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Guide to Forming Your Own Limited Liability Company (LLC)

You’ve got the makings of a great business plan, and you’re ready to get started — but you realize there are a few legal requirements that need tending to before you hit the ground running.

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LLC 1

Step 1:

Name Your LLC

Step 1 : Name Your LLC

The first step in the process of forming an LLC in any state is choosing a name that complies with your state’s rules. These rules can typically be found on your state’s secretary of state website. Though the rules can sometimes vary, you can expect to comply with at least the following guides:
1.
The name must be different from any other LLC operating in the state. Typically it is simple to check your state’s database for name availability. You can also reserve a name for a period of time and a nominal fee. This can help ensure your name is available when your company is ready to file official paperwork. Just be sure your company’s name does not violate the trademarks of any other company.
2.
The company must include the “LLC” or similar title in the moniker. The full term or various abbreviations are deemed appropriate via your state’s outlined rules.
3.
Your company name is prohibited from including certain words like “bank,” “insurance,” or “corporation.” Again, each state may differ slightly on exclusions.
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Step 2:

Choose a Registered Agent

Step 2 : Choose a Registered Agent

Every state requires LLCs to have a registered agent for service of process. This means your LLC must have an agent that agrees to physically accept any legal papers on the company’s behalf should it be sued. The registered agent does not have to be an individual person; it can be any resident of the state where you are forming your business or a business entity authorized to do business in that state so long as the agent has a physical street address within the state.

Step 3:

File the Articles of Organization

Step 3 : File the Articles of Organization

The next step in forming your LLC is to officially file your paperwork with the state in order to be recognized and operable. In most states this is referred to as “filing articles of organization”, but some call it a “certificate of formation.” Either way the process is generally the same. You’ll need to supply the appropriate information about your LLC to the state along with a filing fee. The most commonly required information includes simple facts like the name, address, and ownership of your LLC. You will also be required to provide a registered agent at this time. An agent is the person or entity responsible for accepting legal paperwork in the event that your company is sued. Fees are generally nominal but vary by state.
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Step 4:

Create an Operating Agreement

Step 4 : Create an Operating Agreement

Though not commonly required by state law, an LLC operating agreement serves much like partnership agreements or bylaws for corporate entities. They are essential for outlining the rules for ownership as well as the operation of your business. Typically you’ll want your operating agreement to include the following information:
1.
Members’ percentage interests in the business
2.
Members’ voting power as well as rights and responsibilities
3.
How profits and losses will be allocated
4.
Means of management as well as rules for holding meetings and taking votes
5.
“Buy-sell” provisions, which outline procedures for if/when a member wishes to sell their interest, passes, or becomes disabled

Step 5:

Apply for an EIN and Review Tax Requirements

Step 5 : Apply for an EIN and Review Tax Requirements

An IRS Employer Identification Number (EIN) is required for your LLC unless it is a single-member LLC with no employees. Obtaining an EIN is as easy as completing the application on the IRS website.
Though not commonly required by state law, an LLC operating agreement serves much like partnership agreements or bylaws for corporate entities. They are essential for outlining the rules for ownership as well as the operation of your business. Typically you’ll want your operating agreement to include the following information:

What are the costs of forming a limited liability company (LLC)?

The costs to file an LLC vary state by state. Generally speaking, the fees can range anywhere from $40 to $500. In most states you can file an LLC online using a credit or debit card or by mail with a check or money order. Visit your Secretary of State’s website to find all of the LLC filing fees associated with your particular state.

In addition to the filing fee, some states also require business license fees, publication fees, name reservation fees, and other filing fees. There are also recurring costs that are required to maintain your LLC. These can include filing annual or biennial reports, license and permit renewals, and franchise taxes.

But the biggest cost in launching your LLC may be in time and energy. Having a service that already knows the ins and outs of forming and running a business not only saves you time, but also eliminates the stress and frustration of wrestling red tape and government bureaucracy. ZenBusiness can file your paperwork for you, provide a registered agent service, and supply an Operating Agreement template for as low as $49 plus state fees.

What are the benefits of a limited liability company (LLC)?

There is a lot at stake when you start your own business. An LLC is a crucial component to the safety and security of your personal assets. It helps to keep business and personal separate, so you are protected from any business debts, claims, lawsuits, etc., anywhere down the road. It’s this reason, among others, that so many business owners decide to form an LLC.

In addition, here are some other benefits of an LLC:

  • Flexible management structure
  • Avoid double taxation
  • Customizable ownership options
  • Less-complicated procedures
  • Establishes your business as official

Flexible Management Structure

As opposed to a corporation, there is no board of directors required for an LLC, which means there is no requirement to have annual meetings to choose those board members. LLC owners have a lot more freedom and flexibility in the way they choose to run the business.

