How To Start An LLC
How To Start An LLC
An LLC (Limited Liability Company) is an ideal business structure for small businesses and start-ups. It combines the benefit of pass-through taxation from sole-proprietorships with the advantage of personal asset protection from corporations.
Starting an LLC can be a big step towards a successful enterprise. Large companies that have become household names, such as e-commerce giant, Amazon, and brewing company, Anheuser-Busch, started out as LLCs.
An LLC is a simple and affordable legal business entity to form and maintain. Follow our step-by-step guide below to learn how to form an LLC.
Forming an LLC can be a fairly simple process depending on your state. As compared with a corporation or a non profit, LLCs have considerably lower formation fees and require significantly less upfront paperwork.
Follow these six simple steps to start your LLC today!
The first step to forming your LLC is to select a state. The best option is to start your LLC in your home state. Any LLC that operates within your home state is called a Domestic LLC.
Your LLC may not always be the state in which you conduct business or are headquartered. If you plan to conduct business in a state other than the state where you live, it is important to register it with the second state as a Foreign LLC. If your business operates entirely online, then you only need to register your LLC in your home or chosen state.
States like Nevada, Delaware, and Wyoming have a reputation for providing LLC-friendly business environments because of the low LLC filing fees and low franchise taxes. While these states offer tax and filing benefits to business owners who live in and conduct business within them, they offer little benefit to those who operate outside them. Any LLC formed in these states will also need to register as a Foreign LLC in other states in which they conduct business.
Once you have selected which state to form in, you will need to come up with a unique name to provide your state when you file your LLC formation documents.
Once you decide on a name, you need to ensure that it is different from the other registered business names in the state. To ensure this, do an LLC Name Search in your state to ensure you don’t try to register your LLC with a name that’s already been used.
Some of the common rules that apply to naming your LLC include the following:
An LLC registered agent (also known as a resident agent or statutory agent) is an individual or business that sends and accepts legal documents and tax notices on your LLC’s behalf.
All 50 states require an LLC owner/member to assign a registered agent for their LLC business. Your designated registered agent will receive the following documents on behalf of your business:
You can also be your own registered agent for your LLC or appoint someone (a member or a colleague) as a registered agent. The appointed person must meet the following requirements for being a registered agent:
All states require a formation document for LLCs. This formation document is called Articles of Organization (also called Certificate of Formation or Certificate of Organization).
The Articles of Organization contain important information about your LLC, including business name, owners/members, start date, duration of the business, name of registered agent, and corresponding address, if applicable.
The filing fee for the Articles of Organization depends on the state, but can range from $50 to $500.
Before filing your Articles of Organization, you need to make a decision on how your business will be managed.
LLCs have two management structures: member-managed and manager-managed.
Member-managed LLCs have members actively running the daily operations and management of the company. Manager-managed LLCs have members appoint managers (may be members or non-members) so that members can focus more on building the business and managers help oversee the needs of the LLC on a daily basis.
An Operating Agreement is a legal document that defines your LLC’s ownership structure and member roles and duties.This agreement brings credibility to your business and prevents misunderstandings about roles and responsibilities. An operating agreement may also include information on business continuity and succession in the event that a member departs the LLC.
The Operating Agreement contains six sections:
If you are starting an LLC specifically in California, Delaware, Maine, Missouri, Nebraska, and New York, you are required to have an operating agreement. Even if an operating agreement is not required in your state, it is advisable to create one so that members can make well-informed financial and management decisions.
LLC operating agreements are not required to be filed with the state. This is a document that you will store internally and use or update when necessary.
An Employer Identification Number, (also known as the Federal Employer Identification Number or the Federal Tax Identification Number), is a nine-digit number assigned by the US Internal Revenue Service (IRS) to identify and tax businesses.
You will need to get an EIN after you form your LLC and to hire employees. EINs are free when you apply directly with the IRS – on its website, via fax, or by mail.
By following the steps, you have now established your LLC. However, there are a few more things you should attend to before conducting business.
If you are selling physical products, you are required to collect sales tax and deliver them to your state’s designated tax collecting agency. There are also sales tax collection laws that may apply if your LLC sells to out-of-state customers.
If you plan to hire employees, you’ll need to register for employment withholding tax and unemployment insurance tax.
In some states, LLCs also need to file annual reports, where you need to pay annual fees or franchise taxes.
Tax requirements and annual reports for LLCs are all state-specific. Find what is required in your state.
A business cannot legally operate without obtaining the necessary licenses and permits to stay compliant.
The permits and licenses your LLC will need will depend on the type of business you operate. You’ll need to check for these requirements at the city, county, and state levels to ensure all of your bases are covered.
Examples of permits and licenses include transportation and logistics license, liquor permits, environmental permits, zoning permits, health permits, and more.
Along with licenses and permits, you also need to ensure that your business carries the proper insurance policies. These policies will not only protect your business assets in the case of damage or loss, but can also get you in the door when bidding on jobs or renting an office space.
When hiring employees, there are legal compliance requirements to follow. These requirements include:
An LLC is a flexible business structure because it is relatively easy and affordable to set up and maintain.
You can form an LLC by yourself. There is some paperwork involved, such as registering a business name, designating a registered agent, filing the Articles of Organization, creating an operating agreement, obtaining an Employer Identification Number, and even opening a business bank account.
See our How to Start an LLC page for more information.
Yes. LLCs work well with small business owners. An LLC protects your personal assets, prevents double-taxation, and lessens paperwork than corporations and other business types.
The filing costs to form an LLC ranges between $50 and $500, depending on your state. If you choose to use an LLC formation service, tack on an additional $40 – $250 to the total. These fees are a drop in the bucket when you think about the peace of mind you receive knowing that a professional is preparing your documents for you and double checking them for accuracy.
You can form an LLC without getting a lawyer. In most cases, you do not need a lawyer to start your LLC for you. Only in very complicated ownership situations would you need an attorney to help you file your LLC, and they would mostly be working on your operating agreement.
Yes. If you formally move an LLC from your home state to another state, you will undergo a “domestication” process. You can create a “Domestic LLC” by getting a certificate of good standing from your old state and filing it with the Secretary of State or other agency in charge of business filings in your new state. You will then have to dissolve your business in your old state.
Not all states allow you to “domesticate” your LLC so make sure that you do research first before moving your business out of your home state.
Information on this page has been gathered by a multitude of sources and was most recently updated on June 2021
Any Information on this site is not guaranteed or warranted to be correct, accurate, or up to date. StateRequirement and its members and affiliates are not responsible for any losses, monetary or otherwise. StateRequirement is not affiliated with any state, government, or licensing body. For more information, please contact your state’s authority on insurance.
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