6 Simple Steps to Form an LLC in Your Area
From liability protection to a favorable pass-through tax status, limited liability companies (LLCs) offer more benefits to business owners than any other entity type.
By forming an LLC, you can take your small business to the next level and customize it to suit your needs. You can make your own rules, grow capital, and tailor the details all while enjoying tax benefits and protecting yourself.
If you need help starting an LLC, keep reading! In this article, we help guide you through forming an LLC, and much more.
What is an LLC?
The formal definition of a limited liability company (LLC) is: a business structure where the owners are not personally liable for the company's debts or any other liabilities. Limited liability companies are hybrid entities that combine the characteristics of a corporation with those of a partnership or sole proprietorship.
In more general terms, forming an LLC is a process you take when you want to turn your side business or small business idea into a legal business entity.
Reasons to Start an LLC
LLCs are one of the most flexible business entities, which is why it’s the most popular among business owners. As an LLC, they can operate as a single-owner business, a partnership, or a multi-member structure.
One of main reasons business owners form an LLC is to obtain personal liability protection. While this is a major benefit, there are many other advantages as well, such as:
Flexible Tax Management - LLC members have the freedom to customize their LLC dwellings. This means an LLC can elect management flexibility and choose tax flexibility because the LLC itself doesn’t pay federal income taxes.
Perpetual Existence – Other business entities, such as a sole proprietorship, cannot survive when the owner(s) pass away. LLCs have the capability of surviving and growing in the event of death or other major life events as long as the paperwork is filed correctly.
How to form an LLC: Step by Step Guide
Follow the 6 simple steps to successfully form an LLC in your state.
- Choose a location – You can form an LLC in any state, but the rules for how it’s conducted do vary. To start, you must choose the state in which you want to list your LLC and then file paperwork with the state.
- Choose a name - Requirements for LLC names vary from state to state. Most states require that you end your business name with “LLC, “Limited Liability Company,” or “Limited company.” Some states also require a fee to choose and hold a name.
- Choose a registered agent - Also called a statutory agent, this is someone who is the person of contact for official paperwork.
- Create an Operating Agreement – This is not a requirement in some states, but it’s a convenient resource to have for written rules on how your LLC will be run.
- File Articles of Organization – This is the birth certificate for your LLC. You must fill this out to legally have an LLC.
- Submit Application – Once all necessary paperwork and tax forms are complete for the state in which you file, and you pay the required fees, you submit your application. It typically takes 4 to 6 weeks to officially form an LLC.
Who Should Start an LLC?
LLCs are best for business owners who want to have an unlimited number of owners and want a more flexible legal environment.
LLCs are often best for small businesses, entrepreneurs, and those that are self-employed. However, most businesses are allowed to form a Limited Liability Company. The only exception is non-profit organizations - which cannot operate as an LLC.
Professionals such as lawyers and doctors are also not allowed to operate under LLCs due to the risks they take every day.
Your business will likely to benefit from being an LLC if:
- You have co-owners or employees: Without an LLC, your personal assets are at risk if your business is sued for something a co-owner or employee does.
- Your business has significant risks: Some types of businesses are at high risk for failure, have both financial and liability risks.
How a Business Lawyer can Help
While a lawyer is not required to set up an LLC, there are many benefits to working with an experienced attorney that you may want to consider.
LLC owners are only protected from liabilities and creditors if the LLC is properly formed with the right documentation and operated accurately. Lawyers provide written guidance on how to operate the LLC correctly so that the liability protection is not compromised.
A business lawyer can also save you time and money, and handle the items you may not have considered. For example, creating an operating agreement or articles of organization. Plus, lawyers keep detailed records in case of audits or lawsuits.
Choosing to form an LLC is a decision that you make based on your unique situation. Knowing the details of how to form one helps give you a more comprehensive overview of what this business decision entails.