Avoid Double Taxation

LLC owners benefit in that they don’t have to submit two separate tax payments to the government. They pay their business taxes through their individual tax returns, rather than paying corporate taxes and personal taxes on their income as corporate shareholders do.

Customizable Ownership Options

LLCs can be made up of multiple members, and those members have the freedom to determine their ownership percentages. They can be based on each member’s monetary contributions to the business or some other criteria that they set forth in the Operating Agreement.

Less-Complicated Procedures

The requirements for meetings, minutes, bookkeeping, reporting, etc., are much less complicated for an LLC than for a corporation. Even though these rules vary somewhat state by state, LLCs still require less formality and paperwork.

Establishes Your Business as Official

Once your filing is approved, the state recognizes your business as an official limited liability company. This is ideal when dealing with new members, customers, or clients, as people may be more willing to work with and trust your company when they see “LLC” in its title.

What are the disadvantages of a limited liability company (LLC)?

As with all business ventures, there are pros and cons to consider. Forming an LLC might not always be in your business’s best interest due to various restrictions, some of which vary depending on your specific state’s LLC laws.

Some disadvantages of forming an LLC include:

  • Only recognized in the United States
  • Stock is not available
  • Fees required

Only Recognized in the United States

LLCs are only recognized in the United States. If you plan to do business in other countries, an LLC might not be the best decision, as out-of-country business would be difficult.

Stock Is Not Available

Many times, businesses grow because of the capital gained from outside investors. LLC owners cannot issue shares of stock in their company, so this avenue of increasing revenue to grow the business is not an option.

Fees Required

Every state is different concerning the formation costs of filing an LLC — and there is a pretty large range. Some are $50, and some are as much as $500. Some states also charge an annual franchise tax.

How is a limited liability company (LLC) taxed?

As mentioned, avoiding double taxation is one of the main benefits of starting an LLC; however, it’s important that LLC owners understand the individual taxes they are responsible for.

By default, an LLC with one member is taxed as a sole proprietorship, and an LLC with multiple members is taxed as a partnership. These members are considered self-employed and are responsible for paying self-employment taxes. LLC owners also have the option of being taxed as a C corporation or S corporation, which may be advantageous to some LLCs.

LLC business taxes may also include:

  • Employment taxes, including taxes on Social Security, Medicare, workers’ compensation, and unemployment (if you have employees)
  • Property taxes (if you own property)
  • State sales and excise taxes
  • Franchise taxes

Each state has its own set of tax regulations. Check with your state’s Department of Revenue and the IRS to familiarize yourself with these rules. It’s always wise to consult a qualified accountant when navigating tax laws.

More Limited Liability Company (LLC) FAQs

What is the processing time to form my LLC?

It varies by state, but the standard time frame is two to three weeks from when the state receives your documents, whether online or by mail, but can be expedited for an additional fee.

Where should I form an LLC?

It is usually best to form an LLC in the state where your business is located.

Do I need a lawyer to form an LLC?

No. You can form an LLC by yourself. There is no requirement to use a lawyer. Sign up with ZenBusiness today for expert help navigating the process.

Do LLCs get a 1099?

If your LLC is filed as a corporation, you won’t need a 1099 for the business. However, if your LLC employs independent contractors, you will need to file 1099 forms for these individuals.

How do I dissolve my LLC?

The steps may vary state to state, so check your state’s LLC dissolution procedures. Generally, the timeline is the same. You must file the Articles of Dissolution with your Secretary of State, and then file cancellations in any other states that your LLC does business in.

Next, you must file your final tax return, pay any final payroll taxes, and close your EIN. There is a lot of paperwork and steps involved in the process. ZenBusiness can help ensure that you successfully dissolve your LLC without any hiccups along the way.

Can an S corporation own an LLC?

Yes. Since an S corporation is a business entity, it can be the owner (or a member of) an LLC, but an LLC cannot own an S corporation — individuals can only own them.

However, an LLC can be taxed as an S corporation if it meets an S corporation’s eligibility requirements, which include having a limited number of shareholders who are U.S. citizens. To find out if your LLC is eligible, sign up with ZenBusiness today.

Can an LLC be a nonprofit?

Yes, but it’s not all that common. Certain requirements must be met, and it can be a little confusing to understand all of the legalities. It’s always wise to seek a legal and/or financial professional when considering these questions.

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Other Considerations

Notice of Intent and Business Licenses

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Publishing a Notice of Intent

Though not required in most states, some do require that you publish notice in a local newspaper stating your intent to form.

This must be repeated several times over the course of many weeks before you can then submit an “affidavit of publication” through your state’s filing office. Check with your state’s rules on LLC formation to see if this step applies to you.

Business License

Business Licenses

Some industries will require you to secure state and local licenses to legally operate in their state.

The location and type of business you are creating will ultimately determine what is required. Visit your state’s Department of Licensing and Regulation website to ensure you have all the appropriate licensing.

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