How to Form an LLC

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Starting a business is very exciting. Most people that start businesses have had their ideas for their company in their heads for a long time. The actual process of opening up your own business can be one of the most fulfilling things in life.

Many individuals and small businesses decide to open their companies as limited liability companies, or LLCs. This form of business structure is beneficial in many ways. It allows you to "pass-through" your taxes, which means that you don't get double taxed on the business and on your personal income. It also allows you to have limited liability, hence the name, for the acts of the business. In other words, for individuals and small businesses, an LLC is usually the best option.

Although starting an LLC is different in the various states, there are significant commonalities. In fact, sometimes, the differences just come down to what specific paperwork you need to file. Because of this, it's a good idea to talk to an attorney licensed in your state to help with your LLC filing. Generally, the paperwork across states has the same content.

In this guide, we will go over how to form an LLC.

Please keep in mind that nothing in this guide constitutes legal advice. Everything here should be taken as informational only.


1. Decide where you will open your business.

The first step in starting your LLC is to decide where you want to open. Although for many people this will be clear, sometimes you have to make decisions about where you would like to base your business, even if it is not where you are based.

Usually, however, your LLC will be filed in the same state that you reside in, because this is where you will most likely run your company. It is not strictly necessary, however. You can really file your LLC anywhere (with one exception, discussed below). If you file your LLC in a different state, you will also need to register with your home state as a foreign LLC if you plan to do business there. In other words, your LLC can actually be domiciled (meaning, its home base) in one state but registered wherever it does business.

If you have a professional LLC, however, usually you will need to file in the state where you are licensed. This is because professionals like doctors, lawyers, and accountants can only legally work in their profession in the specific states they have their license.

If you plan to operate in multiple states, you may be looking at more significant decision-making, including how you can most efficiently operate. You'll want to consider taxes and record-keeping requirements.

Final takeaway: Sit down and think about the best location for your LLC before you file anything.


2. Research and select the name you want.

In most states, the name of your LLC will have to fulfill certain requirements. Although each individual state differs, and you should check your state's rules or speak with a licensed attorney in your state, tt's safe to say you'll have to meet the following guidelines:

  • The name of your LLC must be original. In other words, it can't be the same as the name of any other LLC registered in your state.
  • Your LLC's name must end with a designator to make it clear that it is an LLC, like "LLC," "Limited Liability Company," or "L.L.C."
  • Your LLC's name will have to conform to your state's requirements for permitted words. Many states don't allow certain words such as "Insurance" in the names of any LLC unless it meets certain conditions.
  • Your LLC's name must not infringe on another party's intellectual property rights. In other words, even if there are no LLCs in your state named Nike and you are opening a business to sell sneakers, you wouldn't be able to call your LLC that because you would be infringing on Nike's trademark.

Usually, the Secretary of State's website will have a feature that allows you to search currently registered LLCs. In this way, you can make sure that the name you want for your LLC is not taken.

Final takeaway: Choose the name of your LLC, making sure you are within your state's guidelines.


3. Decide on your members and appoint a registered agent (and, if desired, managers).

Members are the owners of an LLC. Managers are those appointed to help manage the LLC's day-to-day affairs.

In a single-member LLC, there is just one member, as the name implies, and (usually) no managers. If you are a single-member LLC and would like to appoint managers, you'll have to specify this in your Articles. Then, you can decide who you would like for the manager or managers.

In a multi-member LLC, the members together will decide how the LLC will be managed. If the members themselves will manage the day-to-day operations, no additional steps will need to be taken. If the members would like to appoint managers, they'll decide on that together.

All LLCs, however, need a registered agent. This is someone that can accept service of process for the LLC. It cannot be the LLC itself. These decisions will need to be made before filing your document with the state.

Final takeaway: Before you file with the state, decide how your LLC will be managed. If needed, choose your managers. Select your registered agent.


4. Draft and file your organizational document.

In most states, you'll be filing a document called Articles of Organization. Some states call it a Certificate of Formation, and other states call it a Certificate of Organization.

No matter what it is called, this is the document that will tell your state that you intend to open an LLC. The Articles of Organization contains all of the necessary information your state needs about your LLC. It most often includes the following (with variations per state):

  • The LLC's name
  • The type of LLC
  • The purpose of the LLC
  • The name of the party that is filing the Articles or Certificate
  • The LLC's address or addresses
  • The names of the members or managers of the LLC
  • The name and address of the LLC's registered agent

Some states may require you to include more or less information than this. Our guide, "What are the Articles of Organization for an LLC?" gives more detailed information.

Final takeaway: Draft and file your organizational document with your state.


5. Pay the filing fees.

In order to file your LLC with your state, you'll have to pay a filing fee. The fees can vary across states, so you should check what is specifically required on the Secretary of State's website.

Your fees will have to go along with your application in order to make your filing valid.

Final takeaway: Pay your filing fees to complete your application with the state.


6. Draft an operating agreement.

Most states do not require an Operating Agreement. But, it is still an excellent idea to have one for your business.

An Operating Agreement is much more detailed than an Articles of Organization document. An Operating Agreement is more like Corporate Bylaws in that it describes the rules for how the business should operate and sometimes rules for how the members and managers should relate to each other. Our guide, "What is the Difference Between Articles of Organization for an LLC and an LLC Operating Agreement?" will give you more specific information on the differences between these two documents.

An Operating Agreement will contain information about the following:

  • The name and address of the LLC
  • The name and address of the registered agent
  • The purpose of the LLC
  • The duration of the LLC
  • A list of members as well as their capital contributions and ownership percentages
  • Meetings
  • Profit and loss allocation
  • Member Withdrawal, termination, or death
  • Voting rights
  • Member duties
  • Fiscal considerations
  • Officers
  • Dissolution

An Operating Agreement will be the most important document in the life of your LLC. You may wish to have an attorney's assistance with this.

Final takeaway: Draft your operating agreement to ensure you have rules set up for your LLC.


7. If required, publish a notice.

Most states do not require you to publish a notice. But, some do. In the states that do, you'll generally need to publish a notice in a newspaper for a certain period of time. The notice say that you are forming an LLC. In the states that do require this, an affidavit needs to be filed to prove that you did it.

Often, the newspapers in your state will be able to help you with this, as they do it frequently.

Final takeaway: Check to see if your state requires publication of your LLC. If it does, complete the requirements.


8. If needed, acquire a tax ID number, licenses, permits, insurance, etc.

Even if your LLC is filed with the state and you've created your Operating Agreement, you might still have more left to do. Depending on how you intend to run your business, you may wish to get a federal tax identification number. You'll also want to set up a separate bank account for your LLC.

Depending on your particular state and the type of company you are setting up, you may need to get additional licenses and permits. You also want to consider business insurance.

These requirements are far more individual to your specific LLC. It's a good idea to talk to a licensed business attorney in your state to get help.

Final takeaway: Make sure that you handled all of the other legal needs for your LLC before you start operating.

Once you've done all the things on this list, you'll be in great shape to start your brand new business.

Final takeaway

Opening up your own business can be an exciting time. Luckily, for individuals and small businesses, starting an LLC usually isn't too difficult. But, it's essential to make sure you meet all the requirements of your state.

If you have any questions, it's always recommended to speak to an attorney. Either way, congratulations on your new business!


About the Author: Anjali Nowakowski is a Legal Templates Programmer at Wonder.Legal and is based in the U.S.A.


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