Are you finally ready to take the plunge into formalizing a new small business? Our quick guide can help you navigate the process of setting up an LLC, allowing you to start generating revenue!
If you have been operating as a small business owner (either off the books or as a sole proprietor) then setting up an LLC that exists separately from your personal identity is a great way to establish liability protection.
Thankfully, LLCs are not at all hard to set up. To form an LLC, you’ll just need to file paperwork with the state where your business operates.
While each state has its own procedures and rules, there are many common steps that you’ll need to follow independently of where you live.
FIRST THINGS FIRST, WHAT IS AN LLC?
A Limited Liability Company (LLC) is a business structure in the U.S. that protects its owners from personal responsibility for its debts or liabilities.
WHAT ARE THE BASIC STEPS TO FORM AN LLC?
GETTING A NAME
In most states, it is not allowed for two businesses to exist with the same name. Before settling for a name, you will need to confirm your business’ name availability in your state. Many states allow you to search existing business names online.
Besides the legal part, it’s also a great idea to check if there are similar named businesses in your area, so you can avoid any confusion on your brand’s identity.
Once you’ve checked your name availability, you can reserve the name if you aren’t planning to file your LLC documents right away. This can be done with the filing of a form and a reservation fee; with reservation period, fees and policies varying from state to state.
CHOOSING A REGISTERED AGENT
A requirement in almost every state is a registered agent (also called the statutory agent), which is a person who agrees to receive lawsuits, subpoenas and any official documents on behalf of the LLC and to pass them along to the appropriate person at the LLC.
While there exist companies that offer registered agent services for a fee, in most states any state resident of legal age (18 or older) is allowed to serve as a registered agent.
PREPARING AN LLC OPERATING AGREEMENT
An LLC Operating Agreement is a legal document that describes the way your LLC will be run, outlining:
- the ownership and member duties
- interests and voting rights
- the way profits and losses will be allocated
- how meetings will be held, the governing form
- the rights of the members if one of them dies or leaves the business
- and how the company will be dissolved in the case it goes out of business.
While this document isn’t typically filed with the state and may not be required by the law, it serves as an important way for business owners to avoid future disagreements by setting and defining rights and responsibilities.
FILING ORGANIZATIONAL PAPERWORK WITH THE STATE
While each state has its own procedures for forming an LLC, in general you must file articles of organization that list things as the name and address of the LLC, the length of its existence, the name and address of the registered agent, and the purpose for which it was formed.
All states charge a filing fee for this paperwork that varies from state to state, and it must usually be signed by the person forming the LLC and, in some states, also by the registered agent.
GETTING A CERTIFICATE FROM THE STATE
Once the formation documents are filed and approved, the state will issue a document that formally confirms the existence of your LLC. After obtaining this certificate, you can go ahead with business matters such as obtaining a tax ID number, business licenses, and a business bank account.
I’ve filed for my LLC, Now What’s Next?
Once you’ve fulfilled these steps, you’re set to start a business with your freshly formed LLC.
While you wait on confirmation of paperwork from your state, we recommend reserving your business’ name as a URL (or web address) and start thinking about building a new website for your small business.
Lucky for you, we may know a guy!