There is no more need for you to keep searching for how to start an LLC. We have shared everything that you need to know to create an LLC. This is the only guide you need for forming an LLC.
An LLC or Limited Liability Company is a specific type of a private limited company. Even though businesses registered as an LLC are not considered as corporations, they do get limited legal protection against liability and debts accumulated by the business. This means that owners of a business registered as an LLC are not personally responsible for debts the business owes.
If you have a business that you wish to register as a Limited Liability Company, then today we are here with a detailed guide that will take you through the different procedures involved in starting an LLC.
Why You Should Form an LLC?
Registering your business as a Limited Liability Company (LLC) gives a certain structure to the functioning of your business and also provides liability protection to the owners.
It is not necessary to register a business as an LLC and you can also your business as a corporation, limited partnership, sole proprietorship, or general partnership.
However, creating an LLC for your business has several benefits and we have mentioned some of them below to give you a better insight on why you should form an LLC.
- Tax Benefits: Among different types of business representations, LLCs receive the highest tax benefits in most places. For instance, LLCs do not have a federal tax classification of their own, which helps the business to utilize “pass-through” taxation and hence needs to pay no taxes. However, it is essential to know that the benefits vary depending on your region.
- Limited Liability to Owners: In other types of business representations, any debts incurred by your business also becomes your personal debt. However, in the case of an LLC, there is a limited personal liability as the business stays separate from its owners. This means that your personal assets cannot be collected to redeem your business debts.
- Flexibility in Ownership and Management: In other types of business registrations, there are certain restrictions on the type and number of owners to be considered eligible for pass-through taxation. However, with LLC there are no such restrictions.
Similarly, LLCs do not have to have a formal management structure, then giving the owners more options about how they wish to run the business.
- Comparatively Less Operational Paperwork: Depending on the state in which a business registers as an LLC, they are not required to hold annual meetings or any legacy operational records. Thus reducing the paperwork and documentation headache that otherwise the business has to maintain.
A Step By Step Guide On How To Start An LLC
The liability protection that comes with a limited liability company is why most small and medium business owners opt to set up LLCs. The setup process of an LLC involves the filing of paperwork with the state. This has to be done where your business is located. Every state has distinct procedures and rules that need to be observed. The following is a step by step guide on how to create an llc:
1. Coming Up With A Name For Your LLC
Sharing the same name isn’t permitted by nearly all states. This implies that you won’t find “Ryan’s Hub, LLC” and “Ryan’s Hub, INC.,” yet they may be in totally different cities. You may also face restrictions when trying to incorporate terms such as “bank” into your business name or use profanity language in your LLC name.
You can perform a search online to find out whether the LLC name you want is available. Before you start any paperwork, you should ensure that the name is available in your state.
You should check to see whether any other business uses a similar or the same name. This can help you avoid trademark infringement claims. Research also needs to be done to ascertain whether the domain name matching your proposed LLC name is available.
2. Reserving The Proposed Name
You may wish to reserve the LLC name that you have selected. This step is an optional step. It may be necessary if you aren’t ready for the filing of your LLC documents yet. Most states allow you to reserve a name. All you need to do is fill a form after paying a reservation fee.
If you come up with a very original business name, you may consider trademarking it. This can help you distinguish your company, its products, and services from those of your competitors. It also helps with trademark infringement issues. A trademark allows you to own intellectual properties related to your business.
3. Picking A Registered Agent
Nearly all states require a registered agent to be named by an LLC. This agent is sometimes referred to as a statutory agent. This agent can receive official documents such as subpoenas or lawsuits. This is done on behalf of the LLC. This agent can pass these documents to the relevant persons at the LLC.
A registered agent is usually a state resident who is over 18 years of age. He or she can be an officer or member of the LLC. Registered agent services are also provided by companies. They charge a fee for this service.
4. Developing An LLC Operating Agreement
This agreement details how your LLC will operate. Matters such as ownership interests, division of profits, voting rights, governance, how company meetings will be held, and the dissolution process are contained within an LLC Operating Agreement.
This document is typically not submitted to the state for filing. It may not be a requirement according to your state’s laws. Nonetheless, this is vital since it helps define the responsibilities and rights of the shareholders. It reduces the risk of future disagreements.
5. Filing Paperwork With The State
The fifth step on how to set up an llc is to file the articles of organization. These articles include the LLC’s name and address, the registered agent’s name and address, the LLC’s length of existence, and the purpose for the LLC’s formation. Remember each state has its own procedures and forms during the establishment of an LLC.
