How to Start an LLC

Establishing an LLC is crucial for your business, providing liability protection and various advantages. Creating an LLC involves filing state paperwork, but for success, consider factors like your business name, finances, operating agreement, and necessary licenses and permits. This guide outlines simple steps on how to start an LLC effectively.

What Is an LLC?

An LLC is a legal entity chosen by U.S. business owners for their operations. It safeguards personal assets, offers flexible taxation options, and protects liability. Small business owners prefer LLCs due to lower costs, reduced complexity compared to corporations, and flexibility in management and taxation. 

Advantages of Forming an LLC

• Limited Liability: The LLC shields members from personal liability for the company’s acts, protecting personal assets from business debts.
• Flexible Membership: There is no limit on the number of members, who can be individuals, partnerships, trusts, or corporations.
• Management Structure: Members can manage the LLC or appoint a management group, offering flexibility in business oversight.
• Pass-Through Taxation: LLCs typically don’t pay taxes at the business level; income or loss is passed through to owners for individual taxation.
• Heightened Credibility: Starting as an LLC may enhance a new business’s credibility compared to a sole proprietorship or partnership.
• Limited Compliance Requirements: LLCs face fewer state-imposed compliance and ongoing formalities than other business structures.

Disadvantages of Creating an LLC

• Cost: Forming and maintaining an LLC is usually more expensive than a sole proprietorship due to initial and ongoing fees.
• Transferable Ownership: Transferring ownership in an LLC is often more complex than with corporations, requiring member approval for changes.

In many cases, the advantages of forming an LLC outweigh the disadvantages.

How to Set Up an LLC in Easy Steps

Step 1: Choose a Business Name

First, You must choose a business name that fits your brand and complies with state law requirements. This process involves research to ensure no other businesses with the same name and that you follow any naming conventions as required by the state. Once you’ve chosen the perfect name for your LLC, you can move on to the next step.

Step 2: Appoint a Registered Agent

When starting an LLC, it’s essential to appoint a registered agent to get official documents on behalf of the company. This person will receive and deliver legal notices and other documents to the LLC, so choosing someone dependable and trustworthy is essential. 

While you could choose a friend or family member to serve as your registered agent, you may want to consider a professional service. These services specialize in registered agent services and can provide additional benefits like privacy protection and compliance assistance. 

Step 3: Obtain the Articles of Organization Form

One crucial step is obtaining the articles of organization form, which requires some research to find the relevant state agency. This state-specific document outlines the structure of your LLC, including its name, address, and purpose. Understanding how to start an LLC and obtaining the articles of organization form are vital steps toward establishing a successful business.

Step 4: Complete the Articles of Organization

Another crucial step in creating an LLC is completing the Articles of Organization. This document requires essential information about your business, such as its name, address, purpose, management details, and registered agent information. Ensuring accurate and complete information is crucial as it defines the legal structure of your business entity. By taking this action, you create protections for your assets, such as homes, savings, and other investments. So, gather your necessary information, and let’s take the next step in starting an LLC!

Step 5: Submit the Articles of Organization

This document is essentially the birth certificate of your LLC, and you must check and file it correctly with the state. Once your Articles of Organization are approved, you will receive a formal registration certificate, and the state will officially recognize your LLC. 

Step 6: Develop an Operating Agreement

Though not always mandatory, create a comprehensive agreement outlining financial, legal, and management details, which is crucial for multi-member LLCs. By creating this important document, you’ll be able to ensure that everyone involved in the business is on the same page and that there are clear guidelines for decision-making, finance management, and other key areas. So, if you’re wondering how to start an LLC, develop an operating agreement at the top of your to-do list.

Step 7: Maintain Active Status

Once you’ve completed the necessary steps to create your LLC, keeping it in good standing by maintaining an active status is important. This means staying on top of the state requirements, like filing annual reports and paying fees. To ensure that you’re fulfilling your business responsibilities, it’s wise to regularly check the state’s website and seek out any updates or changes. By doing so, you can avoid any penalties or consequences that could arise from neglecting your LLC’s status. 

Additional Tasks When Creating an LLC

Obtain Business Licenses and Permits

• Complete necessary forms and submit fees for business licenses and permits.
• Check your state’s official website for a list of required licenses and fee schedules.
• Be aware of renewal deadlines to maintain your LLC’s legal status.

Get an Employer Identification Number (EIN)

• Obtain an EIN to separate business and personal finances.
• Banks often require an EIN for opening a business account.
• Some businesses must have an EIN, so secure one promptly after LLC setup.

Divide Business and Personal Assets

• Use an EIN and establish a business bank account to separate finances.
• Consider “owner’s draws” to pay yourself and ensure proper accounting practices.

Register Your Business in Other States

• You can register your business in multiple states.
• If operating in a state other than where you established your LLC, register as a foreign entity.
• Follow state-specific procedures, such as submitting an Application for Registration of a Foreign LLC.

Refer to our state-specific guides for detailed information on creating an LLC in specific states.

Select your state to view detailed information:

Types of LLCs 

Consider these LLC types when starting a business:

• Single-member LLC: Owned by one person, offering tax benefits and liability protection.
• Multi-member LLC: Standard structure with more than one member.
• L3C: Combining nonprofit and for-profit features, prioritizing a business cause.
• Series LLC: Tiered structure with independent operation for each LLC.
• PLLC: Exclusive to licensed professionals.
• Restricted LLC: Tax-free for the first 10 years with limitations on distributions.

LLC vs. Other Business Types

Entrepreneurs often choose a Limited Liability Company (LLC) due to its cost-effectiveness and streamlined setup. However, alternative business structures present different considerations:

Sole Proprietorship

• Simple individual business operation.
• No liability protection; income reported on personal tax returns.
• Consider transitioning to a single-member LLC for added benefits.

Partnership

• Formed by two or more individuals for-profit.
• Types include general partnership, limited partnership, and limited liability partnership.
• A pass-through entity with partners reporting profits and losses individually.

Corporation

• C, S, B, and closed corporations are options.
• C-Corp offers general liability protection and separate taxation.
• S-Corp is a pass-through entity with individual taxation.
• B-Corp emphasizes social good, certified by third parties.
• Closed Corporations are privately held without publicly traded shares.

Nonprofit Organization

• It exists for purposes other than income generation.
• Nonprofit corporations and partnerships are common.
• Tax exemption status with adherence to specific requirements.

Cooperative

• Owned and controlled by members.
• It operates in various industries.
• Not tax-exempt; subject to property, sales, and other taxes.

Starting an LLC is an exciting journey with benefits like liability protection, tax flexibility, and easy formation. Our step-by-step guide helps you explore various LLC structures and weigh potential drawbacks and tax implications to determine if an LLC suits your business.

LLC FAQs