If you're looking to transform your enthusiasm into a profitable venture, starting an LLC is a widely acknowledged means to safeguard your individual assets and obtain the advantages of a structured business setup. However, where should you commence?
This article will steer you through the procedure of how to open an LLC, right from selecting a name to completing formalities, allowing you to concentrate on expanding your enterprise with assurance. So, let's begin!
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How to Start an LLC in 7 Simple Steps
A lot of small business proprietors choose to open an LLC (Limited Liability Company) due to the security it offers against liability. An LLC is a distinct legal entity from its proprietors or members, which means that the members aren't personally accountable for the business's debts. To set up how to start an LLC, you'll need to submit the appropriate documentation to the state where your business is situated. Each state has its own set of regulations and procedures, but there are some common steps you'll need to take, regardless of your location, to begin operating your LLC.
The following are steps on how to get an LLC
Step 1: Choose and Reserve a Name for Your LLC
In most states, it’s not permitted for two different business entities to open an LLC and share the same name, regardless of their location. This means that if you have a business called "Joe's Donuts, LLC," you cannot have another business named "Joe's Donuts, Inc." Also, some states have limitations on specific words that businesses can use in their names, like the word "bank." It’s advisable to search online for existing business names in your state to check if your proposed LLC name is available before filing the necessary paperwork.
Apart from adhering to state law regulations, it’s advisable to research to determine if other similar businesses in your locality are utilizing identical or comparable names. Opting for a unique name can help prevent confusion and legal claims related to trademark infringement. It may be worth checking if a domain name that aligns with your business name is available.
In case you open an LLC, you have decided on an LLC name that’s available, but you don't plan to register your business documents immediately. You may want to reserve the name until you open an LLC. Most states allow you to reserve a name for a specific period by submitting a form and paying a reservation fee. The length of the reservation period, charges, and renewal policies vary from state to state.
Step 2: Choose a Registered Agent
In almost all states, to open an LLC, one is required to designate a registered agent, also known as a statutory agent. This agent is responsible for receiving legal documents, such as lawsuits and subpoenas, on behalf of the LLC and forwarding them to the appropriate person within the organization. As per state laws, any state resident over 18 years of age, including a member or officer of the LLC, can serve as a registered agent. Alternatively, companies such as Northwest Registered Agent offer professional registered agent services at a cost.
Step 3: File Organization Paperwork With the State
To open an LLC varies from state to state and involves specific procedures. Typically, one needs to submit articles of organization that specify details like:- The LLC's name and address
- The duration of its existence (unless it’s perpetual)
- The registered agent's name and address
- The intended purpose for forming the LLC
- The signature of the person forming the LLC
- In certain states, the registered agent's signature may also be required
When getting on how to start an LLC, the usual process is to submit the necessary paperwork to the secretary of state in the majority of states. However, a few states have an alternative agency responsible for managing business filings. While all states require a filing fee, the cost to open an LLC differs among states.Step 4: Prepare an LLC Operating Agreement
The LLC operating agreement outlines the guidelines for managing your LLC. It covers crucial details like the distribution of ownership interests and voting rights among members, the allocation of profits and losses, protocols for conducting meetings, governance of the business, member rights in case of death or departure, and the dissolution process in case of a business closure. All of these elements are essential for the smooth operation of the LLC.The state may not require the operating agreement to be filed, and it may not be mandatory by state laws. Nonetheless, entrepreneurs must utilize this document as it enables them to establish their obligations and rights and lessen potential conflicts.
Step 5: Determine the Licenses Needed
The state may not require the operating agreement to be filed, and it may not be mandatory by state laws. Nonetheless, entrepreneurs must utilize this document as it enables them to establish their obligations and rights and lessen potential conflicts when they open an LLC.Step 6: Get an EIN
To proceed to open an LLC, obtain an Employer Identification Number (EIN), which serves as a Social Security Number for your business. The EIN is an exclusive identification number that’s vital for various business requirements, such as banking, taxation, and recruitment of employees.
