How to Incorporate LLC: Everything You Need to Know
The question of how to incorporate LLC is one related to the process of creating a limited liability company, which is an entity favored by small businesses.4 min read
The question of how to incorporate LLC is one related to the process of creating a limited liability company, which is a business structure often favored by small businesses. It is less formal in its structure and processes than a corporation, but it offers the same limited liability protection as a corporation, which means you can’t suffer personal loss for legal actions or debts related to your LLC.
To create your own LLC, three methods can be used: do-it-yourself, legal filing service, and an attorney. However you do it, you will have to file for creation through your Secretary of State’s office with a Certificate of Organization or Articles of Organization, whichever your state uses. As a general rule, if there are less than five shareholders in your business, it is best to incorporate in the state in which you live.
There are three methods of filing, and each has its advantages. They are:
- Attorney filing. If your business is particularly complex—for instance, if you want strict requirements for stock allocation or shareholder structure, or if you are dealing with millions of dollars from the beginning—it is recommended you seek the counsel of a law professional.
- Legal filing service: These will file your documents for you and are more expensive than self-filing, but some consider the ease and time-saving to be worth it. By using a legal filing service, you avoid the tedious, time-consuming filing process, which allows you to focus on other matters. That said, it is important to remember that such services are no substitute for an accountant, attorney, or tax advisor. They cannot give you legal advice.
- Do-it-yourself. In this method, you request or download the proper forms from the Secretary of State, complete them, and then submit the forms yourself. This is the cheapest method, and it is a good choice if money is more valuable than time and you don’t mind paperwork and details.
Choosing a Name
The first step in starting an LLC is choosing a name. It must conform to your state’s requirements, some of which generally include:
- The name must be original, not a duplicate of another name.
- The name must include “Limited Liability Company,” or some variation.
- The name must not include any forbidden words (such as “FBI”) or restricted words (such as “Attorney”) if not authorized to use them.
Ideally, your name will be distinct, easy to remember, and suggest the business you are running. To check your chosen name’s availability and register it, you will need to conduct a search of your Secretary of State’s LLC name database.
Filing Articles of Organization
The articles of organization is a document (sometimes called a “certificate of organization” or “certificate of formation”) required to incorporate your LLC. It must include your company’s name, address, purpose, member’s names, and business structure. The filing fee usually ranges between $100 and $300.
Choosing a Registered Agent
This is another step that is necessary to form your LLC. Registered agents serve and accept legal papers on behalf of your LLC. They can either be an individual resident of your state or a business entity authorized to do business in your state, and they must have a street address in your state. You can act as your own registered agent, but your LLC cannot.
Getting Required Business Licenses
What business licenses you will need will vary depending on your state or even county in which you intend to do business. Your County Clerk’s office and city Chamber of Commerce will have information on what local licenses and permits you will need. The U.S. Small Business Administration (SBA) guide will have information on federal permits.
Apply for an Employee Identification Number (EIN)
This number identifies your business to the IRS for tax purposes. It is not required if you run a single-member LLC, have no employees, or only hire independent contractors. If such is not the case, however, then you must apply for an EIN at the IRS’s website. The EIN is free of charge.
Opening a Business Bank Account
A business bank account helps separate your personal finances from your LLC’s. To open a business bank account for your LLC, you will need to have acquired your EIN first. You should then consult with your bank about what banking options will be best for your business needs, as well as what documentation will be required, such a business licenses or you certificate of formation.
Creating an Operating Agreement
Although an operating agreement is not required in most states, unless you are running a single-member LLC, it is a good idea to get one. This agreement is meant to set out how your LLC will be run and how its finances will work, including profit sharing and conflict resolution. Without an operating agreement, it will be much more difficult to resolve disagreements as they arise.
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