How to Start an LLC: A limited liability company (aka LLC) is the easiest and most flexible form of business. For any small business, starting an LLC is the best choice because it protects the owner’s personal assets from the business’s debts. Forming an LLC requires a few easy steps that include naming your LLC, hiring a registered agent, and filing articles of organization.
LLCs are much more straightforward than other business structures. It requires less paperwork and minimal registration fees. The amount of fee depends on the state you select to establish your LLC. With the advantage of pass-through tax, LLCs are more desirable for businesses with a tight budget. This article is for budding entrepreneurs who are looking for step by step guide on how to start an LLC. We recommend you read this article word by word. 🙂
On this page, you’ll learn about the following:
How to Start an LLC
Before you start planning to set up an LLC, you must know what an LLC is all about. LLC is a business structure that is a mix of both a sole proprietorship and a partnership. It comes with a bunch of advantages. There are a few more things you must know,
- You can choose your own management in your LLC. It can be member-managed or manager-managed.
- LLCs have pass-through taxation, which means LLCs do not have to pay any corporate income taxes. They only have to pay personal income taxes based on the income of each member.
- Compared to other business structures, LLCs are cheaper to form. Some of the states have tax deductions on the LLC filing fee (paid to the state government). Hence, it is much cheaper to form an LLC than other business structures.
- You can get rid of all the hassles of setting up your LLC if you select a professional LLC formation service. They will make things easier and better for you.
This is pretty much the basics of an LLC. You can read our guide on Limited Liability Company to learn more about this type of business structure. Now, as we move forward, here is the step-by-step guide to forming an LLC. Read the steps carefully to understand the process.
STEP 1: Select a State
The very first step to starting your LLC is to choose the state you want to start your business in. Ideally, your LLC is better located in the state where you live or where you plan to do business. Different state has different rules and regulations when it comes to forming an LLC. It is necessary to know about the fees, costs, taxation, and other policies in the state before you establish your business. If you hire a professional LLC formation service, you will probably get all the assistance at once without any delay.
Following is the list of states where you can form your LLC. Select the state you want to establish your LLC in and get insights into the regulations, fee structure, taxation, and other information of that state. If you plan to operate your business in different states, you will have to register a foreign LLC in that particular state.
Delaware is one of the most desirable states to start your LLC. More than 60% of Fortune 500 companies and about 50% of public sectors have incorporated their businesses in Delaware. Apart from that, Texas, Florida, Wyoming, and California are some of the best states to start your LLC.
Kentucky is the cheapest state to form your LLC. The state filing fee is the lowest among all other states ($40). On the other side, the annual compliance fee is $15 only, which is also quite low compared to other states.
Wyoming and South Dakota are the two states that do not have any corporate income taxes. Also, there is no gross receipt tax to be paid in these two states. In Wyoming, there is no personal income tax as well.
STEP 2: Name Your LLC
In our guide, the next step 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 portal 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 our complete guide on LLC name guidelines before you name your LLC.
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When it comes to Name Search, TailorBrands help you to know if your chosen name is available or not. If it is not available, then you will be notified immediately. So, it will be easier to check name availability by clicking a few times with TailorBrands.
Reserve Your Business Name
Name reservation can be required if you’re not registering your LLC immediately. LLC names can be reserved for up to 3 months, depending on the state rules. Within this time, you can register your LLC under the reserved name. If you fail to do so, then the name might be available to use by other LLCs. A reservation fee is required to submit along with the name reservation form. In most states, it is not mandatory to reserve an LLC name if you register your LLC right away.
Doing Business As (DBA) or Trade Name
Doing Business As (DBA) or Trade Name, or Fictitious Name is a sort of assumed LLC name. DBA’s name is different from your legal name. It is used as a trading name under which you can conduct your business. Instead of reserving your LLC name beforehand, you can file a DBA as well. You can get the DBA filing form from the Secretary of State’s online portal. Depending on the state, the filing fee varies. DBA filing would also be helpful for you if you change your LLC name in the future. You can read our guide on how to file a DBA to know more about this.
