Many people have a natural anxiety when thinking of what form their new business should take. Which structure will serve my business in the best way possible? Here we will explain the steps that you need to take to form an LLC.
Despite the unease about starting a new business and making sure that it succeeds, forming an LLC (Limited Liability Company) is a relatively easy experience with many sources to help you through the process. It is a popular option because it protects the owner from personal liability, isn’t too expensive to start, and is marketable to both customers and banks. This heightens the possibility of not only increased profits, but also strengthens the businesses’ chances of getting business loans from the banks.
- Choose where you want your business to operate.
First, you need to decide where your business will operate. The majority of new business owners make the decision to form their new LLC in the state where they live. However, you need to know that if your business chooses to operate in different states, then you are required to register a foreign LLC in every state where the business will function. Although states with business-friendly laws seem intriguing and offer certain benefits, it is rarely worth the hassle of dealing with the surplus paperwork and fees of having to register the business in various states. States like these include Delaware and Nevada.
- Decide on a unique name.
The second order of business is to decide on a name for your LLC. It is important to know that every state has its own set of rules about names which are permissible for LLCs. The following are general guidelines that need to be adhered to: it is essential that the name includes the phrase “limited liability company” or either of its abbreviations, namely LLC or L.L.C.; you also have to remember that your LLC’s name isn’t allowed to include any words or phrases which can potentially be confused with a government agency, namely the FBI, Treasure, State Department as a few examples; there are also words that are controlled (e.g. Bank, Attorney, University) which has the potential to necessitate supplementary paperwork and a licensed partner to form part of the LLC, such as a doctor or a lawyer.
- Find a Registered Agent.
The third step is to select a registered agent who is a person or business that has the authority to send and receive legal papers on your behalf. Examples of these are legal summons and document filings which the registered agent will obtain and forward to you. This is a prerequisite of many states. The registered agent has to be a resident of the state where the business will be operating, or the corporation must have the authorization to conduct business in the state.
- File a Formation Document with the State.
After you have chosen a registered agent, it is required that you formally create an LLC. In order to do this, you must file your formation document with the state. This document is generally referred to as the Articles of Organization. However, in some states the document is referred to as the Certificate of Formation or the Certificate of Organization.
- Develop an LLC Operating Agreement.
Penultimately, you are required to create an LLC Operating Agreement. This agreement is a legal document which serves as a framework of the ownership structure and the member roles of the newly established LLC. It is beneficial to you to have such an agreement in place, however, in most states it is not mandatory. This agreement is comprised of six primary sections, namely organization, management and voting, capital contributions, distributions, membership changes, and dissolution.
- Get an EIN
The final step in forming your LLC is getting an EIN. An Employer Identification Number is similar to a social security number for your LLC. This number is required if you decide to hire employees or you wish to establish a business bank account. Acquiring this number is a free process which can be done directly via the IRS website, fax, or through email.
More detailed information:
For more information on the process of starting an LLC, TRUiC provides an easy step-by-step guide with additional information and links on how to formulate the official documents.