Have you ever wondered how to start an LLC business? Starting an LLC business can offer countless benefits, and with this in mind, this is a step that more and more people are considering for their own business needs. However, to start an LLC business, you’ll need to ensure you know the steps involved.
Luckily, today, we’ve outlined some of the key things you should know about starting an LLC. From the main features of LLC businesses to the steps you should follow to launch your new brand, we’re on hand to help. By the end of today’s go-to guide, you should have everything in place you need to know about starting your new LLC. Good luck – and if you have any questions, don’t hesitate to reach out to our team.
What is an LLC ?
Before going any further, we naturally need to start with a key question: what is an LLC business, anyway? Well, this is, fortunately, an easy question to answer! At its simplest, an LLC is a limited liability company. This means that the owners of the business, as the name suggests, have “limited liability” for the business’s actions. In other words, the business is a separate entity in the eyes of the law than the owner.
Unlike sole proprietorships and partnerships, limited liability companies are private limited companies. Unfortunately, many people miss out on the main benefits of LLCs, in many cases, since they fail to realize how easy starting an LLC is.
Indeed, while starting an LLC isn’t necessarily a two-minute process, it’s not as hard as many people think. We’ll consider this in a moment. But, in the meantime, let’s take a look at some of the main benefits of LLCs you should consider. Hopefully, this might help make your decision a little easier overall.
The Benefits of Starting an LLC Business
There are many benefits of starting as an LLC. However, the most obvious benefit of an LLC is that the owners have limited liability for the company’s mistakes.
For example, if an employee was to get hurt while working for your business, liability for the injury would be on the business, not you personally. In turn, if the employee sued your business, you wouldn’t personally have to pay their expenses.
However, with an unlimited liability company, owners could have to pay the fees if the business wasn’t able to cover the expenses alone.
In addition, a further benefit of starting an LLC business is that you won’t be double-taxed on your income. This means that company owners are taxed on their share of the profits, rather than being taxed twice for the business income and then again on their personal income.
Is an LLC Right for Me?
Is an LLC right for you? The benefit of limited liability is highly attractive to many people. What’s more, LLCs offer the unique benefit of not imposing double taxes, which is a frustration for many corporation owners. Plus, it’s often considered one of the easiest types of companies to establish, compared to other corporation types.
However, an LLC isn’t necessarily a perfect solution for every business. For example, it may come with additional legal requirements; in addition, if you hope one day to become a publicly-traded company, you may want to hold off on becoming an LLC.
How Much Does it Cost to Start an LLC?
The cost of starting an LLC can vary wildly. Indeed, you’ll likely pay on average around $250 for filing fees and formation services. However, in some cases, you may be looking at around $1,500 for professional legal support – something we highly recommend, where possible, to ensure your new LLC meets the specific requirements of your chosen state.
How to Start an LLC Business
So, you’ve considered the above benefits of LLC businesses and think this might be a suitable approach to consider for your own business management needs. If this is the case for you, then the question now stands: how do you start an LLC business?
We’ll jump right in, before you get cold feet. After all, it’s not actually as hard as it sounds, and starting an LLC business can offer great opportunities.
Who Can Open an LLC?
Before going any further, we should start by clarifying who can and who can’t start an LLC. Luckily, the majority of states won’t restrict LLC ownership. This means that most individuals should be able to start an LLC business. However, you’ll need to check this with your state government first, just in case your state’s rules differ from the norm.
However, there are two main limits for who can open an LLC. Banks and insurance companies are not allowed to open an LLC. Nor are healthcare providers. This is in an effort to encourage such companies to operate responsibly and in line with best practices, which limited liability may discourage. In addition, you will need a legally authorized registered agent (which we’ll look at in a moment).
For LLC businesses, owners are usually referred to as “members” of the business. However, an LLC can be opened by a single member; alternatively, you can open an LLC with numerous members, and there isn’t a strict limit to how many members you can get involved.
Step One: Choosing Your State
First and foremost, you will need to decide which state you intend to establish an LLC in. Luckily, it’s possible to establish an LLC in all fifty states. This should be determined based on where you live or where you intend the business to be based.
We should note that every state will have slightly different rules for forming an LLC. With this in mind, while we’ve tried to be as comprehensive as possible in today’s guide, you should still try to ensure that you’ve met your state’s specific rules while launching your LLC business.
Choose Your State of Incorporation Carefully
What does this mean for your business? Well, the choice is entirely down to you, but if you have the freedom to move to a new state when launching your LLC, this may offer benefits.
