How to Form an LLC
For a long time, small business owners were torn between operating as sole proprietors or in corporations. On one hand, a sole proprietorship business offered a lot of simplicity when it came to tax reporting. On the other hand, the personal-liability protection made a corporation an equally attractive option.
This dilemma is what led to the formation of Limited Liability Company (LLC) – a type of business that combines the best of both worlds.
Related: How To Incorporate Your Business
In particular, an LLC is a hybrid entity where its owners are not liable for the firm’s financial obligations. Also worth pointing out is that LLC’s are way more flexible in terms of management and handling taxes than corporations.
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If you’re considering starting an LLC, this article provides a step-by-step guide on how to go about it..
How To Form An LLC
Choose a Location
If you are a new business owner, the best thing is to form the LLC in the state where you live. This way, it will be easier to run operations and file paperwork with the state.
Nonetheless, it is possible to form LLC’s in different locations by registering each individual company in the state where you conduct business. When deciding the ideal location for your LLC, determine how convenient it will be. Also check whether the state has business-friendly laws for taxation, reporting and recordkeeping.
Decide the Name of Your LLC
After picking a location, the next step is to choose a name. As is the case with other types of companies, you’re not allowed to choose a name that’s already being used by another LLC in your state.
Some states also prohibit the use of certain phrases when naming LLCs. Words such as “bank”, “attorney” and “university” should not be a part of your LLC name.
Another rule of thumb is that the name should end with an acceptable designator. You can choose between “limited liability company”, LLC and L.L.C.
Choose a Registered Agent
When creating an LLC, you have to choose a statutory or registered agent. This is the person or company that will be receiving legal mail- such as subpoenas and complaints- on behalf of your company.
While you can act as your own statutory agent, it’s usually not a good idea to do so. If you lead a busy schedule, you might end up missing important notifications. Besides, becoming your own registered agent means your physical address becomes a matter of public record!
File Your LLC with the State
This entails preparing and filing the “articles of organization” with your state’s LLC department. The articles of organization are the basic document that shows you’ve established an LLC. In some states, it’s referred to as “certificate of organization” or “certificate of formation”.
Every state has specific requirements on what details to provide in this document. But in general, you should include:
- The name of your limited liability company
- The reason for forming your LLC
- The duration of your company
- Whether the LLC will be managed by members or managers
After formulating the articles of organization, you must send them to your state’s filing agency, alongside a filing fee. You can file the document online, via mail or submit it in person.
Different states take different lengths of time to process the articles of organization. Some take weeks, others months.
Other states even offer expedited processing at an extra cost. Once processed, you will get a certificate, which proves that your LLC is officially formed.
Draft an LLC Operating Agreement
This is a unique type of business contract that highlights the ownership and members’ roles of your LLC. It’s similar to corporate bylaws in the case of a corporation.
There are six main things that should be included in an LLC operating agreement:
- The organization of your LLC- this section explains when the company was created, the members, and ownership structure.
- Management and Voting Rights – this part describes how the firm is managed and the process of voting. As mentioned earlier, an LLC can be managed by either the members or a manager appointed by the members.
- Capital Contributions – under this section, the names of members who have given capital are listed. It also explains how members can raise additional capital.
- Distributions – this part explains how the company shares profits/losses among its members.
- Membership – here, the process of removing or adding a new member is explained in detail.
- Dissolution – this section describes the circumstances that would lead to the LLC being dissolved.
Publish a Notice
Depending on where your LLC is located, you might be required to publish a notice stating your intent for forming the LLC. This notice has to be published multiple times over several weeks. It’s likely that you’ll have to pay a fee to the newspaper or the state government for this notice. So be sure to check your state requirements for forming an LLC.
Get Licenses and Permits
When forming your LLC, it’s important to check whether your business needs any permits or licenses so that it’s deemed compliant. At the federal level, you might need a license/permit if you operate in these industries:
- Firearms and ammunition
- Fish and wildlife
- Maritime transportation
- Nuclear energy
- Radio/TV broadcasting
LLC license and permit requirements will differ between states and counties. Therefore, check whether there are additional qualifications at your state and local levels.
Set Up Your Accounting
If you want to run your LLC successfully, you need to get your accounting right. Thus, you should start by looking for an accounting system that meets your business needs. This way, you can keep tabs on all your company’s finances; be it expenses or revenue. Besides, an accounting system makes it so much easier to file the yearly company tax.
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Do I need a lawyer to start an LLC?
NO. You don’t need a lawyer or an attorney to form an LLC. You can prepare the legal paperwork using a professional business formation service, such as Swyft Filings or file it yourself.
How Much Does It Cost To Setup An LLC?
It may not cost you anything if you go through the free online course or hire a company such as Swyft Filings But any method you choose to form an LLC, you will still need to pay state filing fees. The LLC state filing fees range from $50 and $500. The average filing fee to form an LLC in the United States is $125
How Do You Start Your Own LLC?
You can start your own LLC by following the above steps.
How long does it take to create an LLC?
It may take up to 48 hours to complete the process but this also depends on each state. Time to complete LLC registration may vary depends on the state of your choice.
How hard is it to set up an LLC?
Setting up an LLC is not hard, in fact, it is very simple and this can be completed between 24 to 72 hours. Although time may vary depend on your state.
Whether you’re in a partnership business or are a solopreneur, creating an LLC can be the perfect way to blend a simple form of organization with liability protection. By following the steps in our guide, you can create your LLC.