Steps to Forming an LLC: Everything You Need to Know
The steps to forming an LLC include filing paperwork and forms with the state where your company is located.3 min read
2. Name Selection
3. Registered Agent
4. Articles of Incorporation
5. Operating Agreement
6. State Certification
7. Registration in Another State
8. Employer Identification Number
The steps to forming an LLC include filing paperwork and forms with the state where your company is located. Every state follows its own set of rules and procedures for forming an LLC.
Forming an LLC
Unless there is a compelling reason to do otherwise, it is generally a good idea for a small business to be incorporated in the state where it will operate. Once your business begins to generate significant revenue, you may consider changing to another state.
Wyoming, Delaware, and Nevada are popular choices for out-of-state registration. If you are in doubt about registering in one of these states, consult with an attorney.
It is important that you follow the state's naming rules when picking a name. For example, the business name cannot already be on file with the state where you are registering the LLC. Also, each state has a list of prohibited words that cannot be used. States also have their own rules regarding the use of an LLC designator such as "L.L.C," "LLC", "Limited Company."
A registered agent, also known as a statutory agent, is required in every state. In their role as agent, he or she assumes responsibility for receiving official paperwork on behalf of the limited liability company. Once received, the legal documents are delivered to the appropriate person at the LLC. You may appoint a company that provides the services of a registered agent, or you may appoint an LLC officer or member to the role.
Articles of Incorporation
- The name and address of the limited liability company.
- If the company is perpetual or has a dissolution date.
- The registered agent's name and address.
- The purpose of the LLC.
- The names of the initial members.
Once the document is filled out, it is usually signed by the person who is setting up the business. Some states may require the signature of the registered agent. The document is then filed with the state along with the applicable filing fee, which varies by state.
Do your research for the state you are registering in, as some states charge an annual corporate tax separate from the filing fee. For example, the current filing fee in California is $70, but the state charges an $800 annual tax fee.
An operating agreement is not legally required, but it is recommended that an LLC have an agreement and the details worked out prior to filing the articles of incorporation. It is an opportunity for the owners of the LLC to clarify their rights within the company as well as their responsibilities, which minimizes future disagreements.
The agreement covers information such as:
- Policies and procedures governing the operation of the LLC.
- Ownership interests of members.
- Voting rights.
- Allocation of profits and losses.
- Procedures for meetings.
- Rights of members if someone leaves the LLC or dies.
- Procedures for dissolving the company.
Once you have filed formation documents for the LLC and everything is approved, the state will send you a document that confirms the formation. This may be in the form of a certificate or other official document. Receipt of confirmation can take anywhere from 10 to 20 business days. Timeframes vary by state.
With the certificate in hand, you can take care of other LLC business, such as opening a bank account, acquiring any required licenses, and applying for a tax ID number.
Registration in Another State
For LLCs that do business in more than one state, it may be necessary to fill out and submit the applicable paper allowing you to do business in that state as well as any others. In most cases, the paperwork will be similar to the initial paperwork you filled out to form a limited liability company. You will be required to appoint a registered agent for each state where your company conducts business.
Employer Identification Number
An Employer Identification Number serves as a Social Security number for your business. This number will allow you to hire employees, open a business bank account, and make business transactions. To get a free Employer Identification Number, fill out Form SS-4 with the IRS.
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