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Are you a business owner seeking to limit your personal liability for business debts and lawsuits?
Do you want to protect your personal assets while enjoying the flexibility of a partnership or sole proprietorship?
If so, forming a limited liability company (LLC) is the perfect solution you're looking for.
An LLC combines the best of both worlds, offering the limited liability protection of a corporation with the simplified management structure and flexibility of a partnership.
By forming an LLC, you can protect your personal assets and minimize your exposure to business risks.
But where do you start?
Don't worry, Certify My Biz got you covered. In this step-by-step guide, we'll show you how to create an LLC quickly and easily, so you can focus on growing your business without worrying about legal and financial liabilities.
5 Steps to Launch Your LLC
So you’ve made your mind on creating your LLC but don’t know where to get started? Don’t worry, we’ve got you covered. Follow these simple steps to create your LLC company today;
Step 1: Selecting Name for Your LLC
The first step of LLC creation is to choose an appropriate name that accurately represents your business. Your LLC name should not be misleading or identical to another active business's name in your state. LLC names must meet several requirements that may vary from state to state.
These requirements include:
● Distinction: Your LLC name must be unique from other active businesses in the state. Most states have an LLC name availability search tool on their government department overseeing business creation websites to verify whether your desired name is available.
● LLC Indicator: Your LLC name must contain an indicator that your business is an LLC. This can be one of the following: Limited liability company, Limited company, L.L.C., LLC, L.C., LC. Your indicator must reflect your LLC type if you have a professional LLC, series LLC or L3C.
● Restrictions: There are specific terms that your name generally cannot contain, such as words that mislead the public about the type of services you offer or imply that you are affiliated with the government.
Once you have decided on a name, you can reserve it so no one else can take it.
2. Selecting a Registered Agent for Your LLC
Once you've finalized the name of your LLC and reserved it, it's now the time to select a registered agent in your state for your LLC.
A registered agent acts as a point of contact between the government and your LLC, receiving crucial legal and tax documents like service of process or annual renewal forms on behalf of your business.
The agent must have a physical address (not a P.O. Box) in the state where your LLC is established and can either be an individual or a business entity, commercial or non-commercial.
Commercial registered agents (CRAs) typically provide registered agent services as part of their business and are usually listed in a state database. Many LLC formation companies and other businesses offer registered agent services for an annual fee.
Non-commercial registered agents do not provide registered agent services as part of their everyday business. This agent could be someone you know and trust, one of your members or your business attorney.
Requirements for a registered agent generally include the following:
Being an individual over the age of 18 or an entity authorized to do business in the state
Having a physical address in the state
Being available during business hours to receive mail
Not being the LLC itself
While some LLC owners may choose to serve as their own registered agents, it's important to note that you must be available during all business hours to receive important legal or tax documents.
An alternative option is to have a virtual address for LLC mail, which can offer more flexibility in leaving the office during the day, taking a vacation, or simply having more privacy since registered agent addresses are public records.
Your state may provide a list of commercial registered agents, or you can conduct a simple online search to find one that suits your needs.
Step 3: Filing LLC Formation Paperwork
The third step of LLC creation is filing the formation documents to make your LLC official.
Depending on your state, the documents may be referred to as "certificate of information," "articles of organization," "statement of information, " or "articles of incorporation,". The required filing fee varies from state to state and usually falls between $50 to $520.
Your articles of incorporation will contain the following:
● Basic information, such as your LLC's name and business address.
● The names of its owners or members.
● Your registered agent's name and information.
● The LLC's structure.
Typically, an LLC can be structured as either member-managed, where the owners are responsible for day-to-day business operations, or manager-managed, where a designated member or a third party is responsible for business affairs. In contrast, the owners take a more passive role.
You can submit your documents online through the Secretary of State's office, or you may choose to use an online LLC filing service. Using a filing service takes the guesswork out of starting an LLC, helping you choose a compliant business name, acting as your registered agent, and filing your paperwork with the state."
