How to Start an LLC

One of the initial decisions that one makes when setting up a new business is the type of business one wants to establish. Limited liability company (LLC) is among several benefits that many an entrepreneur opts to use. An LLC offers some protection of personal liability such as your assets are not endangered in case your business is sued or fails to pay its debts.

Moreover, an LLC is a pass-through entity under taxation i.e. income flows through the company to the LLC owners or members who are taxed on their income returns.

The other reason why LLCs are popular is that it is flexible in its management and taxes as well.

1. Choose a State

Your initial process will be the selection of the state where you will incorporate your LLC. The legal rules and regulations on how to establish and operate LLC are very favorable in some states.

Probably the most common type of case will be your home state (the state that you are living in) will be the most likely choice to create your LLC.

Choose Your State

2. Name Your LLC

Naming your LLC may be a problem. Your desired name should be unique, memorable and in such a way that it communicates what your business is. It has to be search engine optimized also, meaning that it has to be easy to locate in Google. To find a good name, you could:

• Get suggestions of people you know.
• Recruit an online business name generator.
• Write down the ideas and seek the opinion of the relatives and friends.

Business name is your business identity and the first impression people will have about your business, so do not hurry on this step and get it right.

After having a couple of business name ideas, you will be interested in making sure they are available. The first thing to do is to perform a search of business name on the state website, typically, the Secretary of State website. You should also review your state LLC naming laws to make sure that you are doing so.

In the majority of states, the name of your LLC should include the words limited liability company or its abbreviations (LLP or L.L.C.). It may not contain words that might be confused with any government agency. Opinions An opinion is required to use words that indicate the type of business, e.g. a bank, an insurance company or a university.

Your business name should not be similar to all other business names in the state and should not suggest that you are a corporation or a partnership.

3. Select a Registered Agent

In the majority of states, you have to designate a registered agent to your LLC. A registered agent is an individual or a business organization who has authority to receive official mail on behalf of your business like legal, tax or any financial document.

A registered agent makes sure that your business will remain in conformity with the state laws. The registered agent has the duty of not leaving any important notices or documents.

A registered agent can be the member of the LLC in most states or you may select someone that would suit your state requirements. As a rule, the conditions are a registered agent to:

• Be 18 years or older
• Physical address in the state- PO box will not work.
• Work hours are during the standard working hours.
• In case the agent is a business, it is registered to conduct business in the state.

Other states are more particular, and therefore review the regulations of your state.

Lots of business owners use the service of a registered agent in order to make sure that all the required documents are obtained and processed in time. The convenience is also provided by a registered agent service.

In the case you prefer to be your registered agent, you will be required to be at the registered agent address during the normal working hours. Nonetheless, a registered agent service will give you the flexibility to operate and expand your business in any place you have to be.

4. Make an Operating Agreement of LLC.

An LLC operating agreement is a document that exists internally and shows your business ownership structure, the rights and obligations of the LLC members, and how things such as adding members, meetings, votes, and distribution of profits are performed.

An operating agreement is not required in all states, but it is still a good idea to develop one. It assists in preventing possible conflicts among the members as well as in maintaining your business in order.

Some of the things that an operating agreement normally entails are:

• Member information (addresses, names, percentage of ownership)
• Management structure
• Voting procedures and voting rights.
• Distribution of profits and loss.
• Meeting procedures
• Purchasing and liquidation processes.

5. File Necessary Documents with State.

The document you should use to make your LLC official is the articles of organization in most states. In other states, it is referred as a certificate of organization or formation.

As a rule, the online filing of the document is allowed, most often on the Secretary of State site. The document involves your name of business, address, the name of your registered agent and occasionally the details of your members or managers.

Others seek the services of an LLC formation to do this. It is time-saving and it is accurate in doing the process.

6. Determine Your Tax Status

As indicated earlier, LLCs are pass-through entities and hence income is passed down to the member or to members. In case the LLC comprises of a single member, it is taxed as a sole proprietorship. In case the LLC contains a plural number of members, it gets taxed as a partnership.

Nevertheless, LLCs have the benefit of having the ability to choose to act as a corporation in case the members feel it is more effective to his or her business.

7. Obtain EIN (Employer Identification Number).

The IRS assigns your LLC a unique nine digits number known as EIN. It is kind of a Social Security number of your business. You'll need an EIN to:

• Open a business bank account
• Hire employees
• File tax returns
• Take out business licenses and permits.

The IRS website is free to apply to receive an EIN. It is a fast and simple process that does not take much time (only a few minutes).

8. Open a Business Bank Account

Among the major advantages of the LLC formation is the fact that it does not tie your business to your personal property. You have to open a bank account with the bank of business to keep this apart.

By maintaining a business bank account apart, the following are made easier:

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

You will normally require your EIN, articles of organization, and operating agreement in order to open a business bank account.

9. Get required Business Licenses and Permits.

Different business licenses and permits may be required depending on your type of business and the location where you have to operate. These could include:

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

Contact your state, county and city governments to find what kind of licenses and permits you will require in your particular business.

Frequently Asked Questions