To set up LLC online, you must select a state for incorporation and then follow that state's requirements for LLC formation.

A limited liability company (LLC) is an easy to set up, flexible business structure that exists separately from its owners, thus providing them with personal liability protection from business debts. LLCs avoid many rules and regulations as well as the double taxation that typically occurs with C corporations.

Steps to Form an LLC

1. To adhere to state requirements for LLC formation, choose a state where you'd like to incorporate. To avoid additional fees and complications, form your LLC in the state of its operation. Register in all the states where you will be doing business.

2. Name your LLC according to the LLC naming rules of your state. Make sure the name is distinct from any registered business names and contains the words “Limited Liability Company” or the abbreviation “LLC.” Do not include prohibited words. Don't pick a name that could be limiting to your business growth.

To avoid confusion and trademark rights infringement, check a name's availability online before filing your paperwork. Check for a domain name availability as well. To use a different name, file for a DBA (doing business as) name. If not ready to file your documents right away, take advantage of name reservation.

3. File your articles of organization with the secretary of state. This is a basic document, aka a certificate of formation or certificate of organization. A filing fee is typically around $100. Some states also charge a minimum annual tax. Include a statement of your LLC's purpose. If applicable, check a box to indicate if the LLC will be managed by one manager, more than one manager, or by its all members.

4. Designate a registered agent authorized to send and receive all legal documents for your LLC. This could be any state resident over 18, including any person within the LLC.

5. Create an operating agreement to define the owners' rights and responsibilities and to minimize future disagreements. The operating agreement typically covers the following:

  • Times and amounts of capital contribution by the parties and penalties in case of failure
  • Distribution of profits and losses among the owners
  • Whether any members or class of securities have preferences in distributions or liquidation
  • LLC management
  • Number of officers
  • Voting rights for major events
  • Indemnification protection for the managers
  • Interests' transfer restrictions
  • Procedures for members' meetings
  • Dissolution protocols

6. If required, publish a notice in a local newspaper about your intention to form an LLC and submit an "affidavit of publication" to the LLC filing office.

7. If you plan to raise money from investors, consider the following:

  • Many investors prefer to invest in corporations rather than LLCs.
  • When issuing LLC units to investors, federal and state securities laws usually come into play. Seek legal advice on how to take advantage of a “private placement exemption” from the burdensome filing requirements.
  • Make the investors aware of the risks of the investment.
  • Clearly define the investors' rights.

8. Obtain an Employer Identification Number, also known as a Federal Tax Identification Number, from the IRS. It is required for hiring any employees and for opening business bank accounts.

9. Obtain the necessary business licenses, such as a seller's permit, a zoning permit, etc.

10. To conduct business in more than one state, register to do business in those states and appoint a registered agent in each of them.

Bonus Tips and Advice on Setting Up an LLC

  • Work out the details of the operating agreement with all the partners before filing the articles of organization.
  • Unless your organization is complex, set it up yourself.
  • Set up your LLC in the state where you're doing business. Though states like Delaware, Nevada, and Wyoming offer some organizational and tax benefits, you'll have to generate a large amount of income to see those benefits.

6 Mistakes to Avoid When Setting Up Your LLC

  1. Selecting the wrong business entity
  2. Incorporating in the wrong state
  3. Incorporating without the necessary business licenses
  4. Not keeping your LLC compliant
  5. Believing the corporate veil means unlimited liability protection
  6. Not incorporating at all

If you need more information on how to set up an LLC online, 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.