Step 4: Drafting an LLC Operating Agreement
Although only a few states require an operating agreement for LLC formation, every business should have one. The contract is a legal document outlining the business's rules, regulations, and provisions. It covers issues such as the powers and responsibilities of members and managers, the sharing of profits and losses, and how buyouts or dissolution will be managed.
Without an operating agreement, the state's LLC laws will apply by default, which may not be favorable for your business. For instance, some state LLC laws require unanimous consent of members for managers to make certain business decisions, which can cause delays. An operating agreement that states that two-thirds of the membership has to agree to these decisions can speed up the process.
Operating agreements also outline members' duties and responsibilities to avoid confusion regarding who is responsible for what. Additionally, they protect members from personal liability for the activities of the LLC, which is a significant advantage of having an LLC in the first place.
Several LLC formation companies offer templates for operating agreements. However, suppose your business is complex, such as operating in multiple states or having many members and employees. In that case, it may be best to have an attorney review the agreement initially and whenever you make changes.
Step 5: Applying for LLC Tax Identification Numbers
Once your LLC is official, you must set up with the federal and state governments to pay LLC taxes in most circumstances.
Federal Employer Identification Number (EIN)
An EIN is required to pay employment taxes and engage in other activities, such as opening a business bank account for an LLC. Obtaining an EIN is free through the Internal Revenue Service (IRS) website, but some formation companies may request one for you as part of their service. Many states won't require an EIN if you have a single-member LLC and don't plan to hire employees. However, you may be asked to use your Social Security number for business activities, which may raise privacy concerns.
State Tax Identification Numbers
Some states may provide a unique identification number when forming your LLC. Others may require you to register with the Department of Revenue, Taxation, or a similar department and request the number yourself. Going through state-specific articles to understand the necessary steps to obtain a tax ID number is important.
After Forming an LLC: Staying Compliant
Once you have formed your LLC, staying compliant with legal obligations to keep your business legitimate is important. This requires careful consideration and planning to ensure you remain in good standing with the authorities.
There are two key factors to consider:
Obtaining licenses and permits
Filing annual reports
Additionally, depending on the nature of your business, you may need to obtain workers' compensation or business insurance to protect your assets.
1. Obtaining Licenses and Permits
Depending on the type and location of your business, you may need to obtain special business licenses and permits. This process can be complex, but some formation companies offer services that can help you research and file the necessary applications. Alternatively, you can find this information on your state's business website. Obtaining the required licenses and permits ensures you operate your business legally.
2. Filing Annual Reports
LLCs are typically required to file annual or biennial reports, which may or may not include a filing fee. The deadlines for these reports vary from state to state, and staying on top of them is important to avoid penalties or the automatic dissolution of your LLC.
A formation service can be particularly helpful in this regard, as they can notify you before your filing date and assist you with the filing process. Note that some states may charge a late fee or subject your LLC to dissolution for missing an annual report, and the filing fee may also be referred to as a franchise tax.
Lastly, while not a legal requirement, obtaining a business credit card can help you to avoid blending your business and personal assets. This can help you keep track of your business expenses and simplify your accounting processes, making it easier to stay on top of your obligations and ensure the long-term success of your LLC.
Conclusion
LLC formation is a smart choice for business owners who want to limit their personal liability for business debts and lawsuits while enjoying the flexibility of a partnership or sole proprietorship.
With the simple steps outlined in this guide, you can create an LLC quickly and easily, protect your personal assets, and minimize your exposure to business risks.
By following these steps and staying on top of your legal obligations, you can focus on growing your business and enjoying the benefits of being a limited liability company owner.
How Certify My Biz can help you start an LLC
Certify My Biz has helped hundreds of entrepreneurs turn their dreams into a reality the proper way. Book a New Business Setup Consultation today! https://www.certifymybiz.com/book-consultation