The person forming the LLC has to be a signatory. Some states also require the registered agent to be a signatory. A filing fee is charged by all states. However, this fee varies from one state to another.
LLC Filing Forms and documents are usually filed with the secretary of state. Still, some states have a department that deals with business filings.
6. Receiving A Certificate From The State
A certificate is usually issued by the state once an LLC’s documents are approved. Other documents may also be issued by the state confirming the formal existence of an LLC. Obtaining business licenses and a tax ID number can follow after receiving this certificate. You can also set up the LLC’s bank account.
7. Registration To Conduct Business In Other States
You have to register with other states if you aren’t just doing business in one state. The paperwork involved is similar to the one filed during your LLC formation. A registered agent is also needed in each state where you have been authorized to conduct business. This step is only required if you want to do business in more than one state.
This step by step guide on how to make an LLC can help you understand what goes on during the formation of an LLC. This guide gives you an in-depth view of what to expect when opening an LLC. You need to consult an expert during the formation of your LLC. This ensures that you start your LLC without facing any major impediments.
Important Mistakes to Avoid When Creating Your LLC
We know how important it is to form an LLC for your business. I made lots of mistakes in LLC formation. I have created this site to help you avoid the mistakes that I made while forming an LLC.
Just like any other official paperwork, there are several things to be aware of while registering your business as an LLC. Most people do not conduct proper and adequate research before following procedures to form an LLC and hence face a lot of trouble later that largely affects the smooth functioning of the business.
If you too aren’t much familiar with creating an LLC, then below are some of the important mistakes that you should avoid at all costs!
- Never Hurry with the Paperwork: Paperwork for creating an LLC is legally bound and therefore proper care should be taken while completing the procedures. It is always a good idea to hire a professional lawyer who handles registrations of LLCs to ensure that no mistakes happen during the crucial steps. Getting the paperwork done by yourself isn’t a bad idea, however, you should thoroughly be aware of all the procedures and what they mean for your business.
- Conducting S-Corp Election: S corporation or S subchapter is a type of corporation that follows certain requirements of the Internal Revenue Code. Even though taxing your LLC as an S-Corp has advantages during certain times, it dramatically changes how your business is managed and runs as an LLC. S-Corp LLC’s need to do payroll for all the managing members and owners of the business and also has to file quarterly taxes in both state and federal level as well.
- Avoiding the Operating Agreement: The Operating Agreement is a document that consists the core details of your company such as each owner’s percentage of ownership, the rules of functioning, how the profits will be handled, the way disagreements within the company will be settled, clauses for liability protection, etc. It is essential that you create an operating agreement with all the necessary details included in it so as to avoid any legal trouble and to help your business function smoothly.
- Selecting the Wrong Entity Type on the Application for IRS Employee Identification Number: Another mistake that most people commit while filing for the creation of an LLC is selecting a wrong entity type on the Federal Employer Identification Number form. Once selected, you cannot change the entity type and can change the way taxes are calculated for your business and you may have to pay additional taxes for no reason. Therefore, always ensure that you pick the correct entity type on the FEIN form.
Form a Limited Liability Company Online
In this section, we will be taking a look at the best online LLC formation services in 2019. You don’t need to visit any lawyer to register an LLC. There are many LLC setup services available online that can help you in setting up an LLC.
For those in search of the best-priced LLC formation services, ZenBusiness is the answer. The pricing of their services starts at $39 which is quite a bargain for a startup looking to be registered as an LLC. The company is also committed to social welfare as they are partnering with Kiva.org to provide loans to businesses owned by women and other minority sections to help them overcome poverty.
Another popular company offering Limited Liability Company Formation services is Incfiles. They have provided their services to over 250,000 businesses to date and with prices starting from $49, approaching Incfiles for registering your LLC is not expensive either. The customer support offered by Incfiles is definitely one of their best selling points as they provide unlimited customer support services through phone or email.
- Northwest Registered Agent LLC:
The Northwest Registered Agent is the most expensive online formation and incorporation services company on this list with prices starting from $79. However, this company is also the most experienced among all with services being offered since 1998. Apart from straightforward process completion and excellent customer support, the company also offers a yearly subscription to its registered agent services worth $125/year with the LLC registration package.
Can You Start an LLC By Yourself?
