HOW TO START AN LLC
The New Business Owner's Guide to Forming Your Company
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THE BEST TIME TO START YOUR BUSINESS IS NOW
Hi there. I'm Mike and I created this site after pulling my hair out trying to get my own company off the ground. I spent weeks ignoring potential clients while sorting through the ins and outs of how to start a limited liability company... and then realized that, while every state is different, it all boils down to 8 easy steps. My goal here is simple: to walk you through these steps and get you started on your journey.
How to Start Your LLC Today:
- Decide on Your Company Name
- Make Sure The Company Name is Available in your State.
- File Your LLC Registration Papers.
- Select a Registered Agent
- Create Your LLC's Operating Agreement
- Get an EIN from the IRS
- Open a Bank Account
- Start doing Business!
Sure, there's stuff like opening a bank account and registering with the IRS and local tax authorities - but I'll cover that, too. Ready to get started? Just select your state from the list above.
What is an LLC?
A Limited Liability Corporation (LLC) is a legal business entity that can keep your business separate from your personal assets. An LLC can be single-member or have multiple members. The most common reason to set up an LLC is to operate a business, however, it can also be used to hold assets, such as real estate, aircraft, vehicles, and even boats.
Advantages to an LLC
- A new LLC is quick and easy to setup
- A LLC will offer you personal liability protection and you won’t be personally liable for your LLC, unlike being a sole proprietor
- LLCs are one of the easiest business structures to maintain
- LLCs offer you flexibility in regards to membership
- LLC taxes are easier compared to other business structures
Start an LLC Step-by-Step
Here’s an overview of the process you’ll go through when forming an LLC:
1. Decide on Your Company Name
The first thing you’ll need to do is come up with a name for your new startup. This name needs to be unique and something that won’t be confused with other businesses or registered LLCs.
Naming your business is an incredibly important and challenging step. You want your name to represent your brand and give your customers an idea of what your company is about while remaining unique.
Different types of business names:
- Legal name. The legal name is the name of the business that’s listed on your legal documents.
- Brand name. The brand name is the name of your company that you use throughout your marketing and the one that your customers will see.
Your legal business name can also be your brand name, or they can be separate. Having your legal and brand name the same is one of the most common methods.
However, some companies do separate the two. For example, Hewlett Packard Company is the legal business name, while the brand name is the abbreviation HP. If you end up choosing a different brand name, then you’ll need to file a Doing Business As (DBA) form, depending on your state.
Here are a few guidelines you’ll need to follow when choosing your LLC name:
- Your name needs to include the phrase “limited liability company”, “LLC”, or “L.L.C.”
- If your company name includes restricted words like University, Bank, Attorney, then you may have to fill out additional paperwork to register that name
- Your company name cannot include phrases that will confuse it with a government entity, like, Treasury, FBI, State Department, etc.
2. Check Name Availability in Your State
By now you should have a few business names in mind. Now, you’ll need to make sure the business name is available at both the state and federal level.
Here’s a quick rundown:
- Run a state-level search
- See if the domain name/social media is available
- Run a federal trademark search
You’ll want to start by searching for your state’s business name database.
It’s also a good idea to see if your new business name is available as a domain name. Even if you don’t plan on creating a website right now it can be very helpful in the future. The last thing you want is to have to choose an unrelated domain name because your business name domain and common variations are already registered.
Some business owners will search social media as well to see if the social media handles are available. If you’re trying to build a coherent brand, you’ll want all of these to match, so it’s easy for your customers to find you online.
Finally, you’ll want to do a federal trademark search using the U.S. Trademark Electronic Search System. This search will tell you if someone else has already trademarked your business name. Filing a business name trademark isn’t a necessity, but it can be worthwhile down the road once your business is established and you have the funds to do so.
3. File Your LLC Papers
The Articles of Organization or Certificate of Organization is a document that you file that will establish your company as an LLC and reserve your company name.
The LLC formation documents are state-dependent, some states will require more forms and additional documents than others. You can file your forms directly with the Secretary of State or use an LLC filing service.
4. Create an LLC Operating Agreement
An LLC operating agreement is a legal document that outlines the member roles and ownership structure of your LLC. This document helps to specify the financial and working relationships among the members of the LLC.
Not every state law will require an operating agreement, but it can be a great document to have since it clarifies the management structure of your LLC.
