Forming an LLC is a great way to legitimize your business while separating your personal and professional liabilities.
An L.L.C. stands for Limited Liability Company and when you create one, you become a member of the LLC.
Here’s the thing… many people don’t understand the basics of what an LLC does for your business.
For instance, if you’re unfamiliar with the terms below, you should watch the accompanying video.
- Registered Agent
- Corporate Veil
- Commingling Funds
Table of Contents
The video below is created to break down the legal jargon of an LLC into simple and easy-to-understand concepts.
Yes… this will take 10 minutes to watch but is worth it to make sure you avoid common pitfalls.
I can’t stress how important it is to understand the items mentioned in the video above.
That’s because you have to setup the LLC but then also maintain it so it protects your personal assets.
When it comes to maintaining your LLC there will be different rules and requirements depending on your State. For instance, California charges an annual tax each year where other States may not have any tax or perhaps a scaling tax payment.
That’s why it’s important to find your State your business is based in the list below. This will allow you to understand the nuances of your State.
6 Simple Steps to Form an LLC
Here are six steps you can follow to form an LLC (Limited Liability Company):
- Choose a name for your LLC: Your LLC’s name should be unique and not already in use by another business in your state. You can search for available names using your state’s business registration website.
- Choose a registered agent: A registered agent is a person or company who will receive legal documents and government notices on behalf of your LLC. This can be yourself or another individual, or a business entity.
- File Articles of Organization: This is the formal document required to register your LLC with the state. The specific requirements for the Articles of Organization will vary by state.
- Obtain any necessary licenses and permits: Depending on the nature of your business, you may need to obtain certain licenses and permits to operate legally. Check with your state and local government agencies to determine what is required.
- Create an operating agreement: An operating agreement is a legal document that outlines the ownership structure, management, and decision-making processes of your LLC. Although not required by all states, it’s a good idea to create one to help avoid disputes down the line.
- Obtain an EIN: An EIN (Employer Identification Number) is a unique number assigned by the IRS to identify your LLC for tax purposes. You’ll need an EIN to open a business bank account and file taxes. You can apply for an EIN online through the IRS website.
These are the basic steps for starting an LLC, but keep in mind that the specific requirements and procedures can vary depending on your state and the nature of your business.
It’s always a good idea to consult with a lawyer or accountant to ensure that you’re following all the necessary steps and requirements.
Step 1: Choose a name for your LLC
Choosing a name for your LLC is an important step in the process of starting your business. Your LLC’s name is the foundation of your brand and will be one of the first things that potential customers and clients will notice about your business. Here are some things to consider when choosing a name for your LLC:
- Uniqueness: Your LLC’s name should be unique and not already in use by another business in your state. You can check the availability of a name by searching your state’s business registration website.
- Clarity: Your LLC’s name should be clear and easy to understand. Avoid using names that are difficult to spell, pronounce, or remember.
- Relevance: Your LLC’s name should be relevant to your business and the products or services you offer. A name that reflects what your business does can help potential customers understand what you do and attract the right audience.
- Branding potential: Your LLC’s name should have branding potential, meaning it should be memorable, catchy, and able to help you establish a strong brand identity. A strong brand can help differentiate your business from competitors and increase customer loyalty.
- Future-proofing: Your LLC’s name should be future-proof, meaning it should be flexible enough to allow for future expansion and growth. A name that is too specific or limiting may not be suitable if your business expands into new areas or offers new products or services in the future.
- Legal considerations: Finally, it’s important to ensure that your LLC’s name complies with any legal requirements in your state, such as not containing certain words or phrases that are prohibited by law.
Choosing a name for your LLC can be a fun and creative process, but it’s important to take the time to consider all of the above factors to ensure that your name is the best fit for your business. Remember that your LLC’s name is a key element in establishing your brand and building your business, so choose wisely.
Step 2: Choose a Registered Agent
When forming an LLC, you’ll need to appoint a registered agent. A registered agent is an individual or company that acts as a point of contact between your LLC and the state in which it is registered. Here are some important things to consider when choosing a registered agent for your new LLC:
- Legal requirements: Every state has specific legal requirements for registered agents, so make sure you’re familiar with your state’s requirements. For example, some states require that registered agents have a physical address in the state.
- Availability: Your registered agent must be available during normal business hours to receive legal documents and other important correspondence on behalf of your LLC.
- Professionalism: Your registered agent should be professional and reliable, with a track record of providing high-quality service. They should also have experience working with LLCs in your industry.
- Cost: Registered agent services can vary in cost, so it’s important to consider your budget when choosing a registered agent.
