Starting LLC: Everything You Need to Know
Starting LLC, or limited liability company, usually involves the following steps.3 min read
2. Formation Documents and Operating Agreement
3. Final Steps
Starting LLC, or limited liability company, usually involves the following steps:
- Choose a business name.
- Designate a registered agent.
- File formation documents with the state.
- Create an operating agreement.
- Obtain an EIN and necessary permits and licenses.
Optional steps include publishing a notice of intent.
You'll file paperwork with the state to form your LLC. Each state has its own formation requirements and guidelines, so make sure you adhere to the rules in your jurisdiction.
Choosing a Business Name and Registered Agent
The first thing you'll do is select a name for your LLC which complies with the naming guidelines in your state. You have a good deal of flexibility in naming your LLC, but most states have a list of restricted or prohibited words for LLCs, such as “Incorporated” or “Insurance,” for instance.
Your LLC name must include a designator, like “LLC” or "Limited Liability Company." In most cases, you can't have the same name as another business entity in the state or a name that's too similar.
You should do a name search to check the availability of a business name you want to use before filing your paperwork. You should also select a unique business name that won't cause confusion between your business and another or infringe on someone's trademark.
You must choose a registered agent — also called a resident agent, agent for service of process, or statutory agent — for your business. This is an individual or company that receives official documents, such as subpoenas, lawsuits, etc., on your LLC's behalf.
Formation Documents and Operating Agreement
Only a couple of states (New York and Arizona, currently) require you to publish a notice of intent in a local publication. If you're required to publish this notice, do it before filing your formation paperwork with the state. You should check with your Secretary of State to be sure if this is a requirement.
Your operating agreement outlines how your business will be run. It should outline the following:
- Ownership interests
- Members' voting rights
- Allocation of profits and losses
- Meeting rules
- Governing rules
- Procedures for members passing away or leaving
- Business dissolution
Your state may or may not require you to have an operating agreement, and you probably won't have to file it with their office. However, having an agreement for your own records can minimize any future conflicts between owners since it clearly lays out rights and responsibilities.
While each state has its own LLC formation requirements, all require you to file formation documents, often called the Articles of Organization. Your formation documents will typically include the following:
- LLC name and address
- Duration, if not perpetual
- Registered agent name and address
- Business purpose
In most cases, you'll file your paperwork with the Secretary of State office, but some jurisdictions have other departments to handle these filings.
Filing fees vary from state to state and may range from $40 to $900. After the state approves your filing paperwork, you'll receive a document or certificate that confirms your LLC's formation. Once you receive it, you can obtain your tax ID number from the IRS and open business bank accounts.
Most businesses are required to obtain an EIN, or Employer Identification Number (with the exception of most sole proprietors). The IRS uses an EIN as an identifying number for businesses as a way to determine its taxes and track the business, along with parties related to the business and their tax obligations to the IRS. You can apply for an EIN online and receive your number immediately after your application is approved.
Depending on your location and the type of business you operate, you may have to obtain certain local and/or state licenses and permits. Most businesses aren't required to register with the federal government, but they may have to register with state agencies. You should check with your governing agencies to find out which licenses or permits you need. Without them, you may not have legal clearance to operate your business.
You may want to start researching at your Secretary of State website to check your state's specific rules for starting an LLC. By following all necessary steps and meeting all requirements, you can have your business up and running relatively quickly.
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