For example, let’s consider Delaware – often considered one of the most business-friendly states in the entire United States. In fact around half of all publicly traded companies within the US are incorporated in Delaware, largely due to low franchise taxes, reduced disclosure and reporting requirements, and lower filing fees. This certainly makes Delaware a highly attractive location for new LLC members.
Alternatively, Nevada is also an excellent destination for those individuals looking to incorporate a new LLC business. Indeed, with no franchise, corporate, or personal income taxes it’s a highly valuable destination for those looking to open an LLC. Plus, public filings are also anonymous, which can be a notable benefit in some cases.
Or, if full anonymity is something that’s important to you and your fellow members, Wyoming might be the state of choice. Indeed, unlike most states, Wyoming is unique in that it offers invaluable lifetime proxy. This ensures that business owners are able to remain anonymous. You can even appoint someone else to represent your LLC for you, if you so wanted!
Check Your Home State’s Regulations First
Before deciding whether or not to incorporate your business in another state, it’s definitely worth considering your home state’s regulations first. Indeed, while looking to other states can offer potentially valuable benefits, registering in your home state ensures you don’t have to register as a foreign LLC.
Besides this, you’ll still have to pay home state taxes, regardless of where you form, in states where you actively engage in business. As such, the value of incorporating in a foreign state is somewhat limited unless you plan on moving your business there.
This certainly makes it easier, so the trade-off really has to be: are the other states’ regulations worth the extra hassles? Of course, if you already live and operate from a top business state such as Delaware, Nevada, Wyoming, South Dakota, or Alaska, the decision is probably a lot easier.
Step Two: Decide on your LLC Business’s Name
Now that you’ve worked out where to incorporate your business, it would be nice to have an easier next step. Unfortunately, though, many people wrongly assume that naming their LLC is a simple process – but this isn’t entirely true.
Of course, we’re not saying that naming your LLC is the biggest decision you’ll likely make this year. However, a lot rides on a name. With this in mind, choosing a suitable name for your LLC business will inevitably determine – to some degree – how easily your business is able to brand itself.
Still, it’s also easy to overthink naming your LLC business. Indeed, in many cases, it’s easy to end up falling down the rabbit hole of trying to give your business name too much meaning – which can actually leave it ineffective. Instead, your LLC business name should be to the point and easy for customers to understand in an ideal world.
Some key factors to consider when naming your LLC include:
- Does the brand name give customers an idea of what my LLC offers?
- Will my chosen LLC name portray the right emotions and feelings in customers?
- Is the selected name appealing, or does it sound low-quality or unattractive?
- Will customers want to find out more after hearing your LLC’s name?
These are just four simple questions you should ask yourself when it comes to naming your LLC business. Hopefully, these will help you choose a suitable naming strategy for your business overall – and don’t be afraid to go back to the drawing board. If you feel stuck, jot down your ideas and try another approach. Getting help from friends and family members is also a valuable option, here.
The Requirements for Naming Your LLC
Unfortunately, naming your business isn’t as simple as just choosing a name and hoping for the best. Indeed, in many cases, you might find that your ideal LLC name has already been taken. Of course, if this is the case for your business, you’ll need to look for a name that’s unique already.
In addition to the requirement to choose a unique name, there are several other key things you should consider when it comes to naming your LLC business. These include the following points:
- Cannot include a protected word without due reason. These include “college,” “bank,” “hospital,” etc. – usually for business entities that are unable to establish as an LLC.
- Must be distinct and easily distinguishable from government agencies such as the IRS, the Department of State, and so on – names that might cause confusion are not allowed.
- Needs to include either LLC, Ltd. or “Limited Liability Company” somewhere in the name.
Remember to Consider Your Business’s Online Presence
When choosing your LLC name, we also recommend that you consider the availability of relevant domain names for your website. Indeed, around 64% of small businesses have a website, and the remaining 36% often consider themselves to be too small or localized to justify one. With this in mind, your LLC will almost certainly want to hold a website – and having a suitable domain name is vital in this regard.
However, if your chosen business name isn’t available as a domain name, this could easily cause confusion for your customers. Don’t take the risk of losing out on customers. Instead, choose a business name that’s easily attributable to a high-authority domain name instead, if possible.
Don’t hesitate to purchase your domain name at the first possible opportunity after getting your LLC name approved, too. Indeed, if you waited, it wouldn’t be that surprising for someone else to grab the domain name after noticing your business had launched. This, in turn, could leave your business paying above the odds for the domain name – not a good use of your investment funds!
What if I Make a Mistake With Naming my LLC?
Made a mistake with naming your LLC? Not sure customers will actually be able to connect with your business name? If this is something you find yourself facing, don’t worry. While you can’t change the LLC’s name exactly, you can change the name your customers see.
