How to Start an LLC: A Complete Guide

When starting a new business, one of the first big decisions is which type of business entity to form. Many entrepreneurs choose a limited liability company (LLC) because of its many benefits. An LLC provides personal liability protection, for example, so that your assets are not at risk if your business is sued or cannot pay its debts.

Also, an LLC is a "pass-through entity" in taxes, meaning income passes through the company to the LLC owners or members, who report it on their tax returns.

LLCs also offer flexibility in management and tax status, yet another reason it's a popular choice.

1. Choose a State

The first step is to choose the state in which you'll form your LLC. Some states have very favorable legal rules and regulations when it comes to forming and running an LLC.

In most cases, your home state (i.e., the state in which you're residing) will most likely be the best place to form your LLC.

Select your state below to find out step-by-step LLC formation guides.

Choose Your State

2. Name Your LLC

Naming your LLC can be challenging. You want a name that's unique, easy to remember, and conveys what your business does. You also want it to be SEO-friendly, so it can easily be found on Google. To find a good name, you could:

• Ask people you know for suggestions
• Use an online business name generator
• Brainstorm some ideas and ask family and friends for their opinion

Your business name is your business identity and the first impression people will have of your company, so be sure to take your time with this step and get it right.

Once you have a few business name ideas, you'll want to ensure they're available. So, first, do a business name search on your state's relevant website, usually the Secretary of State's website. Also, check your state's LLC naming regulations to ensure you comply.

In most states, your LLC name must include the phrase "limited liability company" or one of its abbreviations (LLC or L.L.C.). It cannot have words that could confuse your LLC with any government agency. Your name cannot include words that refer to specific types of business – such as a bank, insurance, or university – without state approval.

Your business name must be distinguishable from all other business names in the state and cannot imply that you are a corporation or partnership.

3. Select a Registered Agent

Most states require that you appoint a registered agent for your LLC. A registered agent is a person or company authorized to accept official correspondence for your business, such as legal, tax, or financial documents.

A registered agent ensures your business stays in compliance with state laws. The registered agent's job is to provide no important notices or documents that are missed.

In most states, a member of the LLC can be the registered agent, or you can choose an individual that meets your state requirements. Generally, the requirements are that the registered agent:

• Be 18 years or older
• Have a physical address in the state – a PO box is not acceptable
• Be available during regular business hours
• If the agent is a business, it's registered to operate in the state

Some states have more specific requirements, so check the rules in your state.

Many business owners hire a registered agent service to ensure all necessary documents are received and addressed promptly. A registered agent service also offers convenience.

If you choose to be your registered agent, you'll have to be available at your registered agent's address during regular business hours. However, a registered agent service will allow you the flexibility to run and grow your business wherever you need to be.

4. Create an LLC Operating Agreement

An LLC operating agreement is an internal document that outlines your business ownership structure, the rights and responsibilities of LLC members, and procedures for things like adding members, meetings, votes, and profit distribution.

Not all states require an operating agreement, but it's still a good idea to create one. It helps avoid potential disputes between members and keeps your business organized.

An operating agreement usually includes the following:

• Member information (names, addresses, ownership percentage)
• Management structure
• Voting rights and procedures
• Profit and loss distribution
• Meeting procedures
• Buyout and dissolution procedures

5. File Necessary Documents with Your State

In most states, the document you need to file to make your LLC official is the articles of organization. In some states, it's called a certificate of organization or formation.

Generally, you can file the document online, usually on the Secretary of State's website. The document requires your business name, address, registered agent information, and sometimes member or manager information.

Some entrepreneurs use an LLC formation service to handle this step. It saves time and ensures the process is done correctly.

6. Determine Your Tax Status

As mentioned above, LLCs are pass-through entities, which means income passes through to the member or members. If the LLC has only one member, it's taxed as a sole proprietorship. If the LLC has more than one member, it's taxed as a partnership.

However, LLCs are unique because they can elect to be taxed as a corporation if the members decide it works better for their business.

7. Get an EIN (Employer Identification Number)

An EIN is a unique nine-digit number that the IRS assigns to your LLC. It's like a Social Security number for your business. You'll need an EIN to:

• Open a business bank account
• Hire employees
• File tax returns
• Apply for business licenses and permits

You can apply for an EIN online through the IRS website for free. It's a quick and easy process that takes just a few minutes.

8. Open a Business Bank Account

One of the key benefits of forming an LLC is that it separates your personal assets from your business assets. To maintain this separation, you need to open a business bank account.

Having a separate business bank account makes it easier to:

• Track business expenses
• Manage cash flow
• Prepare tax returns
• Build business credit

To open a business bank account, you'll typically need your EIN, articles of organization, and operating agreement.

9. Obtain Necessary Business Licenses and Permits

Depending on your business type and location, you may need to obtain various business licenses and permits. These could include:

• General business license
• Professional or occupational license
• Health permits
• Zoning permits
• Sales tax permit

Check with your state, county, and city governments to determine what licenses and permits you need for your specific business.

Frequently Asked Questions