If you’re looking into forming your own Limited Liability Company, or LLC, then you’ve already taken the most important step. You’ve looked around, you’ve seen other people working for themselves, setting their own hours, deciding the direction of their careers. And you’ve decided to try it out for yourself.
But it can seem daunting to form your own company. There’s a lot of paperwork, a lot of steps, and a lot of confusion out there. That’s where we can help. Follow these easy steps, and you can have an LLC started within the week.
Reading through these steps, you may even find a couple of services to do a lot of the work for you.
We’re going to jump right in, and not waste your time with simple stuff. You’re smart enough to know that you need to register your LLC in the state you’re doing business in. We also think you’re smart enough to choose a business you know. So we’ll start off with the nuts-and-bolts steps to forming your very own company.
The Basic Steps to Forming your LLC are:
- Pick your Name
- Select a Registered Agent
- File with your State
- Write an Operating Agreement
- Comply and File
1. Pick Your Name
"Your LLC's name will most likely be the first impression upon potential customers, so you should take time to consider a name that will stand out from the crowd and convey the correct desired image of what your business stands for. Turn to your mission and values to find inspiration. In addition, consider how your LLC's name will perform across social media channels, and create mockups of potential names on marketing materials to help determine how visually appealing each potential name will be." - Than Merrill, CEO of FortuneBuilders
This step seems easy, but it can be trickier than at first glance. After all, if you’re inventing an industry—the world’s first flying dinner table—then naming your LLC is done for you. “Flying Dinner Tables, LLC.” But if you’re entering a competitive field, there already might be a dozen registered LLCs in your state with versions of the name you thought of.
Rather than deciding to be the seventeenth “A-One Roofer” in your state, you should try to find a name that says something meaningful and distinctive about you or your business. Some people simply use their own names as their LLC. That runs the risk, however, of associating you very personally with your business. You won’t have much privacy after that.
Another reason to not use your name is that if you ever want to sell your successful LLC and retire to a beach, you might have trouble finding buyers for a company with your personal name legally attached to it.
After you’ve picked a distinctive name, look up whether that business name is already being used. There are two Registered Agent Services we recommend (more on that later), and you can look up business names on their websites. They are ZenBusiness and Northwest Registered Agent Services.
You can also look up your business name on a website operated by your state. Be sure the website you check ends in “.gov,” otherwise it probably isn’t a legit government website.
Here are some other quick tips for picking your LLC name:
- Check to see if the name you want is already trademarked (use the official US Government website to check, here)
- Check with your state’s websites to see if there are any limitations on what words you can have in your name (for instance, California prohibits the words “corporation,” or “bank” in the name of any LLC)
- Don’t pick a name too attached to a city or neighborhood; this could limit your reach into other markets
- Do some internet searches; just because someone hasn’t trademarked or registered a name with the government doesn’t mean they haven’t already purchased a URL with that name; you’d hate to get your ideal company name, but never get to use it as a website name
After you’ve picked your name, and found out if it’s available in your state, it’s time to find a Registered Agent.
- We have a guide for creating an LLC in New York.
2. Select a Registered Agent
Finding a quality registered agent is a must for starting your own LLC. A registered agent, or Registered Agent Service, is legally required in every state. And it’s a great peace of mind to have one, as a new business owner.
If you want to use a Registered Agent Service, we recommend ZenBusiness and Northwest Registered Agent Services. Both of them offer a range of comprehensive services, from finding out if your preferred company name is available to filing paperwork on your behalf.
In fact, ZenBusiness will take care of every step we’ve included on this list. For a fee, they will help you choose your name, file your paperwork, and keep you current and up-to-date on all the required filings and tax compliances in the future. Meanwhile, if you’re doing work in multiple states, Northwest Registered Agents offers a flat fee for filing in multiple states.
Another important function of the Registered Agent is to take care of any court documents that might come your way. Let’s face it, owning a business opens you up to the risk of lawsuits and other legal actions. And you don’t want a person coming to your home and serving you papers, or interrupting an interaction with your customers at your business.
When you have a Registered Agent Service, then all court documents are delivered to their address, instead of yours or your company’s. That means you don’t have to risk the awkward or embarrassing service process.
If you decide not to select a Registered Agent Service, you must list one in the next step. The registered agent needs to be someone you trust to receive legal documents on behalf of your company. In addition, anytime someone does a records disclosure on your company, the name and address of the Registered Agent will show up.
Starting at $49
Starting at $225
Important: Your registered agent will be able to answer all your question and help you with the small issues.
