How to Obtain an LLC: Everything You Need to Know
Although the procedure of LLC formation differs from state to state, the steps taken are generally similar.3 min read
How to obtain an LLC? The process of starting an LLC in most states involves reserving a name with the state, appointing a registered agent for service process, filing the Articles of Formation, drafting an operating agreement, getting an Employer Identification Number, and obtaining business permits and licenses.
LLCs are formed when the company owners register the company with the Secretary of State. Although the procedure of LLC formation differs from state to state, the steps taken are generally similar. Typical steps involved in the LLC formation process are discussed below:
A potential LLC needs to reserve a name. The reservation is normally done with the Division of Corporations of the Secretary of State in your home state. Names for LLCs normally have a number of requirements:
- They should be different from names of other entities in the state.
- They should not violate any trademark of another company in the US.
- The name should contain words like “LLC”, “Limited Liability Company”, or “Company.”
- The name should not be similar to names of federal and state organizations.
In some states, you can find out if the name you have in mind is still available in your state by looking it up on the online name database of the state.
Appointing a Registered Agent for Service Process
States require all LLCs to have a registered agent for service process. The agent's responsibility is to be available in working hours to receive legal papers on behalf of the LLC. The agent is useful when the LLC is getting tax notices and when it is being sued. Failure of an LLC to receive such papers in time can have grave financial implications on the company. While some states allow LLCs to serve as their own registered agents, other states require the LLC to appoint an independent individual or company for this role.
Filing the Articles of Formation
An LLC formally registers with the state by filing the Articles of Formation. This document, which in some states is called the Articles of Organization, gives the state basic details about the new company. A typical Articles of Formation document has following details:
- The names and addresses of the LLC members and managers.
- The names and addresses of the LLC's registered agent for service process.
- The principal office address of the LLC.
- Information on whether the LLC will be managed by the members or if it will hire a manager.
Publication of the Articles of Organization
Some states require newly-formed LLCs to publish their newly approved Articles of Organization or a reference to the Articles of Organization in a local newspaper. The new LLC might also be required to file an affidavit about the publication to the Secretary of State.
Making an Operating Agreement
State laws do not require LLCs to have an operating agreement but most multi-member LLCs require an agreement to function smoothly. The operating agreement should spell out the nature of relationships, rights, and responsibilities of the LLC members. Typical issues covered by operating agreements include:
- The rights of the LLC members
- The basis for distribution of profits
- The responsibilities of the LLC members
Getting an Employer Identification Number (EIN)
LLCs that have more than one member need to get an Employer Identification Number. Even single-member LLC that intends to have employees needs an EIN. LLCs need an EIN to file employee payroll taxes and information returns to the state. The EIN might also be required for an LLC to open a business bank account. The LLC can apply for the EIN using IRS Form SS-4. The application can be done free of charge online.
Getting a Bank Account
For LLC members to continue having limited liability protection, the company must separate business finances from the finances of its individual members. One way this can be achieved is by the company using a business bank account for all its transactions. Therefore getting such an account is a crucial step in the formation of the LLC.
Getting Permits and Licenses
LLCs generally need licenses and permits to operate. LLC owners must research the licenses or permits they need and then obtain them from the relevant authorities. Some licenses may be needed from the county government while others might be obtained from the state. Some business types require federal permits to operate.
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