1. Deciding Where to Form Your LLC
2. Choosing an LLC Name
3. Designating a Registered Agent
4. Creating an Operating Agreement
5. Filing Organizational Documents

Small business owners can start an LLC online to enjoy the flexibility, advantageous tax structure, and limited liability protection of this business entity. A limited liability company is a separate entity from its owners and has few ongoing reporting requirements. Although individuals and husband and wife teams can operate as sole proprietorships without filing any paperwork, their personal assets can be seized if the business accrues financial obligations or debts. LLCs offer limited liability protection, which means your personal risk is limited to your investment in the business.

The first step to creating an LLC is to submit the required paperwork to the state where you plan to establish your business. Rules for LLC establishment vary by state but include the same general guidelines.

Deciding Where to Form Your LLC

For most small businesses, it makes sense to establish your LLC in the state where you live. This allows you to avoid the additional costs of registering as a foreign LLC in another state and hiring a registered agent who lives in that state. However, if you expect your LLC to conduct business nationwide or seek venture capital, you may want to establish the business in a state that offers unique benefits, such as Delaware.

Choosing an LLC Name

You'll need to select a name for your LLC that isn't already used by another business in your state. Most states have an online search function where you can check if your desired LLC name is available. You should also make sure a domain name that matches your desired business name is available.

In most states, you can reserve your desired name before filing your LLC paperwork for a small fee. The cost, length of reservation, and renewal policies vary from state to state.

The more unique the name you choose, the more likely it is that you will avoid infringing on the trademark of another business, be able to find a domain name that suits your business, and comply with the naming laws in your state. A memorable name is also a good marketing tool.

Designating a Registered Agent

You'll need to select a registered agent, sometimes called a statutory agent, for your LLC. This individual or business is responsible for receiving legal documents, including process service, on behalf of your business. In most states, this person can be an LLC member and must be a state resident age 18 or older. You can also hire a professional registered agent service.

Creating an Operating Agreement

Unless you are the only member of your LLC, it's important to have an operating agreement in place that documents how your business will be run. Provisions in the operating agreement typically include but are not limited to:

  • Members' voting rights and ownership interests
  • Allocation of profits and losses
  • How and when meetings will be held
  • Whether the business will be managed by members or hired managers
  • Procedures to follow if a member dies or leaves the business
  • Dissolution procedures

Although the operating agreement is usually not required for LLCs by state law, having one in place can help prevent costly future disputes.

Filing Organizational Documents

Most states require new LLCs to submit articles of organization that include the business name and address, the length of its existence if applicable, the registered agent's name and address, the purpose of the business, and the signature of the member preparing the forms and the registered agent. These documents are typically filed with the Secretary of State, but some states use a separate agency. The filing fee for articles of organization varies from state to state.

After these documents are approved, you'll receive a certificate documenting the existence of your LLC. This allows you to apply for a tax ID number, obtain licenses, and create a business bank account. You can also use this document to register to do business in states other than the one where your LLC is established. If your LLC has more than one member or plans to hire employees, you'll need to register with the IRS for a free employer identification number (EIN). This allows you to open a business bank account and file taxes.

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