LLC Guide: Everything You Need to Know
An LLC guide is a step-by-step set of instructions for forming an LLC which can be very useful when setting up this type of business.4 min read
Guide to Forming an LLC
An LLC guide is a step-by-step set of instructions for forming an LLC, or limited liability company, which can be very useful when setting up this type of business. An LLC is a business type that merges the limited liability protections that corporations enjoy with the tax benefits of partnerships or sole proprietorships.
LLCs also enjoy more flexibility in how they may be set up and run, lacking the rigid structure and operating requirements of corporations. If you wish to form an LLC, the specific details of doing so will vary by state, but the basic steps will be the same. The basic steps are:
- Choose a name.
- Draw up articles of organization.
- Choose a registered agent.
- File articles of organization with the secretary of state.
- Pay filing fees.
- Meet publication requirements.
- Apply for an EIN.
- Get permits and licenses.
- Form an operating agreement.
Choose a Name
You can select this through the LLC name search feature of your Secretary of State’s website. When doing so, you must adhere to certain rules regarding your choice of name. These may vary by state, but generally, they will include not having a name duplicate to another LLC name, having a name with some variation of “LLC” in it, and having a name that does not include forbidden or restricted words unless allowed (for instance, “Secret Service,” “Corporation,” or “Bank”).
Draw Up Your Articles of Organization
These are documents that set out basic information pertaining to the company, such as its address, name, and the names of its members. In these documents, you should also specify if you are going to have a member-managed LLC or a manager-managed LLC. If you do not specify, member management is the standard default.
Choose a Registered Agent
A registered agent is a person or entity who accepts and serves legal papers on your company’s behalf. Having a registered agent is required in most states, and such a person or entity must have a physical address in the state you are registering your LLC in. A registered agent may be a member of your LLC or an outside agent.
File Articles of Organization With The Secretary of State
These are sometimes also called a Certificate of Formation or a Certificate of Organization, but in either case, formation documents must be filed with the state. Some states let you file these online.
Pay Your Filing Fee
While sole proprietorships and partnerships can be created without having to pay a fee, such is not the case with LLCs. Filing fees for LLCs will generally be around $100, with Kentucky having lowest fee at $40 and Massachusetts having the highest fee at $520. Additionally, California charges a minimum annual fee of $800 each year, and some other states also have additional annual taxes and fees.
Meet Publication Requirements
Some states have publication requirements for LLCs. These require you to announce in your local newspaper that you have formed an LLC, and you must do so several times around your LLC's formation time. You must then submit an affidavit of publication to the LLC filing office. The cost for this will generally be around $200.
Apply for an EIN
An EIN is an employer identification number. It is like a Social Security number for your business, and it is needed to hire employees, make business transactions, and open a business bank account. To obtain an EIN, you must submit Form SS-4 to the IRS. There is no fee to obtain an EIN.
Get Permits or Licenses
Depending on your business, these may not be required, but you should always check with federal, state, and local authorities to see if they are, as it is solely your responsibility to do so. Permit and license fees may be several hundred dollars, and some of these fees may be annual fees, depending on your situation. Selling cigarettes, alcohol, and firearms are all examples of business activities that require licenses.
Form an Operating Agreement
Although forming an Operating Agreement is not a requirement, it is recommended. An Operating Agreement will usually set out such internal company details as what authority members have, how profits will be distributed, who the registered agent is, and how record keeping will be handled, along with many other details. The benefits of an Operating Agreement include helping to protect your LLC’s structure if it's challenged in court, preventing you from having to adopt your state’s default operating rules and avoiding internal disputes about the proper procedure for running the company.
These are the main issues you will have to take care of when forming your LLC. If you need further help understanding the details of this LLC guide, you can post your legal need on UpCounsel’s marketplace. UpCounsel accepts only the top 5-percent of lawyers. 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.