Let the experts do their job of forming an LLC for your business. An LLC is crucial for your business, so you should get help from an expert during the formation of an LLC.
If you do not have enough finances to get a professional LLC registration service, or simply are not interested in hiring a company to set up an LLC for you, you can always do all the procedures to start an LLC by yourself.
Below we have listed the important steps to follow when you decide to start an LLC by yourself:
- Make Sure to Have a Name and Address for Your Business
First and foremost, your business needs to have a name and address in order to be registered as an LLC. The name should not be used by any other business in the state where you wish to register your business. Moreover, there will be certain rules you will have to follow while naming your business, which again varies depending on the state where you are registering the business.
- Appoint a Registered Agent
Every LLC needs to have a Registered Agent by law. A Registered Agent can either be a person or a business that receives and manages the official correspondence and notifications of your business. If you do not wish to hire a professional Registered Agent, then you can choose to be the Registered Agent of your own business or appoint any of your business managers for the same.
- Get a Copy of the Formation Document
While applying for the creation of an LLC, you will have to submit a copy of the official formation document of your company. As company formation is filed with the state government, you can get the official company formation document by visiting the Secretary of State website of your state.
- Gather Required Information
Several documents need to be produced when to apply for starting a Limited Liability Company. As LLC formation comes under the state government, the documents that are required may vary depending on the state. Details such as the name, purpose, name of registered agent, and name of the incorporator are some of the information that you will have to submit.
In case the LLC is formed in partnership with others, then you will have to submit documents belonging to all the owners with proofs such as their name, address, type of ownership, etc.
- Select The Type of LLC if Applicable
There will be different types of LLC in some states such as Series LLC or Professional LLC. You can choose a type of LLC depending on the domain and type of business you run and by choosing an LLC type, you can also get several benefits as well.
- Fill the LLC Paperwork
Once all the documents are ready, you just have to fill up the necessary forms to start an LLC. There will be some fees that are associated with the creation of a new LLC and you will have to wait for some time before your business gets officially registered and recognized as an LLC.
After successfully creating your LLC, there are other procedures you need to follow such as applying to the IRS for an Employee Identification Number, applying for business permits and licenses, etc. which needs to be done without fail.
6 Things to Know About making an LLC
Now that we have explained all the major parts of LLC, below are some other FAQ that you need to know about starting an LLC so that you can complete the procedures without facing any hassles.
How Much Money Do You Need to Start an LLC?
The cost to start an LLC depends on a variety of factors. For starters, if you are hiring an LLC filing & business formation service or a lawyer, then there will be a fee for the same. Apart from that, some states may have a certain one-time and annual fees associated with the creation of an LLC. So, the money required to start an LLC may vary between $100 – $800 depending on the state and services availed.
Technically you can start an LLC for $0 if there are no fees associated with any procedures or paperwork and if you decide to complete all the procedures by yourself.
Do I Need a Lawyer to Start an LLC?
No, it is not mandatory to hire a lawyer to start an LLC. The paperwork to form an LLC is easier when compared to other business types and all states allow owners to file the paperwork to create their own LLC. If you have all the required documents with you, then there will be no other issues to file an application to form an LLC.
Do I Need a Separate Bank Account for my LLC?
There is no strict law requirements for an LLC to have a separate bank account. An LLC can operate using a bank account registered under the owner’s name.
However, as one of the main advantages of registering an LLC is that it provides owner’s with liability protection, it is always a good idea to create a separate bank account for your LLC so that in case of any debt issues, your personal assets aren’t linked with your business in any manner.
What is the Cheapest Way to form an LLC?
You can form an LLC for free by completing all the paperwork yourself and becoming the Registered Agent of your LLC. By doing so, you can eliminate the need for hiring an external agency or professionals. We are not recommending you to do LLC work by yourself.
Is an LLC a One-Time Fee?
No, LLC is not a one-time fee. Apart from the initial costs to set up an LLC, there will be ongoing costs that need to be paid to keep your LLC registration active. Again, the fee varies depending on the state where your LLC is registered. However, there is no monthly fee for maintaining an LLC, LLC fees have to be paid on a yearly basis.
How Long Does an LLC Last?
The expiration of an LLC can be designated by the owner/managing members. If no expiration period is provided, then an LLC will last perpetually provided that all the annual fees are paid correctly.
We have included all the important information that you need to know about starting an LLC in 2019 in this article. We hope you found the information listed above informative. In case of any questions, feel free to ask us by leaving a comment below.