If your desirable name is not available in the state or taken by some other entity, then think of another name according to the naming guidelines. You can check if your desirable or ‘fictitious name’ is available or not from the SOS website.
Yes, you can change your LLC name in the future. However, the process is a bit complicated, and LLCs have to pay a state fee to change the name. To change the LLC name legally, one has to go through several steps, from searching for a new name available to filing the amendments. It is wise to go for DBA filing instead of changing the name legally. Read our guide on how to file a DBA to know more about it.
Hiring an LLC formation service will make this part easy for you. If you want to change the LLC name in the future, your LLC formation service providers will do the needful on your behalf.
STEP 3: Choose a Registered Agent
A registered agent is a person or an organization who receives legal documents on your company’s behalf. The official documents would include official correspondences like state filing notices and legal summons. Anyone who is aged above 18 years and has the right to conduct business in the state can be a registered agent. This person has to have a physical street address in the state. In this case, you can be your own registered agent as well if you fulfill the eligibility requirements.
However, it is always recommended to hire a professional registered agent service. As your own registered agent, you might have to upload your personal address to the public portal. This may harm your privacy, especially if you’re conducting your business from home. Hence, it is better to hire a professional service that can take care of all your legal and state-related papers along with your privacy. We reviewed some of the best LLC services and made a list for you. You can compare their services and prices from the list.
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. Besides, if you are only looking for registered agent service, not the entire LLC formation package, then you can go for standalone registered agent service.
You can be your own registered agent if you are a resident of the state you are forming your LLC. However, it is recommended to get a professional Registered Agent to handle your LLC’s paperwork. Also, being your own registered agent means you might have to share your home address and make it public.
The cost of having a registered agent service depends on which state you are forming your LLC in and, moreover, which registered agent service you are hiring. The cost can go up to $300. Northwest Registered Agent offers standalone registered agent service at $125.
STEP 4: File LLC Formation Documents
LLC formation documents are the most vital while forming an LLC. These documents are commonly called the Certificate of Formation. Depending on the state, the same document is called by different names, such as Articles of Organization or Certificate of Organization.
You need to fill in the form (online or PDF) and send it to the Secretary of State after paying the formation state fee. Depending on the state, the filing fee varies. The state filing fee starts from $40 (Kentucky filing fee) and can go up to $500 (Massachusetts filing fee). Read our guide on the cost of LLC to know how much you have to spend on forming an LLC in different states. You can file the Certificate of Formation via mail, online, fax, email, or by phone, depending on the state rules.
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There are different methods of filing your LLC formation documents. One can file their LLC documents via postal mail, in-person visit to the Secretary of State’s office, online submission, email, and fax. Depending on the state rule, you can file your LLC documents via any of these methods.
Depending on the state, it can take up to 10 working days or more to form an LLC. In some states, it takes less than 24 hours to form an LLC if you file it online.
The cost of filing LLC formation documents depends on which state you are forming your LLC in. The state filing fee can start from $50 and go up to $500. It depends on the state.
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. The operating agreement is a formal agreement between the members of the 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
- Management and Voting
- Membership Changes
An operating agreement is a document that most states do not need to file officially with the Secretary of State. However, this is one of the very important documents for an LLC. Hence, having an Operating Agreement is always recommended. If you hire an LLC formation service, they will take care of your operating agreement as well.
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It is not always necessary to file an operating agreement. In some states, there is no mandatory rule to file an operating agreement. However, it is recommended to file an operating agreement as it is a legal document that records all the important information of your LLC.
To draft your operating agreement you need to mention some important details about your LLC. Such as the ownership, management, dissolution, voting, and some more details, You can read our guide on Operating Agreement to learn more about it.
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. It is also known as 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 online filing, you need the EIN Assistant. If you do not have an SSN, still, you can get your 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
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You can get your EIN by applying through the IRS official website. This is the fastest way to get your EIN. There is no fee charged to get EIN through IRS.
