Learning how to set up an LLC consists of researching directions on a form, determining how you want to structure your business and filing the required paperwork. Once you’ve done the proper research, this business entity can protect your personal assets—all for a few hours of work.
While the exact requirements may differ depending on the state, you can use the following as a guideline on the basics of setting one up
How to Set Up an LLC
You can use this seven step guide to get started.
1. Decide on a Business Name
Choosing a unique business name is important for both practical and branding purposes. For one, most states won’t allow two businesses to have the same name—it doesn’t matter where they’re located within the state. Some states also prohibit certain words, such as “city,” “insurance” or “bank.”
Besides, choosing a unique name helps you stand out. (You won’t want to confuse potential customers.) Avoiding any trademark infringement claims will also protect you from any legal headaches down the road.
Start by heading to your state’s business filing agency online where you’ll be able to search existing business names to determine whether your proposed name is already taken.
2. Choose a Business Entity
Choosing the type of LLC you want to create is crucial as it’ll determine the kinds of paperwork you’ll need, plus other formalities like your tax structure. For instance, single-member LLCs are taxed as a sole proprietor—you’ll file taxes using a Schedule C, part of your personal tax return—whereas an S-Corp is subject to income taxes on your “salary.” Plus, there is additional paperwork you’ll need to file each year. (We’ll get to this later.)
3. Designate a Registered Agent
A registered agent is someone who receives official or legal documents (such as subpoenas) on behalf of the LLC. Once received, the registered agent will then pass on these documents to the person in charge of the LLC. Anyone over 18 years old can be a registered agent—and there’s nothing wrong with naming yourself. Or, you can designate a company that provides registered agent services to do so. This will come at a fee, of course; pricing for registered agents may cost a few hundred dollars per year.
4. Get a Copy of Your State’s LLC Article of Organization Form
Go to your state’s Secretary of State website to get a copy of the articles of organization form. This document includes details about your proposed LLC so that you can establish it as a legally separate entity.
5. Prepare the LLC Article of Organization Form
Each state will list its specific requirements and procedures for those trying to form an LLC.
Basic information you’ll need to provide includes:
- Your business name
- The names of the owner(s)
- The purpose of the business
- Details for the registered agent associated with the business.
When that’s complete, the business owners and the registered agent will need to sign the form.
Some states, such as Nebraska and New York, require you to publish a notice in the newspaper indicating your desire to register your LLC. This step needs to be completed before filing the articles of organization.
Don’t forget to check your articles of organization carefully before submitting them along with your state’s required filing fee. When your formation documents are approved, you’ll be issued a certificate by the state to indicate your LLC is formally registered. Use it for other necessary tasks such as setting up a business bank account and getting a tax ID number.
6. Create an Operating Agreement
An operating agreement contains the details of the financial, legal and management rights of all members of the LLC. More specifically, it can include how profits will be distributed, how members leave the LLC and who contributes capital for the business. In essence, it should contain all relevant information pertaining to the operations of your LLC.
Many states don’t require an operating agreement, but that doesn’t mean you don’t need to craft one. LLCs with more than one member or partner will want to create one to ensure everyone agrees on their rights and responsibilities. Even solo business owners will benefit from outlining the details in writing.
Crafting your own operating agreement works in most cases. And there are plenty of free templates online to get you started. For more complex situations such as partnerships, hiring an experienced attorney may be well worth the expense.
7. Keep Your LLC Active
Setting up your LLC is only the start. Once it’s formed, you’ll need to ensure your business license is active. Again, refer to your state’s Secretary of State website to look up current information on how to do so. Most likely, you’ll have to update any information pertaining to your LLC and pay an annual filing fee.
Frequently Asked Questions (FAQs)
That will entirely depend on your small business and its needs. If you are a freelancer or solopreneur, you can probably get away with a simple sole proprietorship.
But established teams will likely find that an LLC offers a number of advantages, such as protection as an individual from legal and financial problems that your company may face. However, even that carries a lot of caveats depending on who you are and where you’re located. Be sure to do your proper research before forming any sort of business.
You may be able to set up an LLC by yourself in most cases, especially if you’re a single-member LLC. Do your research and head to your state’s Secretary of State website (or the state where you intend on opening up your LLC) to determine the exact paperwork you need. However, setting up a partnership or S-Corp may be more complex, so hiring a professional may be a more appropriate route.
Most states don’t require LLCs to have an operating agreement, though it can come in handy. Those with business partners should consider creating an operating agreement before filing the articles of organization to ensure everyone is on the same page. For single-member LLCs, it’s useful to have something in writing in case you’re incapacitated and someone needs to take over.