- Privacy: Your registered agent’s address will be publicly available, so you may want to consider using a third-party registered agent service to help protect your privacy.
- Accessibility: Your registered agent should be easily accessible by phone or email in case you need to get in touch with them.
Choosing the right registered agent for your LLC is an important decision. By considering these factors, you can find a registered agent that meets your needs and helps ensure the success of your LLC.
Bizee (formerly Incfile) is our preferred choice for LLC formation because they provide all of the services your new business needs while being transparent with pricing. They also offer a free registered agent service for the first year, even in their free package.
Check out a behind-the-scenes of what managing your LLC looks like in your dashboard in this Bizee review.
Step 3: File Articles of Organization
When starting an LLC, one of the most important steps is filing Articles of Organization with your state government. Here are some things you need to do when filing Articles of Organization for your LLC:
- Choose a name: Before filing Articles of Organization, you must choose a unique name for your LLC that complies with your state’s requirements.
- Gather information: You’ll need to provide information about your LLC, such as the names and addresses of its members, the registered agent, and its purpose.
- Fill out the form: Fill out the Articles of Organization form provided by your state government. Make sure you provide all the required information accurately.
- Submit the form: Submit the Articles of Organization form and the required filing fee to your state government.
- Wait for approval: Once you’ve submitted your Articles of Organization, you’ll need approval from your state government. The processing time can vary, but it typically takes a few weeks.
Filing Articles of Organization is an important step in starting your LLC. By following these steps and providing accurate information, you can help ensure a smooth and successful registration process.
Step 4: Obtain any Necessary Licenses and Permits
After form an LLC, you may need to obtain certain licenses and permits to operate your business legally. The specific licenses and permits required will depend on your industry, location, and the nature of your business. Here are some common licenses and permits that businesses may need:
- Business license: A general business license is required in most states to operate any type of business.
- Professional license: Some professions, such as lawyers or doctors, require a professional license to practice.
- Zoning and land use permits: If you plan to operate your business from a physical location, you may need to obtain zoning and land use permits to ensure that your business is compliant with local regulations.
- Sales tax permit: If you sell physical goods, you may need to obtain a sales tax permit to collect and remit sales taxes.
- Health and safety permits: Depending on your industry, you may need to obtain health and safety permits to ensure that your business is compliant with local regulations.
To research the licenses and permits required for your business, you can start by contacting your state and local government agencies. They can provide you with information on the specific licenses and permits required for your industry and location. You can also consult with a lawyer or accountant to ensure you follow all the necessary steps and requirements. When considering licenses and permits, it’s essential to factor in the cost and time required to obtain them, as well as how they may impact your business operations.
Step 5: Create an Operating Agreement
An operating agreement is a legal document that outlines the ownership structure, management, and decision-making processes of your LLC. Although not required by all states, having an operating agreement in place can help avoid disputes among LLC members and ensure that everyone is on the same page. Here’s what an operating agreement can do for your LLC:
- Clarify member roles and responsibilities: An operating agreement can outline the roles and responsibilities of each member, including how much capital each member has contributed and how profits and losses will be distributed.
- Establish decision-making processes: An operating agreement can establish the decision-making processes for your LLC, including how decisions will be made, who has the authority to make decisions, and how disputes will be resolved.
- Provide protection for members: An operating agreement can help protect members by outlining liability protection and how member assets will be protected.
When creating an operating agreement for your LLC, there are several things to consider adding, including:
- Ownership percentages: This outlines how much of the LLC each member owns.
- Management structure: This outlines how the LLC will be managed and who will be responsible for managing it.
- Capital contributions: This outlines how much capital each member has contributed and how profits and losses will be distributed.
- Voting rights: This outlines how voting rights will be distributed among members.
- Dissolution and exit strategies: This outlines what will happen if the LLC is dissolved or if a member decides to leave the LLC.
Having a well-drafted operating agreement is important for the success of your LLC. By considering these factors when creating your operating agreement, you can help ensure that everyone is on the same page and avoid potential disputes among members.
Step 6: Obtain an EIN
An EIN (Employer Identification Number) is a unique number assigned by the IRS to identify your business for tax purposes. An EIN is required to open a business bank account, file taxes, and hire employees. Obtaining an EIN is a straightforward process and can be done online through the IRS website. To apply for an EIN, you’ll need to provide information about your business, such as its legal name and address, and the names and social security numbers of its owners. Once you submit your application, you’ll receive your EIN immediately, allowing you to start using it right away. Having an EIN can help streamline your business operations and ensure that you’re compliant with IRS regulations.