Should I form an LLC is one of the first questions to ask when forming a business. Forming an LLC becomes important when a business owner wants or needs legal protection. An LLC protects personal assets from lawsuits and other claims against the business entity like debt.

Putting a sole proprietorship or partnership into an LLC gives legal protections similar to those afforded to a corporation without being subject to the same requirements. In other words, the LLC can still continue operating as a small business while limiting liability.

What's the Difference Between an LLC and a Sole Proprietorship?

Partners and sole proprietors are responsible for the debt of the company and any liability.  Creditors then are allowed to use personal owner assets in order to settle the debt. An LLC protects from this while still being more flexible than other business entities.

The owners of the LLC have to file articles of organization, pay the necessary filing fees, and meet all of the other filing requirements as outlined by the state for an LLC. Partnerships do not require any type of specific paperwork or fees to be paid.

How do I Form an LLC?

Creating an LLC involves following a series of steps. These include:

  • Choosing a name that is different from other businesses in the state and contains the “LLC” acronym.
  • Crafting and filing the articles of organization
  • Appointing a registered agent to accept legal and business notices
  • Publishing a business notice that states intent to form the LLC.

Can I Convert My Existing Business into an LLC?

Yes. Existing sole proprietorships and partnerships can be converted from its current form to an LLC. The business still receives the same legal benefits without changing the way that the income for the business gets taxed.

In certain states, a form called the “certificate of conversion” is required in order to complete the conversion process. Otherwise, articles of organization have to be filed just like with a regular LLC formation. In some cases, partnerships have to file a notice in the newspaper that says that the existing partnership is terminated.

Generally speaking any and all ID numbers, licenses, and permits held by the old business entity go to the new one. This includes the federal and state identification numbers, sales tax permits, businesses licenses, tax registration, and all professional licenses and permits.

Do I Need a Lawyer to Form an LLC?

Unlike other business entities, hiring a lawyer to assist with the LLC creation is not necessary. The business owner is allowed to form the LLC by filing the articles of organization. With that said, it may be worthwhile to consult a lawyer or other expert to ensure that forming an LLC is the right direction to go. They will be able to review your operating agreement and/or assist in the set up of operational structures like bookkeeping or accounting systems.

A registered agent is usually required to be designated on the paperwork. The registered agent is the person or company that receives business, legal, and tax notices for the company. They must have a street address and be available during business hours.

Commercial registered agents charge an annual fee of anywhere between $50 and $300. They are required to have a Service of Process for you on file. Once they receive it, the commercial agent accepts all notices and forwards them to you via fax, email, or mail.

Does My LLC Need an Operating Agreement?

Yes. After going through the process of finding a name for the LLC, filing the articles of organization, appointing a registered agent, and paying the appropriate filing fees, it's time to form an operating agreement. Some states may require a copy of this agreement be submitted. Others ask that it be kept on file.

The Operating Agreement for the LLC is a vital document. It outlines all of the rights and responsibilities of all members of the LLC. It includes information on rights and responsibilities, and how profits and losses are divided up. It also details when the owners are due to meet and how the business is managed.

The agreement outlines how the LLC is set up, the responsibility each member has, how taxes are paid, and the way profit and loss is handled. If the business does not already have one, apply for a federal tax ID number, also known as an EIN number, which is used to open a business checking account.

States typically require an annual report to be filed. LLCs that don't file this by the specified deadline must pay late fees.

If you need help with forming an LLC, you can post your legal needs 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.