Setting up a limited liability company (LLC) properly is one of the most important steps in establishing your business. An LLC can offer your business liability protection as well as other perks. In this guide, we will walk you through how to start an LLC in just seven simple steps.
What Is an LLC?
A limited liability company, or LLC, is a type of legal entity that U.S. business owners can select for the operation of their enterprise. Creating an LLC protects an individual’s or group’s personal assets in case of legal trouble or bankruptcy. It also allows for flexible taxation options, as not all businesses operate in the same way. Some may elect for taxation as a sole proprietorship, but others may be taxed as a corporation. Consult a tax advisor to determine the best option for your LLC.
How To Set Up an LLC
Use this seven-step guide to start an LLC today. Note that there are differences in laws and processes from state to state. Browse our state LLC formation guides for information specific to your state.
Decide on a Business Name
Marketing may be at the top of your mind as you consider names for your business. And while it’s important to choose the right name for branding purposes, your business name must also meet state law requirements.
In general, state laws won’t allow you to choose a business name that’s already being used by another business in your state. Most states also prohibit certain words that might imply you’re in a certain business, such as insurance or banking. And you’ll probably need to include some version of “LLC” or “limited liability company” at the end of your business name.
You can review your state’s LLC naming requirements and find out if the name you want is available by visiting the website of the state agency responsible for business filings (usually the Secretary of State) and doing a name search.
Designate a Registered Agent
Every state requires LLCs to have a registered agent. A registered agent is someone who receives official or legal documents on behalf of the LLC. Once received, the registered agent then passes on these documents to the LLC.
Anyone who is at least 18 years old can be a registered agent—and you’re allowed to name yourself or an employee. However, the agent must be available at an address within your state during normal business hours. You can also designate a company that provides registered agent services. This will come at a fee, of course; pricing for registered agents may cost more than a hundred dollars per year.
Should I Be My Own Registered Agent?
You can legally act as your registered agent in every state. However, the availability of this option doesn’t automatically make it suitable for everyone. If you decide to act as your LLC’s registered agent, you should know that your name and address will soon become a matter of public record.
You must receive and handle crucial legal documents or notices as your LLC’s registered agent. If you are not as knowledgeable about local laws and believe you would struggle to manage this type of paperwork, acting as your own agent may not be best, even if the goal is to save money.
Carefully consider your options and perhaps even consult with a lawyer or professional agency before becoming your LLC’s registered agent.
Get a Copy of Your State’s LLC Articles of Organization Form
To establish your LLC as a legal entity, you’ll file a document with the state agency that handles business filings in your state. In most states, this document is called the articles of organization, but some states use a different name, such as a certificate of formation. Each state has a form you can use. To find your state’s form, go to the same website you used for business name research.
Prepare the LLC Articles of Organization Form
Each state lists its specific requirements and procedures for those trying to form an LLC. Basic information you’ll need to provide includes:
Your business name
The address of your principal place of business
The purpose of the business
The way your LLC will be managed
Contact information for the registered agent (and in some states, the agent’s signature)
The duration of the LLC
Once these steps are complete, one or more business owners or organizers will need to sign the form.
File the Articles of Organization
Check your articles of organization carefully before submitting them to your state. You’ll also need to pay a filing fee, which varies depending on the state where you’re forming your business.
When your formation documents are approved, you’ll be issued a certificate by the state to indicate your LLC is formally registered. Use it for other necessary tasks such as setting up a business bank account and getting a tax ID number.
Create an Operating Agreement
An operating agreement contains the details of the financial, legal and management rights of all members of the LLC. More specifically, it can include how profits will be distributed, how members leave the LLC and who contributes capital for the business. In essence, it should contain all relevant information pertaining to the operations of your LLC.
Many states don’t require an operating agreement, but that doesn’t mean you don’t need to craft one. LLCs with more than one member or partner will want to create one to ensure everyone agrees on their rights and responsibilities. Even solo business owners benefit from outlining the details in writing.
Crafting your own operating agreement is one option, especially for single-member LLCs. And there are plenty of free templates online to get you started. For more complex situations such as LLCs with multiple owners, hiring an experienced attorney may be well worth the expense.
Keep Your LLC Active
Setting up your LLC is only the start. Once it’s formed, you’ll need to ensure your business remains in good standing with your state. Again, refer to your state’s business filing website for current information on how to do so. You may need to file an annual report that updates information pertaining to your LLC and pay an annual filing fee.
