How to Start an LLC in 6 Steps | Step-by-Step Guide (Jan 2022)

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A limited liability company (LLC) is a combination of a corporation and a partnership structure. One can easily form an LLC at a bare minimum cost. By following 6 simple steps, one can start an LLC. It is less complicated and has certain tax benefits. Here are 6 easy steps to follow for setting up your LLC.

start an llc

How to Start an LLC

Setting up a Limited Liability Company or LLC is relatively straightforward. You can save a significant amount of time with these simple – but essential – steps. It requires less paperwork and minimal registration fees. With the advantage of pass-through tax, LLCs are more desirable for small businesses. Here is a step-by-step guide to starting an LLC (Limited Liability Company).

STEP 1: Select a State

Ideally, your LLC is better located in the state where you live or where you plan to do business. However, if your business plans to operate in different states, you will have to register a foreign LLC in the other states where you plan to do business.

STEP 2: Name Your LLC

The very first thing while forming an LLC is to name it. However, before you name your business/LLC, you must know whether the name is available for use or not. Check out the LLC name search and availability before you start your LLC. One has to visit the Secretary of State website to search and register the name of your LLC. Meanwhile, here are the general LLC naming guidelines,

  • The company name should include “Limited Liability Company” or abbreviations like LLC or L.L.C.
  • The company name should not include words that might confuse your company name with any government agency (i.e., FBI, State Department, Treasury, etc.).
  • Words like Bank, Attorney, University, and some others are restricted. They may require additional paperwork on top of a licensed individual like a doctor or lawyer as part of the company.

These are some of the most important points to be noted while naming your LLC. It is recommended to go through the complete LLC name guidelines before you name your LLC.

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STEP 3: Choose a Registered Agent

A registered agent is a person or an organization who processes legal documents on your company’s behalf. The official documents would include official correspondences like state filing notices and legal summons. We reviewed the best LLC services for you and made a list for you. You can compare the agent services and prices below.

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Note that availing of the services of professional registered agents would be your best option since you are guaranteed that whoever is handling your legal affairs knows their stuff well. You will enjoy peace of mind and focus only on running your business, as the ‘professionals’ take care of all legal matters.  

All states generally require businesses to nominate a registered agent when forming an LLC. Remember that your registered agent should be a state resident operating your business or a corporation authorized to do business in your selected state.

STEP 4: File LLC Formation Documents

LLC formation documents are the most vital while forming an LLC. These documents are commonly called Certificate of Formation. Depending on the states, there are different names such as Articles of Organization, Certificate of Organization, and so on.

You need to fill in the form (online or PDF) and send it to the Secretary of State after making the formation state fee. The average filing fee is around $100. The cost of LLC includes other costs as well. You can file the Certificate of Formation via mail, online, via fax, via email, or by phone, depending on the state rules.

STEP 5: Create an LLC Operating Agreement

The LLC operating agreement is not mandatory, but it is encouraged. This legal document outlines the organizational structure and roles of members of your LLC. Take note that you should have already decided if your LLC is member-managed or manager-managed.

Here are the six main sections of an operating agreement:

  • Capital Contributions
  • Dissolution
  • Distributions
  • Management and Voting
  • Membership Changes
  • Organization

STEP 6: Get an EIN

The Employer Identification Number (EIN) is a 9-digit number issued by the Internal Revenue Services (IRS). This number is required to identify the type of business structure for general tax purposes. It’s like a Social Security number (SSN) for your LLC. The EIN is vital when you plan to hire employees or open a business bank account. Some would call it Federal Employer Identification Number (FEIN) or Federal Tax Identification Number (FTIN).

To obtain the EIN one has to fill up the form (online or by mail) and send it to IRS. For the online filing, you need the EIN Assistant. If you do not have an SSN still you can get EIN by filling up the form and submit to IRS. Before you proceed to apply for the EIN check if you need an EIN.

  • Mail to: Internal Revenue Service, Attn: EIN Operation, Cincinnati, OH 45999
  • Fax: (855) 641-6935 | Fee: Free

Other Things to Do After Starting an LLC

Apart from these helpful steps, there is more to forming an LLC for a business owner. You’ll have to deal with your assets and taxes depending on the management structure. Here are other important things to address when starting an LLC.

Set Up Business Accounting

It is vital to have a business accountant who will help you take advantage of tax benefits. It will save you and your business tons of money in taxes annually.

Get Licenses and Permits

You need to check if your business will require any business licenses or permits so that you can stay compliant. Licensing requirements would vary per state and county or city laws.

