A Limited Liability Company (LLC) is the most popular business model comprising 35% of the total small business in the USA. Why it should not? After all, it provides you with the liberty of a sole proprietorship and asset protection with tax flexibility like a corporation.
Forming an LLC is not rocket science. However, entrepreneurs like you are often stuck between where to start and what should be done on priority. Here are 8 simple and straightforward steps to nail the LLC creation process. But if you don’t want to have this headeche, simply hire a well reputed online LLC service.
By the end of this article, you will be able to smoothly form and run your LLC without any glitches. So, keep reading till the end.
1. Choose a state to apply for LLC registration
It is more convenient to create an LLC in the state of your residence. It saves you time, money and help avoid other nuisances. However, some businesses require physical presence such as sales representatives, storefronts, regional offices, etc in multiple states. In such a scenario, you have to apply for LLC as a foreign LLC in those particular states.
Select the state and follow our state-specific guidelines and step-by-step instructions to form an LLC .
2. Select an appropriate business name
Your LLC’s name is the first thing through which most of your customers interact with your business. Whether it is signage, your business card, or any other advertisement, your LLC’s name printed on them tells how important your business name is.
Therefore, soon after selecting the state, you need to choose an outstanding business name that complies with the state-specific rules. You have to search for business name availability online, mainly
- On the secretary of state’s website or
- With US Patent and Trademark Commission
You can also take help from LLC formation services to check business name availability in your state.
Regardless of the specific state rules, you must consider
- Your business name ends with Limited Liability Company, Limited Company, or their abbreviation LLC or LC, respectively.
- A different name from already existing/ registered companies
3. Decide on a registered agent‘
You have to nominate someone as your registered agent who receives and sends the documents on behalf of your company. If you neglect this and fill a pseudo name or nominate someone with outdated address, it could cost you heavily.
Due to above mentioned reason, if you miss any important correspondence from the state, you are charged with heavy fines or can lose your LLC’s good standing with the state.
A registered agent must be the resident of the state where you are filing the case of your LLC. You can nominate yourself or someone else as your registered agent. Many business owners usually nominate their attorney or hire professional registered agent services.
Read our registered agent article to get a better insight on Dos and Don’ts while choosing a Registered Agent.
4. Register LLC by filing your case with the state
You need to register LLC by submitting your LLC formation documents to the state’s business division, mainly in the department of state secretary. Article of organization aka Certificate of the organization is the LLC application form you need to fill while filing your LLC.
Articles of Organization form requires:
- Your Business Name and Address
- Your Registered Agent’s Name and Address
- Your LLC’s Management Structure
The management structure falls in two categories;
- Member Managed: Directly managed by the members of LLC
- Manager Managed: A manager appointed outside the LLC
If you ask how much does it cost to form an LLC, then there is no definite answer. It is because, most states have different filing and annual fees. On average, the Article of Organization filing fee is usually around $100.
Read our LLC formation cost article to get the exact estimate of LLC creation in your state. However, you can also hire LLC formation professionals available online who file your case with the state and do all the paperwork at a fraction of the price.
5. Draft an operating agreement
It is a legal document that outlines how your LLC will operate. It highlights the members’ roles and the ownership structure. Even though most states do not require an operating agreement, drafting an operating agreement saves you from many glitches.
The operating agreement must have the following components;
- Organization structure
- Management selection and voting
- Funding contribution
- Asset distribution
- Changes in membership
- Dissolution of LLC
In the absence of an operating agreement, your LLC will be governed by state laws. Read our LLC Operating Agreement article to know more about it.
6. Comply with tax and other regulatory requirements
It is essential to decide the tax model for your LLC and comply with the state-specific rules while filing your LLC. You can file your LLC taxes;
- As a sole proprietor or straight partnership model
- As an S corporation model
- As a C corporation model
If you are collecting sales taxes, have employees, sell goods, or any similar business requires additional taxes called sales and employer taxes. Moreover, particular companies need to obtain local and state business licenses.
In addition to staying compliant with tax regulations, be sure you have gotten all the necessary permits to start your LLC in that specific area/state. The secretary of the state’s website is the best place to look for business licensure and information related to multiple licensing boards and SOPs.
7. Get an EIN
An Employer Identification Number (EIN) is like a Social Security number (SSN) for your LLC. Single member LLCs do not require an EIN. However you must get an EIN from the Internal Revenue Service (IRS) if your LLC:
- has more than one member, or
- you decide to be taxed as a corporation rather than as a sole proprietor, or
- you need to hire employees.
EIN primarily helps you stay compliant with the federals and state regulations. However, it also provides credibility and valuable assurance to your business.
For instance, with an EIN, you can easily apply for bank loans, ask for investments from creditors, customers see your company as a reliable entity and more.
Go through our article on What is an EIN and how to get it to acquire an EIN for your LLC.
8. Do not Forget Maintenance Requirements
LLC formation is not a one time job that you file your article of organization, got license and permit if required, filed your taxes and that is it. To keep your LLC in good standing with state authorities, you need to fulfil the following maintenance requirements.
1. Annual Report
Many states made it mandatory to file an annual report to stay informed about your business. By submitting an annual or biennial report, you keep your state in loop regarding major changes in your LLC.
The major changes include change of registered agent, update the address of existing agent, name and address of at least one existing member, information related to domestic or foreign ownership etc. You have to submit you LLC’s annual report to:
- the state’s Department of Revenue,
- Secretary of the State,
- or other concerned departments.
In some states, such as California, this fee is as high as $800, while in other states, it is insignificant; for instance, in Michigan, only $25 while Arizona does not charge any annual report fee.
If you are interested to learn more about annual report fee by state, read our article on LLC annual fee.
2. Certificate of Good Standing
In many situations such as lending money, you need a proof that your LLC is at good standing with the state. It is circumstantial and you can ask the state to provide you certificate of good standing when you need it.
The following are a few situations where you may need a certificate of good standing while:
- Completing large banking transactions
- Lending money for your company
- Renewing licenses or permits
- Bringing on new members or potential investors
- Registering your business as foreign LLC
- Selling your business
Our experts outlined the easiest process of getting a certificate of good standing on your own. If you need one, read this article and follow the instructions.
To Sum Up
You can form an LLC online for free by DIY following the steps mentioned above. However, if you get your LLC registered with 100% accuracy at a rock bottom price without missing any critical deadline, why put yourself into discomfort?
We suggest you focus on establishing your business while letting LLC filing services take care of the rest. For your convenience, we have reviewed high quality LLC formation services available online. Go through this article and pick the one which satisfies your needs the best.
We hope this article has helped you know how to form an LLC. Let us know how you find this article in the comment section.