Step 7: Register to Do Business in Other States (Optional)
If your LLC operates in multiple states, it may be necessary to register your business in those states. To register, you'll need to complete paperwork similar to what was done during the formation of your LLC. Additionally, a registered agent must be present in each state where your LLC is authorized to do business. LLCs are a popular business choice for small business owners due to their flexibility and ease of maintenance, but it’s crucial to properly fill out paperwork and establish an operating agreement to define member rights and responsibilities.
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Important Steps to Follow After Forming an LLC
File Annual Reports
Okay, this step is usually applicable after you’ve been trading for a tax year, but it’s useful to know it now. An annual report, also known as a “statement of information”, provides your state with crucial details relating to your business, including any changes or information that occurred since your last filing period.
This enables your state to inform you of any added legal requirements, such as licenses you might need to continue doing business.
A good piece of advice when one needs to open an LLC is to start a system that records all your business’s dealings. This way, you won’t have to spend days or weeks looking for necessary paperwork with a deadline looming ever closer.
What Should You Include in Your Annual Report?
Include your LLC name, office address, your registered agent’s information (if you’ve used one), and the LLC number that your secretary of state provided upon forming. Each state has its own LLC laws and regulations and varying requirements for inclusion in an annual report. When it comes to providing information about your business, certain key details should not be left out.
- These include your primary business address
- The names and addresses of your members and managers
- Any important identification numbers associated with your business (such as your state entity number)
- The purpose of your business
- A list of authorized signatories
- Information regarding your registered agent, and instructions on how to file your annual report
If you own an LLC, submit an annual report to the state, and this can be done through the state's website. It’s important to note that a fee is required to submit this report, and the amount varies depending on the state. For instance, Mississippi charges $50, while Massachusetts charges $500.What Happens if You Don’t File an Annual Report for Your LLC?
Even though it may appear as a mere formality, submitting your yearly report within the deadline is crucial, as the repercussions of not doing so can be severe. In certain states, you may face late charges, fines, and levies, and in some instances, your Limited Liability Company may be dissolved.Open a Business Bank Account
Even though state and federal laws don't mandate LLC owners to have a distinct business account, it’s advisable to have one due to various compelling reasons.- If you don’t open a business account, you may risk losing your limited liability protection as it separates your personal and business finances. It’s important to have a separate entity to increase the likelihood of maintaining your protection.
- Creating a distinct bank account for your LLC can enhance the image of your business by projecting a sense of reliability and expertise.
- It’s much simpler to have a clear understanding of your financial situation when you maintain separate accounts for your personal and business transactions.
- The feature also aids your accountant in determining which expenses are business-related and which ones are personal. This is particularly beneficial when preparing your tax return at the end of the year.
- Keeping track of your business expenses helps maintain a steady cash flow.
Obtain the Required Business Licenses and Permits
While forming an LLC in many states does not require a business license, it’s essential to obtain one along with other permits to ensure that the LLC operates in compliance with state laws. The specific requirements for licenses and permits may differ depending on the state. To determine the necessary licenses and permits for your LLC in its registered state, you can visit the SBA website. The application process for licenses and permits can be completed online.
License types:
- Health inspection certification
- Alarm permit
- Sales tax registration
- Weights and measures registration
- Unemployment and worker's compensation registration
- General business license
- Professional/occupational licenses
How to Obtain Business Licenses and Permits?
To begin, select the state where you plan to operate your business, followed by the city and county. Then, navigate to the Small Business Administration's website and locate the relevant information pertaining to the regulations of your area. It’s important to have your Employer Identification Number (EIN) on hand, which can be obtained through the Internal Revenue Service's website. In addition, you will need to obtain your business code, which can be found on various websites offering this service.
Make sure to check if any permits are required in addition to the business license. Finally, be prepared to pay the filing fee, which can range from $50 to $500, using a credit card.
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Learn More About Tax Requirements
When starting an LLC, it’s highly recommended to hire an experienced accountant who has knowledge and expertise in managing LLCs. Additionally, educate yourself about tax laws related to your business structure. The type of taxation you will face depends on how you choose to structure your business, such as opting for Sole Proprietorship (for single-member LLCs), Partnership (for multi-member LLCs), or selecting an S-Corp status. These decisions are crucial for the success of your LLC.