What do we mean by this? Well, your LLC’s legal name will stay the same. That means you’ll still need to file your LLC’s paperwork under the less-than-stellar name. But it’s not really the paperwork that matters here; it’s the customer perception. And, if this is the case for your business, you can actually give your business a “Doing Business As” name.
This simple step allows you to pick out any name for your business’s trading name. As such, it can be an excellent option to consider as part of your branding goals.
A common reason to invest in a Doing Business As name is simply because your business has “outgrown” its original services. For example, if you launched a coffee business and chose the name “Example Coffee Business Name LLC,” but later grew the business into offering teas, hot chocolates, or even homemade treats, you might find that the coffee branding was too limited. Luckily, you could change the name to something more fitting with a DBA.
So, if you aren’t entirely happy with your chosen business name down the line, don’t worry too much. You can still file a DBA name to ensure your branding remains relevant.
Step Three: Choosing a Registered Agent
As part of forming your LLC business, you will need to hire a registered agent to help. The registered agent represents your LLC’s official point of contact (since your LLC will be its own legal entity). As such, choosing a registered agent you can trust is vital.
In many cases, your registered agent will receive legal documents such as any official correspondence for lawsuit documentation. As such, the importance of choosing someone who is organized and trustworthy cannot be stressed highly enough.
Who Can Serve as a Registered Agent?
We should point out here that anyone aged 18 years or older who owns a physical address within your state can be your LLC’s registered agent. You can even be your own registered agent, if you so wish – however, registered agents’ details are shared publicly, so this may not be a suitable option to consider if you are concerned about your anonymity.
What’s more, the registered agent’s responsibility is massive; indeed, if you miss reading legal papers because you were on holiday or ill, you could end up facing court cases without a trial. With this in mind, though you can be your own registered agent, we recommend considering hiring a professional registered agent instead to ensure that things are managed smoothly.
Fortunately, most registered agents will only charge around $100 to $200 per year to offer their services, making them a potentially valuable option to consider. Registered agents typically scan and upload documents mere minutes after receiving them, giving your business the opportunity to read these documents at your own convenience – even when you’re on the go.
Step Four: Filing the Articles of Incorporation
At this point, you’ve created a business name, decided where you want to incorporate your business, and selected a registered agent.
With this in mind, the next step is getting into the good stuff: filing your business’s articles of incorporation. And, once you have completed this step, your LLC will be officially formed. So, it’s definitely an exciting part of the overall LLC creation process.
Your articles of organization will vary depending on your business’s specific structure, but all articles of incorporation must include the following information at a minimum:
- The LLC’s business address
- The name(s) and address(es) of the business’s founding member(s)
- The name and address of the business’s registered agent
- The statement of purpose for your LLC
- Whether the organization’s managers are members or non-members
- The effective date for the LLC
- The duration of the LLC (only applicable if the LLC is to be dissolved at a set time)
Every state has slightly different articles of organization forms; as such, you should head to your specific state’s website to find the relevant documentation. On the whole, this is mostly easy to complete and shouldn’t be too much of a headache; still, if you need advice, your state’s representatives may be able to offer some guidance.
You should also check at this point if there are any other steps involved before filing your articles of organization. For example, in New York and Nebraska, you will need to publicly share your desire to register an LLC with your local newspaper. This step may allow potential customers to object if they have any reason to disagree with the formation. Once again, your Secretary of State’s website should be able to offer state-specific guidance in this regard.
Do I Have to Create my Own Articles of Incorporation?
If you’re not fully comfortable with creating your own articles of incorporation from scratch, you could consider using formation services. Not only is this the most effective and efficient way to create your business’s articles of incorporation, but it could be an excellent option if you have been feeling a little lost with the paperwork.
What’s more, a growing number of teams are offering these services, which may make them more effective for your own incorporation needs. This often means that the scale of incorporation services vary drastically. So, no matter what you might be looking for from your formation support, be it just a basic service or a full formation solution, there’s surely an option in place to keep your business running smoothly.
Is Filing the Articles of Organization Free?
Unfortunately, it’s not free to file your articles of incorporation; indeed, there is a fee attached to this procedure, although this will admittedly vary from state to state depending on your specific state requirements. You should follow your chosen incorporation state’s guidelines and payment structure to ensure this is completed professionally.
What Happens After the Articles of Incorporation are Filed?
Once you have filed your business’s articles of incorporation, you will be provided with a formal registration certificate from the state.
This is only published once your articles of incorporation have been approved. You can use this certificate to begin looking at the next steps for your business, such as creating a business bank account for your new LLC.
