for your management type.

Apply for a Federal EIN

An Employer Identification Number (EIN) is a number given to businesses by the IRS to identify the business on tax forms. Specifically, on employee tax forms (like a W2). Think of it as your LLC’s social security number.

Even if you aren’t planning on hiring any employees, applying for an EIN is another way to create distance between you and your LLC, as it further indicate that you and your business are acting as separate entities.

The IRS has made it really easy to apply for an EIN using their online EIN application. The form is free to file, and you’ll be notified by the IRS when your application is approved.

Open a Business Bank Account

It’s important to open a business bank account for your LLC. Mixing your personal finances with your business finances can be risky, especially when it comes to “piercing the corporate veil.” Most banks offer specific bank account options for businesses, but certain documentation is typically required in order to do so. It’s always a good idea to check in with the bank or credit union of your choice to see what specific documentation they require, but generally speaking you will need:

• Your LLC’s EIN
• Your LLC’s Certificate of Organization
• Your LLC’s Operating Agreement
• Any required business licenses
• Proof of your business’s principal address (cannot be a PO box)
• A Certificate of Good Standing

File your Utah LLC Annual Report

One of the easiest ways Utah LLCs can lose their good standing with the state is by failing to file an annual report on time. The report itself is a simple form that be filed online, and is really just a way the state makes sure that all the information about your company on record is up to date. by mail, fax, or in person. It costs $18 to file.

The state requires the annual report as a way to make sure the information they have on record about your business is up to date. In Utah, your annual report will need to include:

• Your LLC’s entity number
• Your entity type (LLC)
• The date when your business was formed

You’re also able to update certain information on your report as well, without having to file (and pay for) and amendment to Certificate of Organization. You can use your annual report to update:

• Your business purpose
• Your registered agent and/or your registered agent’s address
• Your LLC’s principal address
• Add/remove individuals

Your annual rport is due at the end of your business’s anniversary month (the month you originally formed your LLC). If you file late, but within 30 days of your due date, you’ll have to pay a $10 filing fee. Any later than that and you’ll be required to submit another filing to reinstate your business and pay the $54 fee.

How can I keep my personal information private?

One of the challenges of running a business from your home is keeping your personal information private. Unfortunately, the state doesn’t allow businesses to list P.O. Box addresses on formation paperwork, and once your filing has been processed, all of the information you provided becomes public record–including the address you listed it as your principal address on your Certificate of Organization. This can pose a problem for business owners who run their business from home.

Luckily, you are able to list your registered agent’s address on your Certificate of Organization (with their permission), which keeps your personal information off public record. For example, we allow our clients to list our name and address on their state paperwork to ensure personal privacy. However, you still probably don’t want to include your home address and personal phone number on your business cards, social media, or your website. And renting a commercial space can be pricey, especially if you’re just getting your feet on the ground.

At Utah Commercial Registered Agent, we offer Virtual Office service for our clients who want to protect their personal privacy, but don’t necessarily need to pay to rent a brick-and-mortar space.

For just $19 a month you get:

• A real Utah business address you can use on business cards, websites, and social media platforms. You can even list it as your principal business address on public records.
• Unlimited mail forwarding, including same-day scans of all your important mail and instant notifications when something new is available. Need something physically forwarded? No problem! We can forward your mail to any U.S. address for a small additional fee.
• A month-to-month lease to help establish your business presence in Utah without locking you into a binding agreement.
• A local Utah phone number you can use for all your business calls and text messages. You can use your existing phone with our FREE iOS or Android apps.

FAQs

Do I need an LLC as an independent contractor?

Technically, you do not need to form an LLC to work in direct sales. Both the state and the company you source your product from consider you an independent contractor, a.k.a. a sole proprietor. This can get tricky if your business runs into financial or legal troubles. As a sole proprietor, you are your business, meaning your assets also belong to your business. This leaves your personal property, like your car and your home, as well as your personal finances up for grabs in case of a dispute.

By creating an LLC, you are separating yourself, and therefore your personal assets, from your company. Think of it as an added layer of protection for both you and your business.

How much does a Utah LLC cost?

The cost to file for a Certificate of Organization and form your Utah LLC is $59. In order to keep your LLC in good standing, you will also need to pay the $18 fee when you file your Annual Report every year. There may also be other maintenance fees, like business licensing fees, to account for, depending on the type of LLC you’re operating.

How do I keep my personal address off public record if I’m working from home?

It can be risky to include your personal information, especially your home address, on your state filings. Why? Once your filing is processed, all of the information included goes on public record. This means scammers, sale people, and disgruntled clients can track you down at your home. When you hire Utah Commercial Registered Agent to form your LLC, we’ll list our address on your Certificate of Organization allowing you to maintain some of your personal privacy.

You can go even further when protecting your personal privacy by signing up for a Virtual Office service. Our Virtual Office service gives you a real, month-to-month lease, and an address with a unique suite number at our building in West Jordan. It also includes a local Utah phone number for your business, protecting your personal phone line, too.

What is the difference between a direct sales company and an MLM?

Multi-level Marketing (or MLM) companies are considered direct sales companies. However, while distributors who work for a traditional direct sales company only earn money from the products they sell, folks who sell for an MLM earn income on both their sales and from recruiting new participants.

If I sell for an MLM, am I considered an employee?

If you’re an independent distributor for an Multi-Level Marketing company, you are just that: and independent distributor–i.e. self-employed. You are not considered an employee by the company, and are therefore not protected under the umbrella of that company.

This means that as a seller, you are accountable for anything you say to market the product you’re selling. This means that even if you are using the information you’ve been given by your MLM, you will still be liable as a sole proprietor if that product is faulty or advertised incorrectly.

And when it comes to taxes, you’re considered self-employed. So make sure you are paying the required federal self-employment and income taxes, as well as your state’s income tax.

If you have any questions about the rights you have as a distributor, your MLM should have a list of company policies available to reference. If your MLM offers any liability protection, you should be able to find that information there. Some MLMs offer protection, while others don’t. Make sure you’re informed with your company’s specific policies before getting involved.

Can I hire employees as an independent distributor?

As a sole proprietor, it is totally possible to hire employees. However, keep in mind that unless you create a formal business entity, you are personally responsible for the risk and legal obligation that come with employing people.

If you plan on hiring employees, creating an LLC is a good way to mitigate this personal liability. Your LLC will also have an Employment Identification Number (EIN) which will make it much easier for your employees to file taxes.

If you’re a seller for an MLM, it’s important to keep in mind that you cannot claim any of your recruits as your employees. Just like you, they are working with the MLM as individual distributors and are responsible for their own direct sales.