How to Start an LLC in 6 Steps | Simple Guide to Form an LLC

A Limited Liability Company (LLC) is a business structure for private businesses. LLCs are a combination of corporations and partnerships with flexibility in taxes and other benefits. It is easy to start an LLC in the USA when it comes to setting up a new business.

How to Start an LLC

How to Start an LLC

Setting up an LLC is relatively straightforward. You can save a significant amount of time with these simple – but essential – steps. It requires less paperwork and minimal registration fees. With the advantage of pass-through tax, LLCs are more desirable for small businesses. Here is a step-by-step guide to starting an LLC (Limited Liability Company).

STEP 1: Select a State

Ideally, your LLC is better located in the state where you live or where you plan to do business. However, if your business plans to operate in different states, you will have to register a foreign LLC in the other states where you plan to do business.

STEP 2: Name Your LLC

First, you need to choose a business name for your LLC. To do this, check out the name availability. You can typically do this at the Secretary of State website. Meanwhile, here are the naming requirements:

  • The company name should include “Limited Liability Company” or abbreviations like LLC or L.L.C.
  • The company name should not include words that might confuse your company name with any government agency (i.e., FBI, State Department, Treasury, etc.).
  • Words like Bank, Attorney, University, and some others are restricted. They may require additional paperwork on top of a licensed individual like a doctor or lawyer as part of the company.

These are some of the most important points to be noted while naming your LLC. It is recommended to go through the complete LLC name guidelines before you name your LLC.

After you decide and reserve your LLC name, you can get your business domain from Bluehost. It offers a bunch of services that include a free domain at a much cheaper price. Bluehost is ranked #1 web hosting provider, recommended by most of the reviewers.

STEP 3: Choose a Registered Agent

A registered agent is a person or an organization who processes legal documents on your company’s behalf. The official documents would include official correspondences like state filing notices and legal summons. We reviewed the best LLC services for you and made a list for you. You can compare the agent services and prices below.

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Note that availing of the services of professional registered agents would be your best option since you are guaranteed that whoever is handling your legal affairs knows their stuff well. You will enjoy peace of mind and focus only on running your business, as the ‘professionals’ take care of all legal matters.  

All states generally require businesses to nominate a registered agent when forming an LLC. Remember that your registered agent should be a state resident operating your business or a corporation authorized to do business in your selected state.

STEP 4: File LLC Formation Documents

LLC formation documents are the most vital while forming an LLC. These documents are commonly called Certificate of Formation. Depending on the states, there are different names such as Articles of Organization, Certificate of Organization, and so on.

You need to fill in the form (online or PDF) and send it to the Secretary of State after making the formation state fee. The average fee is around $100. The cost of LLC includes other costs as well. You can file the Certificate of Formation via mail, online, via fax, via email, or by phone, depending on the state rules.

STEP 5: Create an LLC Operating Agreement

The LLC operating agreement is not mandatory, but it is encouraged. This legal document outlines the organizational structure and roles of members of your LLC. Take note that you should have already decided if your LLC is member-managed or manager-managed.

Here are the six main sections of an operating agreement:

  • Capital Contributions
  • Dissolution
  • Distributions
  • Management and Voting
  • Membership Changes
  • Organization

STEP 6: Get an EIN

The Employer Identification Number (EIN) is a 9-digit number issued by the Internal Revenue Services (IRS). This number is required to identify the type of business structure for general tax purposes. It’s like a Social Security number (SSN) for your LLC. The EIN is vital when you plan to hire employees or open a business bank account. Some would call it Federal Employer Identification Number (FEIN) or Federal Tax Identification Number (FTIN).

To obtain the EIN one has to fill up the form (online or by mail) and send it to IRS. For the online filing, you need the EIN Assistant. If you do not have an SSN still you can get EIN by filling up the form and submit to IRS. Before you proceed to apply for the EIN check if you need an EIN.

