How to Start an LLC

Author: Mike Enright, Director of Small Business Relationships 


  • What is a limited liability company
  • What are the main advantages of a limited liability company
  • What LLC forms are required to start an LLC
  • How to create an LLC and file Articles of Organization (7 steps)
  • What else is needed to set up a limited liability company (LLC)
  • How much does it cost to start an LLC
  • Limited Liability Company (LLC) FAQs

 

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What is a limited liability company (LLC)?

A Limited liability company (LLC ) is a business entity that offers limited liability protection and pass-through taxation. As with corporations, the LLC legally exists as a separate entity from its owners. Therefore, owners cannot typically be held personally responsible for the business debts and liabilities. The LLC allows for pass-through taxation, as its income is not taxed at the entity level; however, a tax return for the LLC must be completed if the LLC has more than one owner. Any LLC income or loss as shown on this return is passed through to the owner(s). The owners, also called members, must then report the income or loss on their personal tax returns and pay any necessary tax.

 

What are the advantages of a limited liability company.

  1. Limited liability: Members are shielded from being personally liable for acts of the LLC and its members.
  2. Flexible membership: Members can be individuals, partnerships, trusts, or corporations, and there is no limit on the number of members.
  3. Management: Members can manage the LLC or elect a management group to do so.
  4. Flow-through treatment: Income, losses, deductions, and tax credits flow through the LLC to the individual members. 

 

What LLC Forms are required to start a limited liability company?

Articles of Organization, sometimes also called a Certificate of Organization, must be prepared and filed with the state. Filing fees along with any applicable initial franchise taxes or other initial fees must also be paid. If your LLC is formed through BizFilings, all you need to do is complete our simple LLC forms and we will do the rest. We will prepare and file your Articles of Organization and LLC forms and pay the initial filing fees on your behalf. BizFilings' LLC Formation Service packages handle these steps for you.


How to create an LLC and file the Articles of Organization (7 steps)

The articles of organization contain information about the LLC, such as its name, address, purpose, who organized it, who the registered agent is, etc. 

1. