1. Introduction to Forming an LLC
2. Tips for LLC Formation

To form your own LLC, you will need to comply with the rules in your state. This will usually include paying required fees and filing formation documents.

Introduction to Forming an LLC

There are several options you could choose when structuring your business. However, if you want the most benefits possible, you should consider forming an LLC. An LLC provides the liability protections of a corporation without having to follow the strict formalities of the corporate structures. Forming an LLC will also offer the advantageous tax status of a partnership.

The great thing about limited liability companies is that they can be formed by anyone, meaning you can form your own LLC with very little effort. No legal counsel is necessary to form an LLC, but having an experienced attorney on your side can make the formation process much simpler. You can even get help with your LLC formation documents from an online legal service.

In most states, you can form an LLC with yourself as the only member. The exception is Massachusetts, where limited liability companies are required to have at least two members. An LLC member is an owner of the company, and usually, you won't have to fulfill any special requirements to serve as an LLC member. However, in the majority of states, professionals such as doctors and attorneys cannot form an LLC.

Instead, licensed professionals would need to form a personal corporation. If you choose to form a multi-member LLC, make sure that the other members are people that you can work with easily.

Unfortunately, not every type of business is eligible for LLC formation. Entities that cannot form LLCs include:

  • Banks.
  • Trusts.
  • Insurance companies.

Many startups choose to structure their business as an LLC. Every limited liability company must be formed according to state law. Protecting company owners from personal liability is the primary reason small businesses choose to form an LLC. When your business is an LLC, your personal assets will not be liable for debts of the company or lawsuit judgment. If your business is behind on credit line payments, for example, only your company can be sued. You cannot be sued personally, meaning personal assets such as your home will be protected.

However, when your form your own LLC, any money that you've put into the company is liable to company debts. You should be aware that the liability protections of an LLC are limited, meaning you won't be protected in all circumstances. LLCs and corporations have the exact same liability protection exceptions. If you are an LLC member, you can be held liable when you:

  • Directly harm another person.
  • Provide a personal guarantee for a loan on which your LLC later defaults.
  • Neglect to withhold taxes from the pay of your LLC employees.
  • Engage in illegal or fraudulent actions that harm another person or your company.

To make sure your liability protections remain in place, you must be very careful about keeping your personal and business affairs separate. For example, if you are using the bank account for your company to conduct personal transactions, you're mixing your business and personal assets, meaning you aren't legally separate from your LLC.

Tips for LLC Formation

If you want to form your own LLC, you need to choose the right state for your business. After picking a state to form your LLC, you should develop a business plan. This plan will act as a map for how you will establish and operate your company. Delaware can be a good state to form your business as its laws are very friendly to businesses.

In most cases, it's best to form your LLC in the state where your business will operate. This will make the formation process less complex and will help you save on fees. If you plan for your LLC to do business in multiple states, you will need to register in every state where your business will be offering its goods or services.

Naming your LLC is another important part of the formation process. Make sure that you are choosing a name that follows the rules of the state where you are registering. Naming requirements can vary between states. Your name should not cause confusion in customers, meaning it cannot be too similar to the names of other companies.

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