To Set Up An LLC can be one of the most important components of establishing your business. An LLC can protect your business from liability and can provide other benefits as well. The requirements for setting up an LLC differ greatly from state to state. These are some general guidelines of what you can expect during the process. You can find more detailed information in our guide to the best LLC services to help you stay organized
How to Set Up an LLC
You can start a limited liability company (LLC) in any state by following these steps.
1. Choose Your LLC’s Name
You must follow the rules of your state when choosing the name of your LLC. In general, most states require that your LLC’s name must contain an LLC designation, such as Limited Liability Company or Limited Company, or an abbreviation of one of these phrases; and that the name cannot be the same as that of another LLC or business entity already registered with your state.
It is common to be able to reserve your LLC name until your articles of organization are filed for a small fee.
2. Choose a registered agent
LLCs must have a registered agent in every state. Registration agents receive official or legal documents (such as subpoenas) on behalf of LLCs. As soon as these documents are received, the registered agent will forward them to the LLC’s manager.
You can name yourself or an employee if you are at least 18 years old to be a registered agent. You must, however, be able to reach the agent at a local address during normal business hours in your state. Otherwise, you may hire a company that acts as your registered agent. The cost of a registered agent may be more than a hundred dollars per year, of course.
3. Complete the LLC Articles of Organization
You will find specific requirements and procedures for forming an LLC in each state.
You will need to provide the following information:
- Name of your business
- Your business’s principal address
- The company’s purpose
- The management of your LLC
- Contact information for the registered agent (and, in some states, the signature of the agent)
- LLC’s duration
After that is done, one or more business owners or organizers will need to sign the form.
You may need to publish a newspaper notice in order to register your LLC in some states, such as Nebraska and New York. You must do this before you file your articles of organization.
Visit the website of the state agency responsible for business filings to review your state’s LLC naming requirements and see if the name you want is available. In most states, this is the Secretary of State.
4. File articles of incorporation
In order to create an LLC, you must file articles of organization with your state’s corporate filing office, usually the Secretary of State. Many states (including Delaware, Mississippi, New Hampshire, New Jersey, and Washington) use “certificate of formation” as an alternative. Pennsylvania and Massachusetts refer to the document as a “certificate of organization.”
5. Establish an operating agreement
Operating agreements detail the financial, legal, and management rights of all members of the LLC. For example, it can specify how profits will be distributed, how members will leave the LLC and who will provide capital for the business. Essentially, it should contain all relevant information regarding your LLC’s operations.
A majority of states don’t require an operating agreement, but that doesn’t mean you shouldn’t draft one. If the LLC has more than one member or partner, it is advisable to create one so that everyone agrees on who is responsible for what. Even a sole proprietor should be aware of who is responsible for what.
Especially for single-member LLCs, creating your own operating agreement is an option. Templates are available online for free. Hiring an experienced attorney is a wise decision for more complex situations, such as LLCs with multiple owners.
6. Maintain Your LLC
Creating your LLC is only the beginning. Once you’ve formed your business, you’ll need to make sure it’s in good standing with your state. Please visit the business filing website of your state for the most up-to-date information on how to do this. In addition to filing an annual report that updates information about your LLC, you may also have to pay an annual filing fee.
7. Adhere to tax and regulatory requirements
Your LLC may be subject to additional tax and regulatory requirements. Among them are:
Your LLC must obtain its own IRS Employer Identification Number (EIN) if it has more than one member, even if it does not have any employees. If the LLC has no employees or you elect to have it taxed as a corporation instead of a sole proprietorship (disregarded entity), you do not need an EIN. The IRS website offers a form for applying for an EIN that can be completed online.
Your LLC may be required to obtain other local and state business licenses depending on the type of business it operates and where it is located. Ensure you are licensed, registered, and permitted to conduct business in your state by contacting the appropriate state agencies.
Taxes on Sales and Employers: You may be required to register with the appropriate state taxing authority in some instances (for example if you plan to sell goods and collect sales tax).
8. Submit annual reports
LLCs are generally required to file an annual report with a filing fee in many states.
9. Registration of out-of-state LLCs
You will need to register your LLC in the state in which you wish to do business, and appoint a registered agent for service of process in that state.
Conclusion
Limited liability companies (LLCs) are ways of legally structuring a business. A partnership or sole proprietorship offers the flexibility and lack of formality of an organization with the limited liability of a corporation. Anyone who wishes to limit their personal liability for business debts and lawsuits should consider forming an LLC.
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