What is an LLC?

How to get an LLC is one question that many people interested in starting a company contemplate. The limited liability company (LLC) is the most popular legal structure for entrepreneurs who want to incorporate. 

Many owners of small businesses follow state law to form an LLC to enjoy benefits like limited liability protection and pass-through taxes.

A limited liability company is legally separate from the members or owners. Therefore, these members cannot be held personally responsible for any of the LLC's debts.

To prevent the double level of tax associated with C corporations, LLCs offer "flow-through" tax treatment. Unless the owners make a voluntary contrary election, only the members of the limited liability company are taxed. There are no taxes at the LLC level.

In comparison to corporations, LLCs are more flexible and easier to form. Another advantage of LLCs for small business owners is that they typically have fewer periodic reporting requirements.

The rules for forming a limited liability company vary by state. However, the general requirements between different states tend to be very similar. While it's not necessary to hire a lawyer to start an LLC, it is recommended, particularly if the LLC will have outside investors or multiple owners.

Forming an LLC

If you want to form a limited liability company, you will need to file an application with the state where you want your business to be located.

Each state has its own set of guidelines and rules. However, no matter which state in which you want to start your LLC, there are a few steps that will you need to take no matter what.

You will need to a select a business name that is both available and in accordance with the LLC rules of your state. The next step is filing the paperwork. In most states, this paperwork is referred to as the articles of organization. The filing fee for filing the articles of organization range from $100 to $800, depending on the rules of your state. Afterwards, you will need to create an LLC operating agreement. The purpose of the LLC operating agreement is to establish the responsibilities and rules of the members of the LLC. The next step is publishing a notice describing your intent to create an LLC. This step is only required in some states. Depending on the nature of your business, you may need to get permits and licenses.

After you file the formation documents and have them approved, the state will send a document like a certificate to confirm the formation of your LLC. Once you get the certificate, you can work on business matters like getting business licenses and tax ID numbers. You should also set up a bank account for your business.

How to Form an LLC: Pick the State to Form the LLC

The rules and guidelines that you will need to follow to form an LLC depend on the state where you choose to form your LLC. Therefore, the first decision that you should make during the process of forming an LLC is picking a state.

Delaware is the most popular state for the formation of LLCs due to the well-developed laws. However, in most cases, it is better to form a limited liability company in the state where you plan to operate the business. Doing so will save you some money and prevent you from running into issues.

If your business will operate in several states, you may be asked to register your LLC in every state where you plan to do business. This process usually involves sending a notice to the secretary of state in each of the states and paying the necessary filing fees.

How to Form an LLC: Choose a Name

The name you select for your LLC needs to comply with the guidelines of the LLC division of your state. Usually, this office is associated with the corporations division. This name must be distinguishable from all foreign and domestic LLCs on file with the secretary of state.

The name you select must end with the following:

  • Limited Liability Company
  • Limited Company
  • Ltd. Liability Co.
  • L.C.C.
  • LLC

The proposed name can't include prohibited words like corporation, bank, city, or Insurance. Different states have different rules when it comes to prohibited words.

If you need help with how to get an 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, Stripe, and Twilio.