If you want to become an LLC, you’ll need to understand the key features of this type of business structure. The LLC, or Limited Liability Company, is similar to a Partnership and Corporation, as it offers the limited liability protection of a Corporation and the pass-through taxation of the Partnership.

The main purpose for forming an LLC is to separate your personal and business affairs. If you properly separate your personal assets and affairs from your business, then you will enjoy the limited liability protection that the LLC offers its owners.

Another benefit of operating an LLC is the flexibility in terms of management options and taxes, as an LLC owner can choose to manage the LLC in a variety of ways (member-managed vs. manager-managed LLC) and can elect to be taxed as a partnership or corporation (for multi-member LLCs only). If you operate a single-member LLC, then you will automatically be taxed as a sole proprietorship.

Forming an LLC: Overview of Steps

Forming an LLC is quite simple.

The below are some of the requirements for forming your LLC; while the requirements vary by state, a majority of the below-mentioned steps are requirements set forth in all states.

  • Choose a business name
  • File the Articles of Organization
  • Choose a registered agent
  • Draft an operating agreement (not required but highly beneficial)
  • Publish a notice in the local newspaper (only some states require this)
  • Obtain licensing and permits applicable to your business

You will first need to pick out a name for your business. While you might expect this to be the easy part, it can take business owners some time to think of the best name for your business. Even if you find a name you want, it has to actually be available for use in the state in which you plan on registering. If the name, or a name similar to it, is currently in use, then you must choose a different name.

What’s more, there are several requirements that every state sets forth for what should and shouldn’t be included in your name. For example, your name must include the LLC business designator, i.e. LLC, Limited Liability Co., etc. Additionally, you cannot use other business designation terms like Corp, Co, or Corporation, as this gives the impression that you are operating as a Corporation and not an LLC.

Once you have chosen a name that follows the requirements laid out by the state, then you can reserve that name for a nominal fee, generally up to a period of 120 days.

This will give you time to further expand on your goals and objectives for your LLC. However, if you are ready to move onto the next step, then you can begin drafting the Articles of Organization, which will be filed with the Secretary of State’s office.

This document will generally include information about your business — the name, address, member names and addresses, description of the business, and your registered agent’s name and address. The registered agent is the third party who will receive important legal documents on the LLC’s behalf.

While most states don’t require you to draft an Operating Agreement, you should do so, particularly if you are operating a multi-member LLC. This document should include information involving the members’ voting rights, membership interest, how profits and losses will be distributed, how the business will be managed, and buy-sell provisions.

Some states require you to publish a notice in the local newspaper indicating that you want to form an LLC and also providing the name of the LLC. This publication must be made several times over a period of weeks. Once this is complete, you must submit an affidavit of publication to the Secretary of State proving that you’ve published the notice for the required timeframe. Keep in mind that this publication should be done prior to submitting the Articles of Organization.

Before you can actually begin conducting business, you will need to obtain any applicable business licenses and permits that are required on federal, state, and local levels. Such licenses can include obtaining an Employer Identification Number (EIN), seller’s permit, zoning permit, and other types of permits that might be required for the industry in which you operate.

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