The New Business Owner’s Guide to Forming Your Company
The best time to start your business is now.
How to Start Your LLC Today
While every state is different, it all boils down to eight easy steps.
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.
Make sure the company name is available in your state
Now, you’ll need to make sure the business name is available. You’ll want to start by searching for your state’s business name database.
File your LLC registration papers
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.
Create your LLC operating agreement
Not every state requires an operating agreement, but it can be a great document to have since it clarifies the management structure of your LLC.
Get 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.
Select a registered agent
A registered agent is a third party in your state who will become responsible and designated to receive notices, correspondence, and other official matters on behalf of your LLC. Business entities are required to have a registered agent, some states might not have this requirement, but regardless you should consider having one.
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.
Start doing business
Now, you’re ready to open your business. Make sure you keep the following records up to date: meeting minutes, financial records and contracts, and income tax returns and employment taxes.
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What is an LLC?
LLC is an abbreviation for limited liability company. As the name suggests, it offers limited liability protection to an owner’s assets. An LLC is not a separate tax entity, so any business income earned is “passed through” to the owners’ personal income tax. Some regulatory rules come with an LLC, but fewer than a corporation has.
Why do entrepreneurs select an LLC as a business structure?
An LLC is easy to set up, provides some personal liability protection, and isn’t subject to double taxation like a corporation is. The LLC owners pay taxes once on the profits of the business, which are passed through to their personal income tax returns. Federal taxes and state taxes are paid by the individual.
Who should start an LLC?
This type of business formation is more commonly chosen by smaller organizations and individuals going into business. Setting up an LLC is generally simpler, less expensive, and faster than more complex structures like traditional corporations.
How much does an LLC cost?
When it comes to FAQs about starting an LLC, most people want to know about costs. Along with normal business expenses, forming an LLC comes with both upfront costs and annual recurring costs. To learn more about costs, check out this guide.
Is owning an LLC worth it?
Like any business entity, an LLC can be worth it if your business is profitable. An LLC is relatively low-cost compared to other business structures and allows for a lower taxation rate for small businesses. An LLC is worth it for many business owners with a good business plan and execution.
What is the downside of an LLC?
While an LLC offers much more protection than a sole proprietorship or partnership, that coverage is not universal. There are scenarios where personal assets are not protected by an LLC. An LLC is less expensive to set up than a corporation but more expensive than options like a sole proprietorship or partnership.
What are the benefits of owning an LLC?
In an LLC, members are not held liable for the actions of the company. Personal assets like cars, homes, and investments are protected from anyone seeking to collect from the company. Profits in an LLC are taxed through members’ individual tax returns instead of being taxed at the company level.
What is needed to start an LLC?
The formal requirements to set up an LLC are nominal. Before forming your LLC, you should have a business name that is not already in use by another business, a registered agent who can act as the company’s point of contact, and completed Articles of Organization, or formation documents, filed with the secretary of state.
What is an EIN?
An EIN is an employer identification number. It’s like a social security number for a business. Most businesses do need an EIN, especially those who hire employees. You can get an EIN by visiting the Internal Revenue Service (IRS) website. After answering a few questions, the nine-digit number is issued to you instantly.
How do you choose a good business name?
Most states require your business name to be unique. Review your state’s requirements and conduct a name search on the state’s business directory to ensure name availability. You can also do a name reservation too. To learn more about naming your business, check out this step-by-step guide.
What is a registered agent?
Every state requires that an LLC designate a registered agent who will receive legal documents on behalf of the LLC. These legal documents might include things like tax notices or service of process paperwork, which are served during a lawsuit. Learn more about the requirements of a registered agent by reading this guide.
What’s needed to file Articles of Organization?
To become a new business, you must file LLC formation documents, usually called Articles of Organization, with the state. You’ll provide the LLC name, business address (that’s not a PO Box), and purpose and file the document online through the state website. Corporations file Articles of Incorporation.
What’s an operating agreement?
While this is not required in every state, it is wise for each LLC to have a formal LLC Operating Agreement in place. This document will lay out the management structure and all financial, legal, and management rights of the members.
What’s needed to maintain an LLC?
Once your startup is operating, you need to be sure you remain in good standing with your state. With this type of business, you must file an annual report, pay local taxes, renew business licenses, or do other steps required locally.
Is an LLC subject to double taxation?
No. Corporations are taxed twice, once as a business and again on an owner’s personal taxes. With an LLC, the profits are passed to the owner’s personal income tax. There are no taxes at the business level, so an LLC is not subject to double taxation.
Does an LLC need separate bank accounts?
It’s ideal to set up a business bank account and keep your personal income and expense separate from the business. For tax purposes, it makes doing business a little easier. You should consider getting a business credit card too.
What is the difference between an LLC and a corporation?
A corporation is a more formal business structure that has more rules than an LLC. The corporation is a separate entity for liability, taxes, and all other government regulations. Corporations have many annual regulations to follow and pay taxes differently than a single-member LLC or a manager-managed LLC.
What is the difference between an LLC and a sole prop?
A sole proprietorship is the easiest entity to set up. There’s little to no paperwork and no recurring filing requirements or fees. However, it doesn’t offer any liability protection either. An LLC does. An LLC does require formation paperwork, annual filings, filing fees, and state taxes, but liability protection is often worth it.
Are there companies that can help set up an LLC?
Yes, there are companies that can help with the process of starting an LLC or nonprofit. They may offer a variety of professional services, like acting as a registered agent or managing paperwork on your behalf. For those who need help with the administrative or regulatory aspects of an LLC, a registered agent service is a great option.