  • Mail to: Internal Revenue Service, Attn: EIN Operation, Cincinnati, OH 45999
  • Fax: (855) 641-6935 | Fee: Free

Other Things to Do After Starting an LLC

Apart from these helpful steps, there is more to forming an LLC. You’ll have to deal with your assets and taxes. Here are other important things to address when starting an LLC.

Set Up Business Accounting

It is vital to have a business accountant who will help you take advantage of tax benefits. It will save you and your business tons of money in taxes annually.

Get Licenses and Permits

You need to check if your business will require any business licenses or permits so that you can stay compliant. Licensing requirements would vary per state and county or city laws.

Separate Personal Assets From Business

Your LLC offers limited liability protection. It is vital to use dedicated business banking and credit accounts to avoid mixing them with your personal accounts. Otherwise, your personal assets (your home, car, and other valuables) would be at risk if your LLC gets sued.

Understand Your LLC’s Federal Tax Options

LLCs get taxed as pass-through entities. It means all of the business’s profit goes through the LLC member’s tax returns. The member pays self-employment taxes and income tax on their share of business income after tax.

Meanwhile, LLCs can also be taxed as S corporations (S corps) or C corporations (C corps). The former allows LLC members to be taxed as employees. It reduces the tax burden in certain circumstances.

Register Your LLC for State Taxes

There are several taxes that you might need depending on the nature and location of your business.

  • If you are selling a physical product, you’ll register your company for sales & use tax.
  • If you have employees, then you need unemployment insurance tax and employee withholding tax.
  • You may also be required to file an annual report or biennial report.

Get Business Insurance

Generally, businesses with employees must get workers’ compensation insurance. Meanwhile, general liability insurance is not a legal requirement, but it is highly recommended to protect your business assets from lawsuits.

LLC Formation Review

Time needed: 5 minutes.

To recap the step-by-step tool, here is how you form an LLC. Click on the steps in this list to read the full detail.

  1. Choose a state

    The first thing you should do is choose the state where you will operate your LLC because requirements vary per state.
    Choose your state

  2. Name your LLC

    Next, you must choose a company name, including the phrase “limited liability company” or one of its abbreviations (LLC or L.L.C.).
    name llc

  3. Choose a registered agent.

    In most states, it is mandatory to select a registered agent for your LLC. You can check out our list of our 5 Best LLC Services in the United States.
    get registered agent

  4. File formation documents

    Filing a formation certificate is necessary when forming an LLC. Depending on the state, it could be called any of the following: Certificate of Formation, Articles of Organization, or Certificate of Organization.
    file formation certificate

  5. Create operating agreement

    An operating agreement is not a strict requirement but something encouraged when you start an LLC.
    create operating agreement

  6. Get an EIN

    The Employer Identification Number (EIN), also called Federal Tax Identification Number, identifies a business entity like a social security number but for a company.
    get an ein

F.A.Qs

Can I set up my own LLC?

If you are a resident of the state you are willing to start your LLC, then you can file your own LLC. However, it is always worth having a professional than doing it by yourself to manage legal complexities, and paperwork.

What is the average cost to start an LLC?

The cost of an LLC depends on the state. On average, the registration fee ranges from $50 to $500 along with annual report fees.

What are the advantages and disadvantages of an LLC?

An LLC or limited liability company protects your personal assets and increases your business’s credibility. These are the most affordable legal business entities in terms of formation and maintenance. However, LLCs aren’t ideal when attracting investors.

Is LLC better than Sole Proprietorship?

Both LLC and Sole Properitership have their own advantage and disadvantages. When it comes to single-member LLC vs Sole Proprietorship, both have similar tax benefits.

How to renew my LLC?

To renew your LLC, you need to file an Annual Report every year by paying a stipulated fee. If your LLC is expired then submit a renewal form to activate LLC operation.

Conclusion

An LLC can be formed within 7 business days on average. In some of the states, it takes a few hours to form an LLC if you file it online. It is easy and requires less paperwork, unlike other business structures. For a small business, it is always recommended to have an LLC. For more information, leave a message below.

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