3. File with Your State
This process is slightly different in every state. Again, we recommend you find the website in your state that handles the formation of LLCs, and make sure that website ends in a “.gov” URL.
Also, this is where a Registered Agent Service can really come in handy. When you retain a quality Registered Agent Service, they can walk you through the process, step-by-step. It can be frustrating trying to decode all the different terms and requirements on a state website, and sometimes the online forms can reload or reset without warning.
Having a Registered Agent Service take care of this part can be well worth the investment. Not only will it give you peace of mind that a professional is taking care of it, but it can free you up to do the things you got into business to do—whether that’s giving great customer service, lining up new clients, or sourcing machinery.
If you’re filing your paperwork with the state, yourself, this part may take the longest, and could be the most frustrating. But take your time; these are the legal tees you want to make sure you cross correctly.
States require that upon filing you have something called “Articles of Organization.” Some states word it slightly differently, like “Certificate of Organization.” Basically, they are forms you need to fill out with basic information about your LLC.
Every state has slightly different requirements for what needs to be in your Articles of Organization. But the basics are:
- LLC’s name
- Principal address
- Name and address of the Registered Agent
- Type and/or purpose of the LLC
- List of Managers (if it will be members of the LLC, or if you’re hiring an outside management company)
- List of Organizers (who’s involved in the ownership/founding of the LLC)
- Date when the LLC will begin doing business, and when it will stop doing business (if you plan to dissolve the LLC after a set amount of time, or if you intend to run it in perpetuity)
- List the Employer Identification Number (EIN)
A Note On EIN
You can think of the EIN as your company’s own Social Security Number. Not because you’re going to get retirement benefits for your LLC, but because the EIN is a nine-digit number used by the IRS to identify your company for tax purposes.
Many states require you have an EIN when you file your Articles or Organization, or have one within a set period of time. Banks will require you have an EIN before they will open a business account for you, and you will not be able to secure business credit without one.
Companies like ZenBusiness and Northwest Registered Agent Services can help you with EIN questions. There is also an FAQ page regarding online EINs, on the IRS website, here.
4. Write an Operating Agreement
Some states do not require you to have an LLC Operating Agreement. But if you have partners, investors, or managers, you want an Operating Agreement from day one.
There are boiler-plate Operating Agreements online, or you can get one from your Registered Agent Service, if you’ve retained one. The basic layout of an Operating Agreement is to list the members involved in forming the LLC, and how to handle disputes regarding capital.
If you’re forming your LLC by yourself, with no partners or other investors, then the Operating Agreement is largely straightforward. In fact, you can find several free templates, online.
However, if you’re starting your LLC with other members, who may have invested capital or money into your venture, then you should pay close attention to the Operating Agreement, and how it is worded.
The Operating Agreement will be used in latter days of your business for determining how to pay out to other members, what percentage of assets to allocate, and who is held responsible for losses.
Other purposes of the Operating Agreement Include:
Assigning who is able to open bank accounts on behalf of the LLC
How to handle the withdrawal of a member
How to assign property as well as interest
How to settle disputes between members, and how to represent members in official meetings
Determine ahead of time how records will be kept; who has responsibility to records; how each member can access the official records of the LLC
A Note on Membership Ledgers
In addition to your Operating Agreement, it can be helpful to start a membership ledger, right away. If you were a corporation, this would be the same as tracking stocks of your company. But because you’re forming an LLC, the people investing in your business are called “members,” instead of “stockholders.”
It’s important to maintain a list of members and their agreed percentage of interest, from the beginning, so that personal feelings don’t get in the way of good business later. It can save you a lot of headache, and possibly money, if you are maintaining a ledger for all members to see.
This ledger should include the exact date the members came on board; how much asset they brought (in cash, property, or capital) with an agreed upon rate; how long they intend to be members (in perpetuity or until a specified date); and what their withdrawal will look like.
If you have a member who you have not formally entered onto the ledger, and had properly notarized, they can claim to have given more the LLC; they can claim you promised them a bigger payout; and they can even declare that you promised them a certain amount of dividend by a certain date.
A ledger is a must when multiple members are on board from the beginning of your LLC.
5. Comply and File, File and Comply
Step Five is an ongoing and necessary step in the formation of your LLC. It involves maintaining the proper records and compliances involved with the operation of your business.
Because so much compliance is business specific, it doesn’t make sense to go into exactly what compliances you’ll need to follow. But some general guidelines are good to be aware of.
Licenses: If you are required to have any licenses for operation of your business, make sure you get them before your first sale. Examples of common licenses include Business and Occupancy (B&O); Liquor or Food Permits; Licensure for certain trades, such as contracting.
