Create LLC: Everything You Need to Know
You may want to know how to create LLC or to follow the steps in order to form your business as a limited liability company (LLC). 3 min read
You may want to know how to create LLC or to follow the steps in order to form your business as a limited liability company (LLC). This type of business structure operates similarly to a partnership, but has legal protection benefits similar to a corporation.
The rules for forming your LLC will depend on the state in which you choose to form it. However, some similarities include the fact that all states require you to file an Articles of Organization with the Secretary of State when forming your LLC. The filing fee for this form generally ranges from $30 to $200.
It is also highly recommended that you draft an operating agreement. While the document is not required by most states, it is beneficial because it identifies the decision making process, including ownership percentages, duties and responsibilities of all members, and other important procedures.
The operating agreement can prevent potential legal suits amongst members; moreover, most courts treat this document as a legally binding agreement and will look to what is identified in it when settling a legal dispute.
Overall, forming an LLC can provide many benefits, including pass-through taxation and limited liability protection. Pass-through taxation means that the profits and losses of the business pass through to the members who report it on their personal tax returns. This could result in reduced tax implications.
How to Form an LLC
You’ll need to follow a number of steps when forming your LLC, including:
- Choosing a business name
- Choosing a registered agent
- Filing the Articles of Organization
- Drafting an operating agreement
- Obtaining a license and other applicable business permits
- Obtaining an EIN
Choose a Business Name
There are several rules in place for choosing a business name. All states require that you choose a name that is available for use, as it cannot be currently used by another LLC in the state. Your name must also use the LLC designator, by inputting LLC, Limited Liability Company, Limited Liability Co, or Ltd Liability Co at the end of your name. Several words are prohibited, including bank, city, and corporation.
Choose a Registered Agent
This agent will handle all legal correspondence for your business. Some LLCs use one of their members to act as the registered agent while other LLCs use an outside company.
File the Articles of Organization
The Articles of Organization document will include general business information, including your company’s name, address, owners (also referred to as members), and the principal office location. This document will be filed with the Secretary of State’s office and will accompany the applicable fee required by the state.
15 states allow you to file online while others require that you mail in the Articles of Organization with the fee. Some fees are very low. For example, Kentucky charges a $40 fee. However, some states charge a high fee for filing this document, like the $520 fee in Massachusetts.
You’ll also need to identify whether or not your state requires you to publish your newly formed LLC in a local newspaper. New York requires this publication, which simply announces your intention of forming an LLC. This publication must be made several times over a period of months. Thereafter, you’ll submit an affidavit of publication to the Secretary of State proving that you’ve published your intent.
Draft an Operating Agreement
While most states don’t require you to draft one, it is highly recommended. You’ll include several items in this agreement, including:
- Policies and procedures
- How the LLC will be managed
- Duties of all members
- Voting rights
- Buy-sell provisions, which should identify what happens if a member wants to sell his or her interest in the business, or alternatively, what happens to the business if a member passes away or gets divorced
- How profits and losses are allocated to members
Depending on the state you operate in as well as the industry in which you operate, you might need to obtain additional licensing and permits. Keep in mind that such licensing could be required at the federal, state, and local levels.
Obtain an EIN
You can apply for an EIN for free by submitting IRS Form SS-4 on the IRS website. Having an EIN, also known as an Employer Identification Number, allows you to open a business bank account and hire employees.
If you need help learning more about an LLC or how to form your LLC, you can post your legal need on UpCounsel’s marketplace. UpCounsel accepts only the top 5 percent of lawyers to its site. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale Law and average 14 years of legal experience, including work with or on behalf of companies like Google, Menlo Ventures, and Airbnb.