There are many pros and cons of an LLC, but for those who have already decided it’s the best path for their business, the structuring process can be complicated. This guide will walk you through everything you need to know (from government regulations to necessary paperwork) to properly form an LLC:
1) Choose a Compliant Name
The LLC division of your Secretary of State’s office (which may also fall under the corporations division) will have certain rules regarding naming. These will vary state to state, but will most likely fall under these requirements:
- No copycats: You cannot have the same name as another LLC on file in your state. Your Secretary of State’s website will have a method for name searching, and some may have a system for reserving your chosen name for a brief period of time until you file.
- Be clear about being an LLC: The name of your company must signify its status; it should include LLC, L.L.C or Limited Liability Company at the end.
- Avoid prohibited words: Each state has a list of banned words for your LLC name; some words may include “Bank,” “City,” or “Corporation.”
Along with the statewide search, make sure that your company name doesn’t violate any federal trademarks. Read more about trademark laws and name searches here.
In most cases you will declare your company name in your Articles of Organization (see the step below).
2) Create the Articles of Organization
Every LLC must prepare an Articles of Organization, which states key components of the company, such as its name, address, the owners (called members) and its location.
3) Select a Registered Agent
Most states require that you designate a registered agent, also referred to as the “agent for service of process,” to handle legal correspondence for your business.
Your registered agent may be a member of your LLC, or you can outsource the job to a service that will accept documents on your behalf.
4) File with the Secretary of State
About 15 states allow you to file directly online, while others require that you create and submit your Articles of Organization. Some states refer to the Articles of Organization as a “certificate of formation” or “certificate of organization,” and each has their own specific rules for filing it.
For state-specific instructions, NOLO has an excellent list of step-by-step LLC formation guides here.
5) Don’t Forget Your Fee
While Partnerships and Sole Proprietorships allow you to create a business without paying a fee, forming an LLC comes with a price tag. Most filing fees range somewhere around $100, with the lowest being around $40 in Kentucky and the highest being $520 in Massachusetts. See a full list of filing fees here.
Keep in mind that many states also have annual reporting fees and taxes to consider, for example California charges LLCs a minimum fee of $800 each year on top of their normal income tax. See a full breakdown of annual LLC costs by state here.
6) Check if You Have Publication Requirements
In a small handful of states, including New York, there is a “publication requirement” to make your business official. You are required to announce your intention to form an LLC in a local newspaper several times over a designated period of time, and submit an Affidavit of Publication to the filing office. If you are in a state that requires this, you can seek out your local newspaper for assistance.
7) Receive Your LLC Certificate
You should receive your LLC Certificate if Organization within 10 to 20 business days through your registered agent. Response times may vary by state.
8) Apply for an EIN
An Employer Identification Number (or EIN) is like a social security number for your business. Companies need an EIN in order to open a bank account, hire employees or make business transactions. To apply for an EIN you need to fill out IRS Form SS-4 and mail it in, or you can apply online here.
9) Get Licenses or Permits
It’s important to determine whether your LLC needs any permits or licenses to operate on a local, state or federal level. To learn more about what licenses your business type may require, check out QuickBooks Licenses for a free report.
10) Create an Operating Agreement
An Operating Agreement, while not necessary for filing with the state, is an essential document for any LLC to prepare. It establishes the LLC’s operations and policies, and explores the rights and responsibilities of its members.