Yes, EIN and the Tax ID (federal) are the same things. LLCs need to obtain EIN or the Federal Tax ID to pay their annual taxes, get business licenses, open business bank accounts, and hire employees.
EIN is needed when you file and pay your business taxes. Every LLC needs to obtain EIN for not only paying taxes, but opening a business bank account, hiring employees, and so on. Read the need for EIN to know why EIN is important!
Congratulation, you are now done with all the necessary steps to form your LLC. If you do it yourself, it should take you a long time to properly understand and do all the procedural steps.
However, if you use TailorBrands, it should take fewer hours, and you always have a live chat with expert support for any help you need. Their worry-free services will make things easier for you.
After Starting an LLC
Apart from these helpful steps, there is more 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.
- 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, here’s the step-by-step tool. Click on the steps in this list to read the full detail.
- Choose a state
The first thing you should do is choose the state where you will operate your LLC because requirements vary per state.
- 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.).
- Choose a registered agent.
In most states, it is mandatory to select a registered agent for your LLC. You can check out the list of our 5 Best LLC Services in the United States.
- 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.
- Create operating agreement
An operating agreement is not a strict requirement, but something encouraged when you start your LLC.
- 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.
When and Why You Should Form an LLC
The right time to set up an LLC is when you want your business to grow, protect your assets and build strong customer relationships.
If you’re looking to expand your business, then you should form an LLC. This type of business protects your company from a variety of regulations, tax requirements, bylaws, and restrictions. Whether your business is a sole proprietorship or a corporation, an LLC will make your business more protected.
Another important benefit of forming an LLC is the tax benefits. Unlike a corporation, you don’t have to answer to shareholders when your business incurs debt. Since your personal assets are not tied up in the business, you’re not personally liable for the debts. This can be especially helpful if you have a high-risk business.
A limited liability company is flexible and offers benefits like dual liability protection and favorable pass-through tax status. This type of business entity can be adapted to any situation, and you can write operating agreements to suit your business’s needs. And unlike a corporation, an LLC doesn’t require a separate tax return. You’ll report your LLC’s income and expenses on your personal tax return. This is a huge benefit for small business owners who don’t want to worry about paying taxes on two separate entities.
An LLC operating agreement is a contract between the members of an LLC that spells out their rights and responsibilities. The agreement can be similar to a partnership agreement or a corporate bylaw. It outlines the division of ownership and labor, and provides a framework for ownership transfers. A good operating agreement should also specify who has the authority to do what and how to hold meetings of owners. Depending on the number of owners, a very detailed operating agreement may even outline management responsibilities between members.
LLCs offer more tax flexibility than corporations. The taxation of LLCs is similar to that of a sole proprietorship or partnership. The income generated by an LLC is taxable to its members at the owners’ personal tax rate. However, unlike corporations, LLCs don’t pay dividends or corporate income tax.
The main reason for forming an LLC is to reduce tax liability for the owners of the company. The federal tax rate is 21%. It is important to understand how much tax your business will have to pay if you do not form an LLC. Remember that you can always change the tax structure later.
Using an LLC is a great way to limit your liability and protect your personal assets. When you create an LLC, your personal assets will be protected from the debts or lawsuits of your business. You can form an LLC with just one owner, or as many as you need. In fact, there are numerous advantages to forming an LLC. Not only will it give your business a legal existence, but it will also allow you to create a bank account, own property, and engage in legal action.
You can start an LLC for free. For that, you need to follow a few 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.
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.
The cost of an LLC depends on the state. On average, the registration fee ranges from $50 to $500, along with annual report fees.
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.
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.
A limited liability company (LLC) takes about a week on average to form. If the business entity is filing it online, then it may take less than 24 hours. These above-mentioned simple steps will help you in business filings with the state. You will get multiple filing options like by mail, online, email, or/and fax. Choose any available mode of filing, comply with regulatory requirements, and registration requirements to form your LLC in the selected state. For more information, leave a message below.