The licensing you need can change even depending on which city you are operating in. That’s why it’s important to check with your state, county, and city officials to see what licenses you might need. License violations can cost you a lot of money, or could even get you shut down. Better to look into it first than find out later.
Bonding: Certain states require an amount of Bond held in your company’s name. This is like an insurance amount, held by a third party, in the case of malpractice or lawsuit. If you’re in an industry where you must be bonded, you were probably made aware of it during your licensing procedure. If not, check with your local authorities. You must be bonded before you can accept work.
Taxes: There are only two things for certain in life, so the saying goes. Keeping up to date on all your financial records, from day one, will save you a lot of headache in the long run. Keep track of every dime, because you will be responsible for it. As an LLC, you will have certain protections. But as a small business, you could also be eligible for assistance. In the case of assistance requests, or if the IRS comes calling, you’ll want to have all your taxable revenue and expenditures on file, accurately recorded.
Annual Filings: Always check with your state, county, and city authorities on what paperwork you will need to file every year. Some states require that LLCs file an annual report; some cities require that you update your licenses every year. If you’re using a Registered Agent Service, like ZenBusiness or Northwest, they can help keep these sorts of deadlines on your radar. Not filing in a timely manner can prove disastrous for your business.
Making sure you comply with all the statues and regulations in your industry is essential to operating a successful LLC. After all, if you run afoul of an agency that has jurisdiction in your industry, it will be next to impossible to rebuild your reputation, especially among your clientele.
Your LLC is Formed—Now What?
Now it’s time to get to work. After you’ve followed these five simple steps, your LLC is formed, and you can legally operate as a business. But there’s still a lot to do.
We recommend looking into the following three tips during your LLC start up. They can be essential to success. After all, you’ve just formed your small business, now it’s time to make sure it sticks around.
Bank Account and Funding
Finding a quality bank with a good LLC bank account can be tricky. Shop around. Ask questions. Don’t just go with the first bank that will have you.
Same goes with funding. You may find that securing credit as an LLC is a lot easier than finding personal credit. That means you can be choosy. Don’t take the first line of credit you see. Check interest rates and double check terms. It can be tempting to grab the first line of credit you can to start building up your company, but remember, credit follows a business around.
Join a Local Chamber of Commerce
The local Chamber of Commerce can be a great place to meet mentors, find answers to common questions, and learn the ropes of compliance in your area.
We know a lot of the reason to own your own business is independence. But it’s also important to remember that we all need a little help, now and then. A Local Chamber of Commerce can help you navigate complicated city ordinances, help you renew licenses more quickly, and can even help you select a bank.
Ask for Help
You’ve already taken a big step by finding and reading this article. No one knows how to do something perfect, the first time. So find people you trust, and pick their brains. Keep reading around. And definitely look into a company that can help out, like ZenBusiness and Northwest Registered Agent Services.
Why Should I Form an LLC?
If you’re still not sure why you should choose an LLC instead of forming some other corporation, you’re not alone. It can be confusing and often times seem like there’s no clear answer. For us, forming an LLC has three advantages over forming any other corporation.
Easier and cheaper to form: in most states, it is cheaper and easier to form an LLC, and cheaper over time to maintain one.
Liability: as the acronym says, you will be a Limited Liability Company. Emphasis on the Limited. If anything goes wrong with your business, as an LLC, it will be harder for creditors or litigants to come after your personal assets.
More tools are available: forming an LLC has become so popular that a whole cottage industry has arisen to assist people in forming and maintaining them.
Can I Form an LLC for a Certain Period of Time?
In most states, yes. That means you can form a holiday tree cutting LLC that only operates this Winter, and then dissolve it at the end of the season. That’s one of the great things about an LLC; when it’s done serving your purposes, you can dissolve it.
How Much Does it Cost?
This really depends on the state. In some states it’s as cheap as a few dozen dollars to form an LLC; in Massechutess it’s over $500.
Can I Operate in a Different State than Where I File?
No. Absolutely not. You must file as an LLC in every state you intend to do business in. That’s where a Registered Agent Service, like Northwest, really comes in handy.
Can I Form an LLC before I’m Ready to do Business?
You most assuredly can. In fact, if you’re sure you want to own or operate a business, but you know you don’t have all the money right away, you can start your LLC anyway. It can be advantageous if you have a great name, or a great idea, to do what work you can, as soon as you can. Starting the LLC is the cheapest part of starting your own business, so you can get it taken care of almost any time you’re ready with your idea.