What do you need to start an LLC? From choosing a business name to obtaining business licenses and permits, know the complete procedure for forming an LLC.

Starting an LLC

Forming an LLC or a limited liability company allows you to limit your personal liability for business transactions. It's fairly easy to set up an LLC; you can complete the process yourself. However, note that LLC laws are state-specific. So, you should know the formation rules prevailing in your state.

Choose a Name For Your LLC

Your LLC's name must be unique, and it should not resemble any existing business. It must meet the naming requirements of your state. Most of the states require the name to end with the words LLC, Limited Liability Company, or something similar.

A good name is one that is:

  • Distinct
  • Easy to remember, spell, and pronounce
  • Indicative of the nature of your business
  • Clearly distinguishable from other businesses

Check your state's business entity database to make sure that the proposed name is available for registration. You can usually do this online for a small fee.

Register Your Business Name

Some states allow you to register your LLC name at the time of filing formation documents, while others require you to register the name prior to filing your LLC papers. In either case, it's a good idea to reserve your business name so that others don't take it. Most states allow you to reserve an available name for your exclusive use for 60 days, or a similar period.

Decide the Mode of Management

Decide whether your LLC would be member-managed or manager-managed.

In a member-managed LLC, all the owners are actively involved in day-to-day activities of the company. Most smaller LLCs prefer this mode of management since there is no need for a separate management. In fact, many states treat this as the default management structure if you do not specify it in your LLC documents.

In case of a manager-managed LLC, the owners appoint one or more members or someone from outside to run the company's business. This can be a useful alternative for large LLCs that require professional management or LLCs with passive members who do not want to be involved in company operations.

File Articles of Organization

Prepare and file your Articles of Organization with the designated agency of your state. Usually, it's the secretary of state who looks after the task of LLC formation.

Some states use different terms like Certificate of Formation and Certificate of Organization to refer to the Articles of Organization. Regardless of what it's called, it generally includes:

  • Name and address of your LLC
  • Business purpose for which you are forming the LLC
  • Names of all the members
  • Business structure of the LLC

The filing fee for Articles of Organization varies between $100 and $300. A few states may also require you to publish a notice in a local newspaper before filing of formation documents.

On approval of formation documents, you will receive a certificate of formation or a similar document to confirm the existence of your LLC.

Appoint a Registered Agent

You must appoint a statutory agent or a registered agent to receive service of process and other legal documents on behalf of your LLC. Usually, one of the members takes up this responsibility. However, most of the states allow you to assign this task to any resident individual or a state-registered entity — domestic or foreign.

Obtain Licenses and Permits

After forming the LLC, you must apply for business licenses and permits applicable to your industry and location. You can visit the county clerk's office to find out what licenses and permits are required for your business.

Get an Employee Identification Number (EIN)

Just like individuals have social security numbers (SSN), the IRS identifies businesses with an EIN for the purpose of employee tax withholdings.

You can apply for an EIN online on the IRS website. You will need to supply the following information:

  • Name and address of your LLC
  • Name and SSN of member or managing member
  • Country of formation
  • Total number of members
  • Nature of business

You need not apply for an EIN if you are a single-member LLC and you don't have any employees. You can use your social security number in such cases.

It's also advisable to open a separate bank account and prepare an operating agreement for your LLC.

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