So you want to form an LLC. How do you do it? It may seem complicated, but here we will analyse exactly what the LLC is and how you can start the business in the simplest and cheapest way possible.
A Limited Liability Company (otherwise known as an LLC or L.L.C.) is well-known as a fairly easy way of forming a business without risking your personal assets should the business incur losses or debts, or run into legal difficulties. There are various ways in which an LLC may be structured – it can be owned by only one individual or there can be numerous owners. A single-member LLC refers to an LLC with only one owner whereas a multi-member LLC has more than one owner.
Let’s start: Where do you want your business to operate?
The first thing that you need to do is choose where you want your business to be run. It is generally a good idea to form your new LLC in the state where you reside and where the business will primarily be operating. Should the business operate in different states or have foreign entities (shops, sales representatives, offices etc.) in various states then it is mandatory for you to register a foreign LLC in every state where the business will be represented. There are states that are known to be business-friendly, and many people feel inclined to register in that state, but it’s useful to know that this is rarely worth the effort of having to deal with excess paperwork and fees.
What’s a special name that will make your business stand out?
After choosing the state, you can choose a name for your business. Depending on the state, there are certain rules about names that are allowed, but there are three general guidelines that need to followed: the name has to have the phrase “limited liability company” or any of its abbreviations (LLC or L.L.C.); the name that you decide on cannot have words or phrases that could be confused with any government agency (e.g. FBI, Treasure, State Department etc.); there are also restricted words (Bank, Attorney, University) which will require additional documentation and a licensed individual to be a member of the LLC, examples are a doctor or a lawyer.
Who can help me with all of my legal documentation needs?
It is now time to choose and hire a registered agent. This registered agent is an individual or a business that has the legal authority to send and receive documents on your behalf. These include legal summons and document filings which the registered agent has the responsibility to send to you. The registered agent must fulfil certain specifications: the individual must be a resident of the state where the business will be run, or the corporation has to legally be allowed to operate in the state. This is a good source to help you find the best registered agent for your business: https://startupsavant.com/best-registered-agent-services/.
Make it official: File a Formation Document with the State:
To follow is the official creation of the LLC. This requires a formation document filed with the state. The document is often referred to as the Articles of Organization, but some states call it the Certificate of Formation or the Certificate of Organization
Design an LLC Operating Agreement:
You’re almost finished! It’s time to create an LLC Operating Agreement. This is a legal document which refers to the structure of ownership and the membership roles of the new LLC. Some states do not see this document as obligatory, but it is still useful to have it in place. This agreement is made up of six main parts, namely organization, management and voting, capital contributions, distributions, membership changes, and dissolution. Organization refers to the time and place of the businesses’ start. It also states who the members are and how ownership is structured. Management and voting refers to the way in which the company is run, including the method in which the member’s voting. Capital Contributions states which of the members give money to the LLC and sketches the way money will be made in the future. Membership changes show how members may be removed or included. It also states whether members can transfer their shares and how this can be done. Finally, dissolution indicates when an LLC may be liquefied.
Get an EIN:
You’re almost there! Now all you have to do to formalize your LLC is get an EIN. An Employer Identification Number can be compared to a social security number for your LLC. This number is essential if you plan on hiring employees or you wish to start a business bank account. Getting this number is a free process which can be done directly via the IRS website, fax, or through email.
Start building your business:
If you want more information on how to form an LLC, it would be a good idea to follow TRUiC’s step-by-step process and read more about the nitty-gritty details which they provide.