Many people struggle with understanding how to set up LLC because they don't know all the steps to take in order to get their new business off the ground.
If you're looking for a comprehensive guide on setting up your own limited liability company (LLC), then this article will provide everything you need.
This guide incorporates all the necessary steps for setting up your own business entity, including what you need to do before filing and what paperwork you should file once it's time to submit.
Choose a Unique Name for Your LLC
Whatever your business type may be, coming up with a suitable business name to start an LLC can be difficult without consulting state naming requirements.
State law requires that an LLC be named differently than other businesses and be distinct from the name of another company's LLC in a separate state.
If you're looking to register your business under one or more trade names, you might need to file for a fictitious business name.
Some business names can't be registered as LLC in any state because they're either not allowed or prohibited by the law from being registered. You can't use the following:
- In most states, using "bank" in a business name is not allowed
- "Co" or "Company" can only be used in business names if they follow the naming standards of that state
- Using any variation of words such as "Enterprises," Inc., and Co. is not allowed
- The same goes for any names that resemble government entities (State Department, IRS, and so on).
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Choose the State for Your LLC
To find information about LLC requirements in your desired state, make sure to visit the state agency's website in charge of business filings. Usually, it's the Secretary of State (SOS) and their divisions.
The SOS has a form that you can fill out and mail to them. A lot of times, you'll be able to file for an LLC online.
Do not forget to include legal documents like LLC Articles of Organization or any amendments if the LLC formation documents are different from those provided by the SOS form.
You must also file with your state's Department of Revenue, which may have its own form.
It's important to note that these legal files may not be necessary for all states, and they will vary depending on your form of business.It's important to note that these legal files may not be necessary for all states, and they will vary depending on your form of business.
Nominate a Registered Agent
Everyone who is looking to form an LLC needs to choose a registered agent.
A registered agent is the representative of your company who is in charge of legal and administrative questions about your LLC, collects fees, handles business filings, annual reports/minutes with state agencies, and performs other duties as required by law.
If you want to file LLC formation documents, a registered agent service will handle all these tasks for you at an agreed-upon price while providing expert advice and guidance regarding the matters of tax benefits, formation documents, or franchise tax, to name a few.
Registered agent services will typically be cheaper than hiring your own in-house registered agent, and you don't have to hire employees specifically for the position.
Get Articles of Organization for your LLC
In order for your LLC to become a legal business entity, there are some legal documents you have to file with the state agency.
One of those documents is called an Articles of Organization, also known as a Certificate of Formation in different states.
Certificate of Formation (or Organization) is one of two documents filed with the SOS or other designated person for an LLC to become legal and recognized by law as a separate entity from its members and managers.
The second document needed is a document that describes the company's capital business structure and rights.
The form should include:
- The name of your LLC
- Your registered agent's address
- A statement about who is in charge (members, managers, or both)
- The date it was filed with the SOS or other designated person
- The name and address of a person to contact for more information about the Articles
- Additional provisions agreed upon.
Filing fees for Articles of Organization vary from state to state.
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Create an LLC Operating Agreement
An operating agreement is a document that governs the operations and management of an LLC.
It contains operating rules for the LLC members or owners, capital contributions, buy-sell arrangements, among other things.
In most cases law enforces the operating agreement, which means it needs to be drafted properly at all times.
There are two main operating agreement types: operating agreements for small business owners and operating agreements with more than one member.
There are also operating agreements for LLCs with multiple owners, but these can vary depending on the state they're in or other factors.
Small business operating agreements tend to be simpler because there is a fixed number of members (usually only one), although it's possible for small businesses to have more members.
Is Setting up an LLC Easy?
Setting up an LLC is easy, although the amount of time you will spend waiting for the legal papers to complete may vary depending on the state.
Defining management rights and structure, tax implications, and tax requirements will also affect the time it takes to set up an LLC.
Setting up an LLC requires a little bit of research on your part because many factors go into it. The more you know about tax implications for single-member LLCs or multi-owner companies, management rights and tax requirements for your state will allow you to set up an LLC more easily.
You need to keep in mind that limited liability companies are pass-through entities, which means that the company's profit must undergo pass-through taxation. That implies that each member must pay self-employment and income taxes.
Do I Need an Attorney to Set Up an LLC?
You don't necessarily need an attorney to form an LLC. However, we advise that you find one, especially if you're new to the business.
Not only can legal experts help you create an LLC operating agreement and articles of organization, but they will also aid in filing fees, obtaining business licenses, and keeping detailed records of how you conduct business.
Can I Use My Personal Address for My Limited Liability Company?
You can use your personal address for LLC, but you have to be aware of certain circumstances when this move is not recommended. The physical presence might be risky for your limited liability company since you don't have a physical location.
When registering an LLC with a personal address, you should also register it under another name and physical address (if possible). This will allow some legal protection in case of lawsuits or creditors looking for any means to find you or endanger your personal assets.
Registering your limited liability company to a physical address in the same jurisdiction as your personal one will make it easier for you to take care of any legal issues and claims.
Can I Use a Virtual Address for LLC?
You can use a virtual address for your LLC.
If you're using a virtual address, then your physical location could be anywhere. The way to set up a virtual address for an LLC depends on whether you are setting up a mailing address or just need to create an online presence.
If you want to use your virtual address as the company's mailing address, contact the post office and arrange for mail delivery there.
If all you need is to set up an online presence, you can create a virtual address with Google, Microsoft, Yahoo, or any other provider.
The price for setting up an online presence is usually less than $100 annually and you can cancel it at any time. The process of setting up your LLC's mailing address may vary depending on which state you're in.
Does a Single-Member LLC Need Its Own Business Bank Account?
Although a sole proprietorship is not obligated to have a business bank account, it is important to note that a single-member LLC should have its own.
This will provide liability protection and protect the owner's personal assets from any business debts or obligations incurred by the company.
An independent federal tax law expert can review your situation to determine what types of accounts are appropriate for you as well.
Can an LLC Owner Be an Employee?
No, an LLC business owner can't be treated as an employee. If you are conducting business without business partners and the only member, you are a sole proprietor.
You should know that only employees receive W-income to pay their taxes, including any income earned by the business itself.
In contrast, LLC owners do not get W-income because they are not considered employees, and this also means that there is no requirement for an LLC owner to file returns or show any documentation.
However, there is a difference between sole proprietorships and LLC owners because the latter has more liabilities than just their own business risks; they have to take care of individual liability too.