Forming an LLC: The Top 5 Things to Consider
Forming an LLC is a great way to protect your personal assets and establish yourself as a legal entity3 min read
Forming an LLC is a great way to protect your personal assets and establish yourself as a legal entity. An LLC (or Limited Liability Company) is a type of business entity that provides owners limited personal liability from debts and obligations - similar to a corporation, but without having to maintain the same formalities. Most entrepreneurs choose an LLC as their business structure, but when it comes to starting an LLC, there are some factors that must be taken into consideration. To help you get started, here are the top 5 important things to consider when forming an LLC:
1. Choose Your State of Incorporation: It is not necessary to form an LLC in the same state in which you are conducting business. You have the ability to form your LLC in any US state - including those in which you are not located, and even in some locations abroad.When you are choosing which state will incorporate your LLC, you may want to consider factors such as the cost and complexity of filing your Articles of Organization, and whether that state has special tax benefits or laws that may be advantageous to your business. It is also important to keep in mind that certain states, such as California, may require higher minimums for the filing fees and ongoing LLC operational costs than other states.
2. Select a Name: When selecting a name for your LLC, you must adhere to certain restrictions which differ from state to state. Generally, the LLC name must include certain words or abbreviations that designate it as an LLC, such as "Limited Liability Company" or "LLC." In addition, some states may also require that the name not be too similar to an existing LLC or corporation that is already registered in that state. When selecting your LLC name, it is a good idea to search your state's database and to also check the availability on the US Patent and Trademark Office website.
3. Choose a Registered Agent: A registered agent is an individual or business entity that is responsible for accepting service of process - meaning, any legal documents and communications sent to the LLC by creditors or the state - and for forwarding the information on to the LLC's members. While it is possible to appoint yourself as the registered agent (or another member of the LLC), it is advisable to select a third-party registered agent to ensure that all legal documents and communications are consistently received in a timely manner.
4. File Your Articles of Organization: Each state has their own set of requirements for filing the Articles of Organization. Generally, you will be required to submit an application to the state (either online or by mail) containing all of the relevant information about your LLC, such as the name, purpose, registered agent information, and the names and addresses of each member. Some states may require additional documents, such as an Operating Agreement or By-Laws, to be filed with the Articles of Organization. Upon submitting the paperwork and paying the filing fees, your LLC will be officially formed.
5. Apply for an Employer Identification Number (EIN): Finally, it is important to apply for an Employer Identification Number (EIN) for tax purposes. An EIN is a unique nine-digit identification number issued by the Internal Revenue Service (IRS) to each LLC. An EIN is necessary for the filing of income tax returns, applying for business licenses, and opening a bank account in the name of the LLC.
Forming an LLC is not a simple process, and there are a lot of regulations and paperwork that must be taken into account. It is important to make sure that all of the necessary details are taken care of when forming your LLC, and that you are in compliance with all federal, state, and local laws and regulations. If you need help with forming your LLC, it is recommended to seek the advice of an experienced business attorney who understands the regulations and requirements in your local area.