The role of accountants isn’t limited to ensuring compliance with tax laws and timely filing of returns; they can also help save a considerable amount of money through legal tax reduction techniques, which a general accountant with limited experience may not know.
However, it’s possible to minimize the accounting bill by organizing the debit and credit records effectively.
LLC Tax Filing Tips
To begin with, it’s important to identify and make use of any applicable tax credits or deductions that your LLC is eligible for. Secondly, it’s crucial to be aware of and note down the deadlines for business taxes well in advance, which can be done by consulting a calendar. Additionally, you have the option of engaging the services of a certified tax professional or accountant to handle your tax filings.
Finally, it’s imperative to conduct thorough research and gain a clear understanding of your state's tax regulations, as the specific forms required to complete your LLC taxes will vary based on three factors.
- If your LLC has either one or more members
- It’s important to consider corporate tax status options if you choose the pass-through option
- Additionally, if your LLC has staff members, this should also be considered
Get Business Insurance
If you own a business, having insurance can be useful in safeguarding you from unexpected incidents, such as harm caused by water or fire, damage to your property or inventory, lateness in meeting a deadline, or unauthorized access to your client's information. Additionally, it can also provide coverage for everyday hazards like accidents involving employees, injuries caused by slip-and-fall, and business disruptions due to supply chain issues. Furthermore, some policies may include compensation for business interruptions and legal expenses.
In case a customer gets injured while on your business premises, it may be necessary to obtain "public liability insurance." Additionally, the insurance requirements for LLCs may vary depending on the state, with some mandating additional coverage and others giving you the option to choose.
If you have employees, it’s mandatory to have workers' compensation, unemployment, and disability insurance. To determine the precise insurance prerequisites for your business model, visit your state's website.
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Best LLC Formation Services
Starting a business involves the complicated and time-consuming process of registering it. It can be overwhelming for entrepreneurs to fulfill various legal and administrative requirements to complete the registration process successfully. However, various online LLC registration services can offer comprehensive solutions to assist entrepreneurs and small business owners in starting and managing their companies.
This blog post provides an overview of some of the best business registration services available and offers advice on selecting the most suitable one for your business requirements.
ZenBusiness is an internet-based LLC formation service that provides a wide array of services to assist startup owners and small business owners in initiating and expanding their enterprises.
They offer economical and all-inclusive LLC formation plans, which comprise registered agent facilities, yearly report submissions, and other functionalities.
Furthermore, ZenBusiness delivers continuous backing and resources to aid businesses in adhering to regulations and thriving.
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Swyft Filings is a service provider that specializes in swift and hassle-free LLC formation. Their services include a variety of LLC-related tasks such as incorporation, compliance, and registered agent services. Swyft Filings offers personalized assistance to help businesses maneuver through the LLC formation process and stay compliant with federal and state rules.
Read the Swyft Filings review.
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Tailor Brands is a digital platform that assists companies in developing a consistent and expert brand image. They provide various branding bundles that incorporate the creation of logos, business cards, and social media branding. Moreover, Tailor Brands offers a collection of design resources and tools to guide businesses in designing their unique brand assets.
Read more about Tailor Brands here.
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Northwest Registered Agent provides customized assistance and a variety of business solutions, such as registered agent services, document filing, and compliance management.
Their expertise lies in LLC creation, and they offer continuous resources and guidance to aid businesses in maintaining compliance and expanding. LLC formation services are a reliable area of specialization for Northwest Registered Agent.
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Incfile is a company that offers LLC formation services that are both speedy and reasonably priced. Their services include registered agent services, compliance management, and document filing, and they offer several package options. The process of forming an LLC with Incfile is made simple and straightforward, thanks to their user-friendly platform.
They also offer continued assistance and resources to ensure that businesses remain compliant and prosperous. Incfile is an excellent choice for LLC formation services due to its emphasis on affordability and convenience.
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Why Form an LLC?
LLCs are a preferred choice for individuals and teams who aim to start a successful business venture. They opt for LLC formation for various reasons, which may include:- Low startup cost: In many cases, setting up and maintaining a Limited Liability Company (LLC) is less expensive than establishing a corporation. Fees for LLCs can be as low as under $100 in certain states, making it a suitable option for individuals who wish to create an LLC without incurring significant expenses.