Here are the main components of an operating agreement:
- Organization. This deals with the creation of the company and includes when it was created, who the members are, who the board of directors are, and the structure of ownership.
- Management and Voting. This includes how the company is managed, including the authority that each member has, plus how the members will vote and how the votes will be allocated.
- Distributions. This details which LLC owners have given money and how much, along with how additional money will be raised. It can also specify ownership units in exchange for money.
- Capital Contributions. This describes how the profits and business debts will be split among members and can include physical property, business assets, and cash.
- Membership Changes. This section details the process for adding and removing members from your LLC. This can happen if you’re expanding your business if a member wants to leave or in case of bankruptcy, or death.
- Dissolution. This specifies the circumstances that can occur where the company will be dissolved, what happens to the business assets and more.
5. Obtain an EIN from the IRS
An Employer Identification Number (EIN) is like a social security number for your business. Obtaining an EIN allows you to open a business bank account and hire employees.
It’s also known as a Federal Employer Identification Number (FEIN) or Federal Tax Identification Number (FTIN). This nine-digit number allows the IRS to identify your business for income tax purposes.
You can obtain an EIN through the IRS website, by mail, or via fax.
If your business is a single-member LLC and you don’t have employees, then you are not required to obtain an EIN. However, if you plan on opening a business bank account, or are going to hire employees later on, then it could be a good idea.
Multi-member LLCs are required to get an EIN to start conducting business.
6. Open a Business Bank Account
A business bank account can help you separate personal and business expenses. It also helps to protect your corporate veil, which is one of the reasons business owners choose to form an LLC.
If your business and personal accounts are mixed, then your assets can be at risk if your business is sued.
Opening a business bank account can also help you manage your business income, expenses, write checks, build business credit, and make it easier to generate an annual report.
You can open a business checking account, savings account, and also a credit account. By opening credit cards that are linked to your business, you’ll be able to build business credit and obtain better business loans.
Every bank will have different requirements, some will require an EIN and some will not. If you have a multi-member LLC, then a business bank account will be a requirement.
7. Determine What Licenses and Permits are Needed
By now, you’re just about ready to start conducting business. However, depending on the type of business you still might need to obtain certain permits and licenses.
Depending on your business and the state of incorporation, you may need the following types of licenses and permits:
- A business license
- A zoning permit
Certain types of businesses will also require federal permits and licenses:
- Agriculture and farming
- Firearms, ammunition, and explosives
- Fish and wildlife
- Radio and TV broadcasting
- And more
8. Start Doing Business
Now, you’re ready to open your business to the world! You’ve named and formed your LLC and have the necessary permits and licenses.
Make sure you keep the following records up to date:
- Meeting minutes, if specified in your organization document
- Financial records and contracts
- Income tax returns and employment taxes
Which state should I register my LLC?
For most small business owners forming an LLC in the state where you live and do business makes the most sense. If you’re going to have a physical office or storefront in multiple states, then you’ll need to register a foreign LLC in every state where you’re doing business.
You can form an LLC in a state like Nevada or Delaware, which has business-friendly laws, however, you’ll need to file additional paperwork and pay an additional filing fee.
Do I need an address for an LLC?
Your LLC needs to have a designated business address. If you have a home-based small business, then this can be your home address. If you’re renting an office space or a co-working space, then you can use this address. Depending on your state, you may also be permitted to use a PO Box.
What is a registered agent?
Every LLC needs to have a registered agent. A registered agent is usually the same person as the owner of the company or the managing director. The registered agent is the person who is responsible for legal and tax correspondence.
Who can start an LLC?
Anyone who is in good legal standing can form an LLC. However, not every type of business can form an LLC, for example, insurance companies and banking institutions need to form a different business structure, like an S Corporation.
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ABOUT HOW TO START AN LLC
I'm an entrepreneur myself. When talking to others who want to start their own business, they often get wrapped up in the nitty gritty of paperwork and forming the company. They forget that what really matters is customers, sales, and profit. That's why I created How to Start an LLC.org: a simple resource and guide so you can spend less time on forming your company, and more time on building it.
My lawyers want me to remind you that I'm not a lawyer and that I'm completely unqualified to offer legal advice. This site is meant to serve as a reference for you on your journey. If you have questions or concerns, please contact a qualified lawyer (or accountant) to help you. Also, as a general rule, never take random legal advice on the internet.