Learning how to set up an LLC is a vital step to succeeding as an entrepreneur. Learn more about this business type and the steps you'll need to follow to open your doors for business.

What Is an LLC?

An LLC is a popular way for small business owners to structure their operations. Though the requirements for setting up an LLC are specific to each state, this type of business is comparatively easy to get started and can be set up in an afternoon. It may take more time, however, depending on your specific needs.

An LLC is like a partnership but offers liability protections for personal assets. This makes an LLC a mix of partnership and a corporation but without the legalities and fees associated with starting a larger company. LLCs have “flow through” taxes, meaning the investors are taxed individually for the adjusted profits — the business isn't taxed at all.

The LLC structure also typically frees the individual owners from the company's debts and liabilities. As a final bonus, you may not need to hire an attorney to help you start an LLC. It may be helpful, however, if you're working with multiple owners.

General Steps to Form an LLC

Since the requirements for forming an LLC vary across states, the first step is to decide where you want to set up your business. Note that if you plan on having businesses in multiple states, you may need to register and pay state fees in each location. Your next steps are to:

  • File your articles of organization and pay the filing fee. You'll also need to create an LLC operating agreement, which outlines the LLC members' unique rights and responsibilities.
  • Choose an allowable name for your LLC per the state's requirements.
  • If required in your state, publish a notice of your intent to form an LLC.
  • Obtain the required licenses and permits.
  • Pay your annual fees. Some states, such as California, charge an annual LLC tax and an additional annual fee based on the LLC's yearly income.

Step 1: Choose a Name

Your LLC must comply with the unique rules in your state. There are also some general requirements, such as not infringing on an existing company's name. Also, since you're starting an LLC, you can't use words like “Bank” and “Corporation.”

Contact your state's LLC office or check online for more specific requirements in your area. You can also conduct a free search online to check that your desired LLC name isn't infringing on an existing company.

Step 2: File Your Paperwork

The next step is to file your articles of organization, also known as a "certificate of formation" or "certificate of organization" in some states, and other vital documents. You'll also have to pay the filing fees in your state, which can range from $100 to $300 for the articles of organization. You'll also need to file your LLC operating agreement. This isn't required in all states, but this document is essential to your LLC. It outlines specific rules for how your business will operate.

Step 3: Find Investors

Securing funding is an important step for an LLC. If you plan to reach out to investors for starting capital, you'll need to comply with federal and state securities laws. You may also need to work with a consultant or legal counsel to ensure you comply with all filing requirements.

Step 4: Get Your Employer Identification Number

You need an Employer Identification Number in order to file your annual taxes if you hire employees. You can retrieve your company's number online from the IRS. The process is free, and the IRS will assign an EIN immediately. This identification number is also typically needed to open a business account at a bank.

Step 5: Publish a Notice

If you live in Arizona or New York, you must publish a notice in a local newspaper announcing your intent to form an LLC. This simple step is all that's required to publish a notice. After publishing the notice a few times over a period of a few weeks, you must submit an affidavit of publication to the LLC filing office.

Step 6: Get Licenses and Permits

Your business is now official! Before you open, you just need to obtain all necessary licenses and permits. Check for federal and state requirements based on your industry as well as zoning requirements in your city.

If you need help with setting up 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, Menlo Ventures, and Airbnb.