How to Make Your Company an LLC: Everything You Need to Know
The process begins with reserving a name, appointing a registered agent for service process, and filing the Articles of Organization.3 min read
2. How to Start an LLC
3. How to Operationalize an LLC
Wondering how to make your company an LLC? The process begins with reserving a name, appointing a registered agent for service process, and filing the Articles of Organization. You'd then need to make an operating agreement, get an Employer Identification Number, open a business bank account, and acquire permits and licenses.
Do You Need to Register as an LLC?
An LLC is a popular entity type that is formed at the state level. LLCs are pass-through entities and therefore are not subject to double taxation at the federal level. The LLC arrangement allows a number of owners to come together and form a business just like a partnership. But unlike partnerships, LLCs give the owners limited liability protection. This means that the personal assets of the owners are safe from liabilities arising from the business. The LLC entity type is suitable for small business owners who might not need funding from investors but want limited liability protection for their personal assets.
How to Start an LLC
Step 1: Name reservation
Most states have the option of name reservation before officially registering the LLC. Reserving a name eliminates the possibility of rejection of the LLC's registration filing because its name is already in use by another company. Some states have online entity name databases where potential LLC owners can find out if the name they have in mind is available. Other states, in addition, have a provision where LLCs can officially enquire about the availability of a certain name before reservation. You might also need to file a fictitious name to use for branding purposes.
Step 2: Appointing a registered agent
Many states require all LLCs to have a registered agent for service process in the state. The agent acts as a recipient of legal paper for the LLC. The registered agent arrangement helps LLC receive tax notices and legal papers when the LLC is being sued on time. Most states allow individuals and entities to act as registered agents as long as they have a physical address in the state.
Step 3: Filing the Articles of Organization
LLCs must then file the Articles of Organization. The Articles of Organization is usually a one-page document stating basic details about the new LLC. Typical details required on the Articles of Organization are the name and address of the LLC, the name and address of the company's registered agent for service process, and the names and addresses of the LLC's members and managers. Other details are a statement on whether the LLC will be managed by members or by managers. The acceptance of the LLC's Articles of Organization marks the official formation of the LLC.
States like New York and Arizona require newly formed LLCs to publish their Articles of Formation or a statement showing that they have been formed in a local newspaper. They might also be needed to file an affidavit of publication to the state's Secretary of State.
How to Operationalize an LLC
While filing the Articles of Organization signals the official registration of the LLC, in most states, it is not enough to enable the LLC to start doing business. Other steps needed for the LLC to start doing business are:
Step 1: Obtaining an Employer Identification Number (EIN)
Most LLCs will need an Employer Identification Number. The EIN will enable the LLC to file employee or member payroll taxes and to get a business bank account. This EIN is obtained from the IRS by filing IRS Form SS-4. The filing can be done online.
Step 2: Obtaining licenses and permits
Most LLCs will need at least one license to operate. The licenses or permits needed by an LLC depend on its line of work and its location. You can research the local government and state permits your business is required to have by contacting a local tax lawyer or a local chamber of commerce.
Step 3: Getting a business bank account
To separate personal member finances from the finances of the business, the LLC needs to get a business bank account.
In some states, the LLC might also be required to register with local tax authorities and state unemployment and workers' compensation funds.
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