Step Five: Making an Operating Agreement for your LLC
Great news: you’ve submitted your articles of incorporation and your application to form an LLC has been approved. The next step here is to create an operating agreement for your business; this will outline the internal and external management of the LLC overall.
Technically speaking, the operating agreement isn’t actually a legal requirement in most states. However, we still highly recommend that you create an operating agreement, as this will play a prominent role in the success of your newly established LLC overall.
If you don’t create an operating agreement, your LLC will be governed, by default, in line with your state’s laws. However, creating an operating agreement can give your members more say over how the business will be run. This covers both internal management (such as how your business will handle day-to-day operations) and how your business will manage customers and members of the public.
Why an Operating Agreement is Important – Even If Not a Legal Necessity
Since most LLCs have multiple founding members, the operating document is a crucial “compromise” between all members. The document provides guidelines for how the business is to be run and managed, which helps prevent one or two members from trying to change up the status quo within the business to suit their own ends. In short: once you have signed the operating document, you are legally bound to it and cannot broach the terms of the agreement without legal repercussions.
As explained by the U.S. Small Business Administration, having an operating document – though not technically a requirement – is a key way to protect your limited liability. In some cases, it can be hard to distinguish an LLC and a sole trader or partnership based solely on business activities; in such cases, the operating agreement may provide superior business protection.
While the operating document isn’t a requirement, it’s also worth noting that it’s a critical aspect of confirming and clarifying verbal agreements. Indeed, verbal agreements, unless recorded, often have no legal implications without proof. With this in mind, it’s often a much more effective solution to ensure that any important agreements are finalized and signed in ink so that there’s no chance for members to back out of agreements at a later date.
At the end of the day: while most states won’t require an operating agreement, it can inevitably come in massively important in cases of legal distress or difficulties.
What Should I Include in an Operating Agreement?
Ideally, you should always contact a professional attorney when creating your operating agreement to ensure it is thorough and effective. However, you can certainly have initial discussions about your operating agreement between all members of the LLC to determine the most suitable approaches for a few key points.
Though not a definitive list, some of the top things you should include in your operating agreement include the following points:
- The percentage of ownership each member holds, and their associated voting rights
- Powers of members and their duties
- Outlining the legal management procedures of the company on a day-to-day perspective
- How profits or losses are distributed or managed within the business
- The requirements for holding meetings, such as the necessary notice time, protocols and procedures during the meeting, minuting meetings, and the like
- Requirements for rules to be changed or amended within the LLC
- Buyout procedures for transferring interest or percentages
- Events and procedures in the case of a member leaving the LLC
- Circumstances in which the LLC may be dissolved; it may not seem like a priority now, but having a worst-case plan in place for the dissolution of the LLC could prove helpful
The information you establish in your operating agreement may allow you to manage your business differently than the state’s default rules. However, the rules within your operating agreement must still meet federal laws. Your attorney can advise you further, hence why it’s important to have their help when drafting an operating agreement.
Storing Operating Agreements
Once your operating agreements have been drafted and signed, you will need to look at the different storage options available. It’s always advisable to keep a digital copy of your operating agreements, and physical copies should also be retained within your business’s core records.
Your business’s operating agreements should always be kept confidential unless needed during legal procedures (on which your attorney can advise further).
Once the operating agreements are stored, you will not need to file or submit them since they are not a requirement for LLC formation; we still recommend keeping good care of the operating agreements just in case they are needed, though.
Step Six: Obtaining an EIN (Employed Identification Number)
Once you’ve gotten to this point, you’ll next need to look at obtaining an EIN for your business.
An EIN, or an employer identification number, is a legal requirement for all LLCs – even if you don’t intend to hire any staff. If you intend to generate revenue – and, let’s face it, that’s usually the purpose of an LLC – you will need to hold an EIN.
The only exception is for LLCs, which only have a single member; in this case, you could use your social security number. However, we advise against this, as using your social security number may put you at greater risk of identity theft. You could also find yourself struggling to separate business finances from your personal income, which can be a nuisance for accounting purposes.
Fortunately, an EIN is actually very easy to obtain; simply complete a form SS-4 manually and post it, or file your application for an EIN online. Once this is approved, you can consider the final steps for establishing your new LLC.
Step Seven: Applying for a Business Bank Account
This may have been a step you wanted to complete earlier. However, since most banks will want new LLCs to hold an EIN before applying for a business bank account, we’ve left it until later to ensure you have everything you’ll need. In addition to your EIN, you’ll also need your registration certificate (that you received after filing the articles of incorporation).
