LLC Formation – Steps to Forming a Limited Liability Company
If it still sounds like an LLC is the route you want to take for your business, in today’s post we are going to tell you everything you need to know to successfully set up your LLC.
But first let’s talk about some of the benefits to forming your business as a limited liability company.
There are many benefits to choosing a Limited Liability Company as your business structure:
Benefits of Starting a Limited Liability Company
- Personal asset protection to llc owners – as mentioned above, your personal assets are protected should your LLC go bankrupt or be sued.
- Tax benefits: Pass-through taxation benefits
- Simple to setup and maintain – no annual meetings, formal officers, or complicated records.
- Flexible – LLC’s have very little restrictions regarding the company’s structure. You decide if you want your business to be a single member LLC, multi-member LLC, and so on.
- LLC’s are a widely recognized business structure and bring credibility to your organization.
- Access to financing – Once your LLC is formed, you can start to build a credit history which opens the door to business loans and financing to grow your business.
- Flexible profit sharing – LLC’s can choose how they want to do their profit sharing, they are not required to be equally distributed among members.
An LLC structure protects you, as the business owner, from being personally liable for the company’s debts or other liabilities.
Furthermore, LLC’s can be owned by more than one person known as an LLC member.
If the limited liability business doesn’t do as well as planned or you have a rough year, you as the business owner are personally protected under an LLC.
For example, if your LLC declares bankruptcy or is sued, your personal assets such as your vehicle, personal bank accounts, and house are safe.
An LLC provides some great personal liability protection.
A Single-member LLC is a pass-through business entity which means that profits and losses from the LLC are “passed through” to you and taxed as personal income.
This benefits you as a small business owner because you are not hit with double taxation and are not required to pay both corporate and personal taxes on your earnings.
Multi-member LLC’s are taxed as partnerships and are also pass-through entities.
This means each owner pays personal income taxes on their portion of the profit.
If this all still sounds good, let’s get into the steps to forming your LLC.
LLC Formation – Steps to Forming a Limited Liability Company
Select your State
Most LLC’s are formed within the state in which they are operating, especially if your business will have a physical presence such as a store or office.
If your business will have a physical presence, you will also need to register a foreign agent (foreign limited liability company or foreign llc) in each state where you plan on doing business (more on this later).
There may be instances where you may choose to form your LLC in a different state from where you live. This is called a foreign LLC.
Choose a name for your New LLC
Every state has their own requirements for choosing a business name, but in general, they follow these guidelines:
Name must include “LLC” “L.L.C.” or the phrase “limited liability corporation”
The name cannot include words that could interfere or be confused with a government agency such as FBI, CIA, Treasury, etc.
Certain words such as “bank” or “attorney” may require approval and additional paperwork.
Choose a Registered Agent
A registered agent is a person or business (other than yourself or your own business) that sends and receives legal documents on your behalf.
The registered agent does not have to be anyone at your company or anyone employed by you, and does not have to be a member of the LLC.
In fact, there is a whole industry of registered agent companies that you can hire to handle this on behalf of your company.
Majority of the states require that an LLC has a registered agent and the agent must be a resident in the state in which you are doing business.
If you use a formation service to form your LLC, many of them can act as your registered agent (more on this later).
If you choose to be your own registered agent, your business address and other information will be made public.
File your Articles of Organization
Now that we have covered the prerequisites, you will need to register your Limited Liability Company with the state.
The formation document is most often referred to as the “articles of organization” but can sometimes be referred to as “certificate of formation” or “certificate of organization.”
This document along with the payment of your state filing fee are what officially create your LLC.
Once created, the documents can be sent in via mail or online.
Alone with the certificates, you will need to provide the following information:
- Full names, addresses, and contact information for all founding members of the LLC.
- Business name
- Address of the LLC – if your business has multiple addresses, you will need to choose one that will be your official mailing address.
- Length of time the company has been in business or has existed
- Registered agent information
- Information about the LLC – mission statement and explanation of purpose
Set Up a Management Structure
As mentioned above, LLC’s give you the ability to choose your own management structure.
The LLC can be member-managed which means the members are involved in the day to day operations of the LLC.
You can also choose to have the company be manager-managed which means members are not involved in the managerial matters but rather hire managers to take care of the day-to-day functions.
Create an Operating Agreement
Most states do not require a LLC operating agreement but we highly recommend creating one.
An operating agreement is a legal document that outlines the ownership structure and member roles of your LLC.
You can find Operating Agreement templates online or if you use an LLC formation service, they will create this document for you.
Get an EIN
An EIN, or Employer Identification Number (federal tax id number), acts like a Social Security number for your LLC. You will need an EIN to hire employees and open business bank accounts.
You can get an EIN for free from the IRS website, or via fax or mail
Business in other states
If your LLC will conduct business across state lines, then you will need to file to do business in those other states.
This is more involved and may require the help of a formation service or lawyer.
Once your LLC is formed, there are annual deadlines that need to be met.
Make sure you familiarize yourself with these deadlines and add them to your calendar so that they are not missed.
As you can see, there are several steps required to make sure that your LLC is formed correctly.
Hopefully these steps helped clarify what needs to be done and can help you prepare for when you are ready to form your own LLC.
If this all still seems overwhelming, then this is where using a formation service comes in handy.
If you have a little bit of flexibility in your budget or you know that the DIY route is not for you, then we strongly recommend hiring an LLC Formation Service.
An LLC formation service will make sure everything gets filed properly and expediently and they will make sure that all of your annual maintenance deadlines are not missed.
LLC formation services specialize in just that, forming businesses.
They streamline the process for you and are there to answer questions, fix mistakes, and help with legal advice and needs.
Many of them even take care of your yearly maintenance and filings for you and offer registered agent service as well.
Here are three popular LLC formation service options to give you an idea of what they offer:
ZenBusiness is one of the most affordable options and a great value.
They are a little smaller and newer than the other two mentioned below, but have excellent customer reviews and overall features.
Northwest Registered Agent also included a year of registered agent service with any LLC formation package. They also offer premium customer support that is unmatched to their competitors.
If you anticipate questions or more complex LLC formation, they are the top choice. You definitely get what you pay for and more with Northwest.
Northwest is our best overall value option.
$0 + State Fee
IncFile will form your LLC for free and include a full year of registered agent service with any LLC formation package.
IncFile is at the top of our list of the best LLC formation services, year after year.
If you decide to go the DIY route and form your own LLC but need help with the Annual Reporting, checkout the following services:
For $49, MyCompanyWorks will make sure you don’t miss a deadline. They are the most affordable annual report service out there and they offer a 100% satisfaction guarantee.
Their price varies depending on the service package that you choose, but their fully-managed services take care of everything so you don’t have to.
And if you want it all done for you, LLC formation and Annual Reporting, then you may want to look into MyCorporation.
For $99 MyCorporation will form your LLC and also include a full year of their managed annual report service.
After you have followed the steps to create your LLC, your work is not done.
There are still several actions you must complete as a business owner to set up your company for success and security.
As mentioned above, there are filing deadlines and annual maintenance tasks that need to be completed.
If you feel business savvy enough to do it yourself, great!
If not, checkout these top LLC formation services and let them take the guesswork out of the equation!
They will form your LLC and keep you up-to-date. In other words, they will get you from A-Z!
We hope this how to How to Start an LLC Guide has helped you get started with your business formation!
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