Your state requires you to file LLC papers to form an LLC business structure. You may want to form an LLC if you want to:

  • protect your personal assets from any business debt.
  • determine how your company is run and how you distribute your business profits.

What Is an LLC?

A limited liability company is often called an LLC. To start an LLC, you must register it in the state where you will operate your business. If you want to separate your business activities from your personal ones, you may want to form an LLC.

When you form an LLC to conduct business, you get to deduct certain expenses and you reduce your chances of being audited. As long as you form and maintain an LLC accurately, you are not held personally responsible for the business debt. An LLC structure allows you to decide ownership distribution and who runs the business. You also get to decide how you will handle the business taxes.

If you want to set up a company that looks for outside investments and/or plan to go public, you may want to set up a corporate structure instead of an LLC. There is a lot more work to do when you create a corporate structure though. You will need to set up a board of directors, issue stock, and create corporate bylaws. Still, you can create an LLC and convert it to a corporation later if the need arises.

How to Form an LLC

  1. Pick a name for your LLC. Your LLC's name must be unique, comply with the state guidelines, and must not infringe on any existing trademarks. Furthermore, your business name must end with some type of LLC designation (e.g. LLC, Limited Liability Company, Ltd. Liability Co, etc.). There are also some words you cannot use, such as Bank, Insurance, Corporation, City, etc. Check to see what words are prohibited in your state.
  2. Name your registered agent. Next, select a registered agent to represent your LLC. The person listed as your registered agent will receive all legal papers (such as lawsuits) addressed to the LLC.
  3. File articles of organization with your state. You will need to file articles of organization (also called a certificate of formation or a certificate of organization) for your LLC. This form is easy to fill out and only includes information such as the LLC's name, its registered agent, and all founding members.
  4. Include filing fee with your filing. One downfall to having an LLC instead of a sole proprietorship or partnership is the fees associated with forming your organization. This fee is due at the same time you submit your articles of organization. It usually runs around $100. Check to see if your state has additional fees. For instance, California requires a filing fee and an $800 tax fee that you pay annually. If possible, pay the fee from your business account, though some banks may require you to have y the articles of organization filed first.
  5. Create your operating agreement. Though most states do not require you to file your LLC's operating agreement, you need to create one. The operating agreement formalizes how you manage and operate your business. Your operating agreement should establish the following:
    • The distribution of ownership interest of all founding members.
    • Each LLC member's rights and responsibilities.
    • How the organization will make key decisions and the member voting process.
    • How the business will allocate profits and losses among the founding members.
    • Who will run the business and how it will operate.
    • The member buy-sell provisions. This outlines the protocols you will follow if a member dies, becomes disabled, or wants out of the business.
  6. If required, publish a notice in your local paper. Some states require you to put a notice in the local newspaper to communicate your intent to establish an LLC. If that is the case, you will need to submit an affidavit of publication once you meet the publication requirements. Ask your local newspaper for help.
  7. Acquire the licenses and permits you need to start your business. Before you debut your business, make sure you obtain the licenses and permits you need to operate your business.

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