- Tax-related benefits: Limited Liability Companies (LLCs) have the advantage of being considered pass-through entities, which allows them to be included in personal tax filings while keeping business assets separate from personal finances.
This is a popular choice among LLC owners who want to avoid being taxed twice. However, LLCs can also be classified as sole proprietorships, partnerships, C-corporations, or S-corporations for tax purposes.- Liability shielding: The term LLC stands for Limited Liability Company, which means that it protects both the members and owners from any potential liability. This protection is achieved by properly identifying and safeguarding the business's assets, which prevents the members' personal assets from being at risk in case the company becomes involved in a legal dispute.
Starting an LLC can be a straightforward process with the help of available companies to assist with paperwork and annual obligations, like submitting annual reports. It’s not a complicated task to learn.Types of LLCs to Consider
If you're planning to open an LLC, it's important to be aware of the various types of LLCs that exist. This knowledge is crucial in deciding which business model is best suited for your company and its intended operations. The available LLC structures include:- Single-member LLC: When you open an LLC that’s run and possessed by one individual. Although it resembles a sole proprietorship, it offers more advantages in terms of tax and protection against liability.
- Multi-member LLC: When you open an LLC that have multiple members is typically categorized as either manager-managed or member-managed entities,
- L3C: The term "low-profit liability companies" refers to entities that serve as a connection between nonprofit and for-profit LLCs. These entities prioritize the business's mission over profit.
- Series LLC: Series LLCs are business structures that consist of several tiers, where the highest level LLC owns a range of lower-level LLCs that are separated without any limits. Each LLC in the series operates independently, and their assets are kept separate from each other.
- PLLC: This type of business formation, known as a specialized LLC, is restricted to licensed professionals only and does not apply to all types of businesses.
- Restricted LLC: LLCs that have restrictions mentioned in their articles of organization are exempted from taxation for the initial 10 years after their formation. Additionally, such LLCs aren’t allowed to distribute profits to their members. It’s mandatory to declare such restrictions in the articles of organization.
- Uncommon: Anonymous LLC
An LLC is deemed "anonymous" when its owner isn’t publicly identified by the state, though there’s no legal designation for this type of entity. While you open an LLC, it’s typically a matter of public record. Some individuals may want to keep their information private for various reasons. For example, a single-member LLC owner who operates a business from their home may not want that information to be publicly known. Currently, only a few states, including Delaware, Nevada, New Mexico, and Wyoming, allow it to open anonymously.
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How to Start an LLC – Frequently Asked Questions
Should I Get an LLC for My Small Business?
The most widely used type of business entity is the Limited Liability Company due to its simplicity, flexibility, and ease of establishment. This structure also offers liability protection, which means that the owners of the LLC will not be held accountable for business-related debts. Furthermore, it provides pass-through taxation, enabling the LLC's profits to be claimed on the owners' personal income tax returns without being taxed first.
Can I File for an LLC on My Own?
It’s possible to open an LLC independently by using the free, detailed instructions provided in the How to Start an LLC guide. Alternatively, you may choose to engage the services of LLC providers such as Swyft Filing or ZenBusiness to establish your company. It’s important to note that all necessary information is included in the guide.How Much Does it Cost to Start an LLC?
The cost to open an LLC varies depending on the state filing fees and whether you opt for self-filing or hire professional assistance. The expenses can range from $50 to $500, and if you choose to work with a third-party formation company, they may charge an additional fee of $40 to $350 for their services to open an LLC.Is it Possible to Set Up an LLC for Free?
Registration fees for LLC formation differ from state to state, but every state requires a fee to be paid to open an LLC. Despite some companies promoting "free" LLC formation, this simply means that they will complete the paperwork on your behalf without charging a fee. However, you will still be required to pay the state filing fee to open an LLC.Bottom Line on How to Start an LLC
It's common to feel anxious about creating an LLC business, but with the information provided in this post, you can take the necessary steps. Follow the provided guidelines and seek help from other business owners in your community or consider using an LLC formation service like ZenBusiness if needed. Remember, you have support available throughout the process.>> Use ZenBusiness to Start an LLC >>
Moneycontrol Journalists were not involved in the creation of the article.
