Set Up an LLC: Everything You Need to Know
If you want to set up an LLC, you must first understand what an LLC is and the rules surrounding its creation. 3 min read
Set Up an LLC
If you want to set up an LLC, you must first understand what an LLC is and the rules surrounding its creation.
For businesses across the nation, one of the most common structures is a limited liability company (LLC). An LLC is similar to a partnership, but filing as an LLC helps to legally protect the business owners' personal assets, without having to spend as much money on fees or time on filing paperwork. Each state has laws around LLCs, providing limited liability protection of assets for the business owners. The owners are taxed in the LLC with no specific business taxes at this level unless the business owners elect a voluntary contrary amount.
Rules governing the creation of an LLC vary between states, but certain general requirements remain the same. You do not have to use an attorney when setting up an LLC, but when you have outside investors and/or multiple business owners, using a lawyer is helpful. Business owners must follow specific steps during the process of forming an LLC.
Steps to Set Up an LLC
1. Select the State in Which You Plan to Form an LLC
The rules of each state govern the creation of an LLC, so the first important step is deciding the state in which you will form your LLC. One of the most popular states for forming LLCs is Delaware, thanks to its developed laws. However, most business owners form their LLCs in the state in which they will do business, as this helps reduce the complexity of doing business and can lower the required fees.
If your business will operate in multiple states, the laws may require that you register in each state. In order to register in the state, you have to file a notice and pay the necessary fees with each Secretary of State.
2. Creating Name for the LLC
Choose the business name for the LLC. Consider these important aspects when choosing the name for your LLC:
- The registered name will typically end with “LLC,” “L.L.C.,” or "Limited Liability Company.”
- Before you choose the name, perform a quick search of all registered names as yours must be unique and distinct from all existing names.
- You cannot use terms like “insurance,” “bank,” or “trustee” in your LLC name
- An LLC is not a corporation, so you can't use "Corporation", “Corp,” “Incorporated,” or "Inc" in the name.
The next step is searching the United States Patent and Trademark Office's website to ensure your name doesn't violate an existing trademark. You should also do an extensive online search to make sure the LLC name you want isn't already in use. Steer clear of an LLC name that could limit how your business can grow. It's also smart to review the domain availability associated with the LLC name you want to use.
If you plan to operate your business under a different name than what is registered, you can file a form for a “doing business as” statement or "fictitious business name.” Before you file the articles of organization, there is an option to reserve your proposed LLC name for a short period of time, which requires payment of a fee.
3. Filing the Articles of Organization for the LLC
When you file the Articles of Organization with the Secretary of State, your LLC will officially be created in the state. You might also hear people refer to the Articles of Organization as a Certificate of Organization or a Certificate of Formation.
As you prepare your Articles of Organization, consider these important points:
- The articles should be short and easy to complete
- They should typically include the name of the LLC, the business address, and names of all members or owners
- The person authorized to receive legal information and files for an LLC is the registered agent
When you submit your Articles of Organization, you will pay a filing fee. Certain states also require the LLC to pay annual tax. Your LLC's Articles of Organization may also need to include the purpose of the LLC. For example, the form in California includes, "The purpose of the limited liability company is to engage in any lawful act or activity for which a limited liability company may be organized under the California Revised Limited Liability Company Act.”
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