Depending on how you want to structure and run your business, an LLC might have many benefits. A Limited Liability Company that is setup properly can offer you and your business tax benefits and additional liability protection. Of course, an LLC that is not setup properly will have the complete opposite effect. Here is a guide on how to properly setup an LLC.
Table of Contents
- What is an LLC?
- The Step-by-step Guide to an LLC
- 1) Decide on a business name
- 2) Register a “Doing business as” (DBA) name
- 3) Decide on a Registered Agent
- 4) Figure out your State’s LLC Articles of Organization Form and prepare it
- 5) File the LLC Articles of Organization Form
- 6) Decide the terms of your Operating Agreement and create a draft
- 7) Obtain business licenses and permits in the name of your LLC
- 8) Open a bank account in the name of your LLC
- 9) Fulfill any publication requirements
What is an LLC?
A limited liability company (LLC for short) is a private limited company in the US. It is a type of company form that can combine the limited liability of a corporation with the pass-through taxation of a partnership or sole proprietorship. According to state law, an LLC is not a corporation; rather, it is a type of firm that offers its owners limited liability in many jurisdictions. The freedom that LLCs offer to business owners is well recognised; depending on the context, an LLC may choose to use corporate tax regulations rather than being classified as a partnership and, in some cases, LLCs may be set up as not-for-profit entities.
The Step-by-step Guide to an LLC
1) Decide on a business name
The business name can be the most important aspect of your business in an era where branding seems to be everything. While the product or the service offered are always going to take priority, you will have to ensure that your business name is brandable as this will make your marketing efforts more efficient. There are also legal requirements that your business name must meet.
For example, if you are registering your business as an LLC you will need to indicate that your business is in fact an LLC by incorporating “LLC” in the name. You can also utilize “limited liability company” in the name instead of the “LLC”. There could be other requirements that vary by state so you should check your state’s LLC naming requirements.
Finally, once you decide on a name you’ll have to find out if the business name you want is actually available. It is possible that the name is being used by another LLC and this could cause legal complications for you as well as make it not possible for you to register it as an LLC.
2) Register a “Doing business as” (DBA) name
Most LLCs conduct business using their legal names, but if you intend to use a name other than that of your LLC, you must file a DBA (“doing business as”) name registration. A DBA name is a name other than the one your LLC has formally registered as its business name. It is also referred to as an assumed name or a trade name. If you intend to use a DBA name, check with state officials to find out the procedure you’ll need to follow since not all states demand that a DBA name be registered.
3) Decide on a Registered Agent
It is required by state law that an LLC designate what is called a “registered agent”. On behalf of the LLC, a registered agent accepts official or legal papers (such subpoenas and compliance-related documents). The registered agent forwards these documents to the LLC after they are received.
The requirements to being a registered agent are straight forward with anyone who is 18 years old or older being eligible. The only other requirement is that the registered agent being accessible at a location in your state during regular business hours.
While you can register yourself as the registered agent of your LLC, it might be more convenient to register another person within the LLC. Alternatively, there are also businesses that offer a registered agent service for a fee.
4) Figure out your State’s LLC Articles of Organization Form and prepare it
You must submit articles of organisation to your state when forming an LLC. The majority of states refer to the document by the name “articles of organisation,” although your state may use a different name, like “certificate of formation.” The rules and steps for forming an LLC are listed for each state and can vary. Generally speaking you will need to supply the following basic information:
- Your company name
- The location of your main place of business
- The registered agent’s contact information, as well as the agent’s signature in some states
- The organization’s goal
- The manner in which your LLC will be run
- The time frame for the LLC
One or more business owners or organisers must sign the document after these procedures are finished. The company or filing office in your state should be able to provide you with an easy-to-fill-out copy of the articles of organisation. You might also be able to download a blank version of the form online in several states. While the details needed differ from state to state, you often only need to supply your LLC’s name, address, and the names of its members.
5) File the LLC Articles of Organization Form
Before submitting your articles of organisation to your state, carefully review them. Additionally, there is a filing cost that you must pay, which varies according on the state in which you are incorporating your firm. You’ll receive a certificate from the state proving your LLC is legitimately registered once the state approves your formation documents. Utilize it for additional essential duties like opening a business bank account and obtaining a tax ID number.
6) Decide the terms of your Operating Agreement and create a draft
The specifics of each LLC member’s financial, legal, and managerial rights are outlined in the operating agreement. More specifically, it can specify who contributes capital to the business, how members leave the LLC, and how profits will be allocated. In essence, it must include all pertinent details about how your LLC operates. Even though many states do not require an operating agreement, you still need to draught one. One should be made for LLCs with more than one member or partner to ensure that everyone understands their obligations. Even one-person businesses gain from putting the specifics in writing.
7) Obtain business licenses and permits in the name of your LLC
The business permits and licences you may need to operate your LLC must be obtained after you have registered your LLC. The types of permits or licences you’ll require will rely on the regulations set down by your state and local governments as well as the sector of business you are in.
Make sure you pay attention to the deadlines for renewing your license or permit as failing to do so could cause your LLC status to be revoked.
8) Open a bank account in the name of your LLC
It’s crucial for your LLC to have its own bank account so you can keep business money distinct from member personal money. After all, you are registering your business as an LLC to limit the ties it has to any owner(s) (personal connections), hence the “limited liability” portion of LLC. The papers needed to open a bank account for an LLC will vary between banks. To find out the paperwork to submit when opening an account for your business, contact your local bank.
9) Fulfill any publication requirements
You could be obliged by some states to issue a notice about the creation of your LLC in your neighbourhood newspaper. Check with your state’s business filing office for more information regarding the text of the notice, how often it must be published, and any other requirements that might be applicable if your state has such a publication requirement.
Congrats, you now have an LLC!