Holding a business bank account can offer numerous benefits for your LLC, including the following points:
- It allows your LLC to apply for loans and credit
- Business accounting is much easier when funds are separate
- Allows your business to accept credit card transactions
- Adds professionalism to your LLC – improving your reputation
As part of this point, we also recommend hiring a professional business accountant. While you could technically manage your business’s finances in-house, this is often a source of stress, especially as your business grows.
As such, unless you intend on having very infrequent transactions that are easy to manage, you’ll likely find that hiring an accountant more than pays for itself with time. Your accountant can often help with bookkeeping, licensing, business plan formation, reporting, payroll management, and the like; as such, their support can be invaluable.
Step Eight: Ensure You Have the Necessary Permits
Just because your business is now incorporated and official doesn’t mean you’re ready to begin trading. Indeed, you’ll still need to apply for any relevant licenses relating to your field.
For example, if you’re planning to work as an agricultural business, you’ll need licenses to keep livestock on your land. Down the supply chain, if you intend to work as a food preparation establishment (such as a restaurant), you’ll need relevant food handling and hygiene licenses, permits, and certificates.
Naturally, the exact permits vary from field to field and state to state. So, always head to your state’s relevant website to begin finding the necessary permits you need to begin trading legally. States should have a specific business licensing department that can help further if you’re not entirely clear on the requirements for your business.
Step Nine: Take Out Insurance
Insurance – it’s massively crucial for any business, regardless of whether or not you employ staff or which field you work in. Indeed, according to NSC Injury Facts, the average output each worker must provide to offset the cost of injuries works out at around $1,100 per year; meanwhile, medically consulted injuries average at around $42,000. Meanwhile, the average cost for business-related deaths is well over $1 million. Of course, that’s before considering time losses due to injuries and accidents, too.
As such, it’s critical that your business has insurance in place to cover these potential events. Indeed, while we all like to hope that our businesses will continue to operate efficiently, it’s inevitable that some things may be outside of your control. Having insurance can help combat this.
What insurance policies should you take out for your business? Well, some of the key insurance policies your business should hold might include:
- Public liability insurance
- General liability insurance
- Professional liability insurance
- Product liability insurance
These are just a handful of the different insurance policies you may require for your business. In addition, it’s worth considering that you should carefully check each policy’s terms to ensure it offers a suitable level of coverage.
Fortunately, as an LLC (ideally with operating documents), you already have protection for your personal assets against legal cases. However, holding insurance can help ensure your business is able to afford these legal fees.
Step Ten: Registering for Taxes
This is yet another aspect that every state will differ in. Nevertheless, registering for tax is a critical step for every new LLC to take. Indeed, while none of us like paying taxes, it remains a necessity in many cases.
The three most common taxes your LLC will need to pay include:
- Sales tax (thresholds for which vary from state to state);
- Franchise tax (not applicable in all states, and some exceptions for the first year); and
- Employment tax (including unemployment insurance tax and withholding tax)
You’re Ready to Go!
You’re pretty much there at this point! It’s a big moment, so feel free to breathe a sigh of relief.
While you should always check with a licensed business attorney that you have completed all documentation correctly before proceeding, you hopefully have most of the necessities in place by now. And, once your attorney is confident that you’re ready to go (and that you don’t need to complete anything else for your state’s specific requirements), you can begin marketing your business.
Marketing your business can be as simple as relying on word-of-mouth or as widespread as investing in a national marketing and advertising campaign. It really depends on your business’s marketing budget and goals overall; luckily, with so many marketing options available to you, there’s plenty to consider here.
What if a Member Leaves an LLC?
To conclude today’s guide, we should consider what happens when a member leaves an LLC. A member might leave an LLC for numerous reasons, but perhaps the most obvious (and undeniably the most permanent) is through death.
Whatever the cause for a member to leave might be, this causes quite a lot of trouble for the remaining members of the LLC. Indeed, in most states, the protocol following the departure of a member is to dissolve the LLC.
Nothing is stopping the remaining members from re-establishing the LLC following its dissolution. Still, this can admittedly be a source of frustration and aggravation, potentially at a time when the members are already mourning the loss of their co-member.
However, you may be able to overrule this limitation by including specific instructions in the operating agreement for when a member leaves the LLC. Indeed, the need to follow the state’s default rules may be overridden by your LLC’s operating documents; as such, this may be a versatile option to consider.
If you’ve been looking to found your own LLC business, the process is surprisingly straightforward in many cases. Indeed, while there’s definitely more paperwork involved with running an LLC, it’s not an impossible feat.
Hopefully, today’s guide may have given you some more ideas and inspirations in this regard. Or, if you have any further questions about establishing an LLC business, please don’t hesitate to ask our team for ideas or references of where to go next.
You can find our state by state guide here.