LLC Process: Everything You Need to Know
The process of LLC formation is almost entirely done at the state level.3 min read
The LLC process of formation includes reserving a name, appointing a registered agent for service process, filing the Articles of Organization, creating an operating agreement, getting an EIN Number, and getting business permits and licenses. To keep an LLC in good standing with the state, LLC owners may be required to file an annual report with the secretary of state and pay a franchise tax.
LLC Formation Process
The process of LLC formation is almost entirely done at the state level. LLCs are popular because owners have limited liability protection. Steps that are taken to form an LLC obviously vary from state to state but most states follow a similar pattern. Below are the basic steps that are needed to file an LLC in most states:
Step 1: Reserving a Name
Getting a name is normally the first step in forming an LLC. Names are usually reserved with the office of the secretary of state. Acceptable LLCs names must meet a number of requirements. In most states, a proper LLC name must meet the following requirements:
- The name should be distinguishable from names of other registered businesses in the state.
- The name should contain words like "company", "Limited Liability Company", or their abbreviations.
Some states have free name search databases where potential LLC owners can find out if the name they have in mind is still available.
Step 2: Appointing a Registered Agent for Service Process
State laws require LLCs to have a registered agent for service process. The agent acts as a recipient of legal papers for the LLC.
Step 3: Filing the Articles of Organization
The exact name of this document varies from state to state. It is called the Articles of Formation in some states and Certificate of Formation in others. Its purpose is to officially register the LLC with the state. It is normally submitted to the secretary of state. Details that may be required on this document include:
- The names of the LLC members and managers.
- The registered agent of the LLC.
- The LLC's reserved name.
- Details about the ownership interest of each owner of the LLC.
- A note on whether the LLC will be manager-managed or member-managed.
There is normally a filing fee of $40-500 for this document.
Step 4: Creating an Operating Agreement
An operating agreement is not a legal requirement in most states but it is hard to imagine a multi-member LLC managed smoothly without one. The agreement specifies the rights and responsibilities of each of the owners.
Step 5: Applying for an Employer Identification Number (EIN)
Step 6: Opening a Business Bank Account
To protect LLC owners from liability arising from the business, the LLC must get a business bank account.
Step 7: Getting Business Licenses and Permits
After all of the above steps are completed, an LLC can now get the necessary business permits and licenses needed to operate. You can find details about the exact permits your business will need in the SBA guide or the local chamber of commerce.
How to Maintain an LLC
An LLC needs to complete periodic filings to remain in good standing with federal and state authorities. Some of the filings are discussed below.
Most states require LLCs to file an annual report with the state every year. The annual report, which is normally submitted along with a small fee, updates the state with info on the ownership and registered agent of the LLC. Annual reports normally include the following details:
- The current list of members and managers of the LLC.
- The current name of the LLC.
- The current registered agent of the LLC.
Different states have different tax requirements for LLCs. Many states require all LLCs to pay an annual franchise tax levied either as a flat fee or as a percentage of the LLC's annual income.
Naturally, LLCs should pay all other taxes levied on them by the state. These may include sales tax, excise duty, workers' compensation insurance, and unemployment taxes. In addition, the federal government and many state governments require LLC employees to file and pay personal income tax.
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