Steps to Setting up an LLC: Everything You Need to Know
Each state has specific rules and procedures that must be followed to get your limited liability company registered and up and running.3 min read
The steps to setting up an LLC are:
- Choose a name.
- Choose a registered agent.
- File articles of incorporation.
- Create an operating agreement.
Each state has specific rules and procedures that must be followed to get your limited liability company registered and up and running.
General Information for Forming an LLC
Setting up an LLC is easier and has more flexibility and fewer requirements for periodically filing reports than a corporation does. Small businesses selling goods and services in one state usually organize in the state where business will be conducted. Consider these things when choosing a state for registration:
- The filing fees for each state.
- The annual reporting requirements and annual filing fees for each state.
- What each state offers in terms of privacy rights.
Three states are currently the most popular for out-of-state registration: Delaware, Wyoming, and Nevada. It's recommended to consult an attorney before deciding to register in one of these states.
Tasks for Setting Up an LLC
To form a limited liability company, paperwork must be filed with the state where the business is located.
The name for your business must follow the state's rules for LLC naming. The name cannot be the same as another LLC already on file with the state where you are registering your company. The business name must also end with "Limited Company" or "Limited Liability Company" or "L.L.C.," "LLC," or "Ltd. Liability Co."
You have some flexibility in selecting the main portion of the business name, but there are prohibited words that each state does not allow. For example, you cannot use "insurance," "incorporated," or "city" in your name. Search the secretary of state website for the state where your LLC will be registered for existing names. Do this before filing any formation paperwork.
Your company name must be distinguishable from other businesses, including partnerships and corporations. Choosing a name that is distinguishable from similar business names can help avoid confusion and claims of trademark infringement.
For owners who do not plan to file LLC formation documents right away, you may choose to reserve a name. Most states allow a reservation by filing a specific form and paying a reservation fee. The rules for the length of time for the reservation, applicable filing fees, and any renewal policies in place vary with each state.
All states require that you name a registered agent for your LLC. For most states, the agent must be a resident of the state where the LLC is registered. The agent is allowed to be an officer or a member of the LLC. Companies that provide registered agent services are also allowed.
The registered agent agrees to receive legal paperwork on behalf of the LLC regarding subpoenas, lawsuits, and any other official documents.
Articles of Incorporation
The formation of an LLC begins once the articles of organization are filed with the state. Some states refer to the articles as the "certificate of formation" or "certificate of organization." Follow the procedures and fill out the forms applicable to your state. The articles typically outline the following information:
- LLC name.
- Registered agent name and address.
- A statement describing the purpose of the LLC.
- Names of the initial members or managers (optional).
- Dissolution date, if applicable.
The paperwork is signed by the person forming the limited liability company. Some states may require that the registered agent sign as well. The document is usually filed with the secretary of state or another government department along with the filing fee, which varies from state to state.
Once a certificate has been issued confirming the formation of the LLC, you can apply for a tax ID number, apply for any required business licenses, and open a business bank account.
An operating agreement may or may not be required for your state. If it is required, it usually is not filed with the state. If the members of the LLC do not create an operating agreement, the default rules of your state will be the governing factor for the LLC.
An operating agreement includes:
- Duties and authority levels of members and managers.
- Annual meetings information.
- Procedures for electing and removing managers.
- Quorum voting requirements.
- Profit and loss allocation.
- Proxy procedures.
- Buy/sell rules.
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