Separate Personal Assets From Business

Your LLC offers limited liability protection. It is vital to use dedicated business banking and credit accounts to avoid mixing them with your personal accounts. Otherwise, your personal assets (your home, car, and other valuables) would be at risk if your LLC gets sued.

Understand Your LLC’s Federal Tax Options

LLCs get taxed as pass-through entities. It means all of the business’s profit goes through the LLC member’s tax returns. The member pays self-employment taxes and income tax on their share of business income after tax.

Meanwhile, LLCs can also be taxed as S corporations (S corps) or C corporations (C corps). The former allows LLC members to be taxed as employees. It reduces the tax burden in certain circumstances.

Register Your LLC for State Taxes

There are several taxes that you might need depending on the nature and location of your business.

  • If you are selling a physical product, you’ll register your company for sales & use tax.
  • If you have employees, then you need unemployment insurance tax and employee withholding tax.
  • You may also be required to file an annual report or biennial report.

Get Business Insurance

Generally, businesses with employees must get workers’ compensation insurance. Meanwhile, general liability insurance is not a legal requirement, but it is highly recommended to protect your business assets from lawsuits.

LLC Formation Review

Time needed: 5 minutes.

To recap the step-by-step tool, here is how you form an LLC. Click on the steps in this list to read the full detail.

  1. Choose a state

    The first thing you should do is choose the state where you will operate your LLC because requirements vary per state.
    Choose your state

  2. Name your LLC

    Next, you must choose a company name, including the phrase “limited liability company” or one of its abbreviations (LLC or L.L.C.).
    name llc

  3. Choose a registered agent.

    In most states, it is mandatory to select a registered agent for your LLC. You can check out our list of our 5 Best LLC Services in the United States.
    get registered agent

  4. File formation documents

    Filing a formation certificate is necessary when forming an LLC. Depending on the state, it could be called any of the following: Certificate of Formation, Articles of Organization, or Certificate of Organization.
    file formation certificate

  5. Create operating agreement

    An operating agreement is not a strict requirement but something encouraged when you start an LLC.
    create operating agreement

  6. Get an EIN

    The Employer Identification Number (EIN), also called Federal Tax Identification Number, identifies a business entity like a social security number but for a company.
    get an ein

When And Why You Should Form An LLC

If you have started a small business, you may be wondering when and why you should form an LLC. The main reason to do this is to protect yourself from liability. A bank or other creditor can sue the LLC to get their money but they cannot personally sue the owner. Although this is good for the bank, you are still personally liable for the money you invested in the LLC. For this reason, it is wise to set up an LLC.

In order to protect yourself and your business from potential liabilities, you must form an LLC. This entity was created in the 1970s to simplify the business process. You must file articles of organization in most states. Most states allow you to file these documents online, so you can easily do it without an attorney. Once you’ve filed the articles, you must keep them updated to keep them current. In some states, you can even file them online.

When and why you should form an LLC is based on your intentions. You need to decide whether you’d like to operate your business through an outside manager or a member-managed company. The first step in forming an LLC is to decide the management style. Are you going to be a manager-managed company? Are you going to be run by an outsider? An LLC can have many managers, and the members can pick one or all.


How to form an LLC for free?

You can form an LLC for free. To start an LLC you need to follow 6 simple steps. First, select the state you want to set up your LLC, get an LLC name, find a registered agent, file your certificate of formation, and finally get your EIN to start your LLC for free. Other than the state filing fees, you don’t have to bear any costs to form an LLC. With Inc Authority LLC services, you can start your LLC at no cost.

Can I set up my own LLC?

If you are a resident of the state you are willing to start your LLC, then you can file your own LLC. However, it is always worth having a professional than doing it by yourself to manage legal complexities, and paperwork.

What is the average cost to start an LLC?

The cost of an LLC depends on the state. On average, the registration fee ranges from $50 to $500 along with annual report fees.

What are the advantages and disadvantages of an LLC?

An LLC or limited liability company protects your personal assets and increases your business’s credibility. These are the most affordable legal business entities in terms of formation and maintenance. However, LLCs aren’t ideal when attracting investors.

Is LLC better than Sole Proprietorship?

Both LLC and Sole Properitership have their own advantage and disadvantages. When it comes to single-member LLC vs Sole Proprietorship, both have similar tax benefits.

How to renew my LLC?

To renew your LLC, you need to file an Annual Report every year by paying a stipulated fee. If your LLC is expired then submit a renewal form to activate LLC operation.

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