How to Open an LLC: Everything You Need to Know
Wondering how to open an LLC? There are steps you have to follow, and they may differ by state.3 min read
Updated November 25, 2020:
Wondering how to open an LLC? There are steps you have to follow, and they may differ by state. You'll have to choose an appropriate and available LLC name, obtain required licenses and permits, file the necessary paperwork, and pay any required fees. Check your state's guidelines to ensure you follow all procedures and meet all deadlines to open your LLC.
What Is an LLC?
A limited liability company, or LLC, limits the personal liability of the business owners for any company actions. An LLC and its owners (members) are separate entities. This provides the owners with liability protection. The members aren't responsible, therefore, for the LLC's debts. An LLC and a partnership are similar. The LLC enjoys the legal protection over personal assets the same way a corporation does, but there are fewer of the following:
- Paperwork items
- Detailed formalities
Each state has its own requirements for starting an LLC. To start an LLC, you have to file the Articles of Organization with your Secretary of State. Usually, the Articles list the following information:
- Business name
- Names of members
- Members' contact information
You also have to pay a filing fee. Typical costs are $30-200.
You can create an operating agreement for your business. This document lists such details as the following:
- Percentage ownership of each member
- Member roles
- Member rights
- Member responsibilities
Not every state requires you to have an operating agreement, but it's helpful to have one as protection for your LLC if you're ever challenged in court. Having an operating agreement means you won't have to default to your state's operating rules.
You don't need a lawyer to set up your LLC. State requirements are often self-explanatory. However, you may want to have a lawyer go over your operating agreement and other paperwork to ensure that your best interests are represented and that you have legal protections in place.
You probably won't have to present any annual administrative procedures or paperwork to your state business office since this isn't a requirement in most states. However, you should still document any major company proceedings and have formal procedures in place (such as an annual meeting). This protects your company's LLC status.
An advantage to running an LLC is pass-through taxation. Profits and losses “pass-through” the company to the business owners, who then report the information on their personal tax returns. As a result, you can pay lower taxes because profits aren't taxed at both personal and business levels.
Choosing a Name for Your LLC
You must select a name for your business that follows the laws in your state. Some LLC names may appear similar, but most states don't allow owners to create business names that are copies of or too similar to existing LLC names.
Each state has its own requirements, but in most cases, your business name must have one of the following LLC designators on the end:
- Limited Liability Company
- Limited Company
- Ltd. Liability Co.
Your business name can't have words prohibited by the state. These words may include the following:
Check with your state rules to see which words you can't include.
Choose a unique business name that represents your business and adheres to state guidelines. There's no single rule for selecting the best business name, but it makes sense to choose a name that meets the following criteria:
- Easy to spell and pronounce
- Easy to remember
- Gives customers an idea about your products or services
- Distinguishes you from any competitors
You can find out if the LLC name you want to use is available by checking with your state business office. If you want, you can reserve the business name you want to use for a short period of time. You'll pay a small fee for this. Before you file any paperwork for your LLC, it's best to check online to see if your desired business name is available.
To make opening your own LLC as smooth a process as possible, check all the legal requirements in your state. By sticking to the guidelines, meeting all deadlines, and paying fees on time, you increase the chance of starting your business off on the right foot.
If you need help with opening an LLC in your state, 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, Menlo Ventures, and Airbnb.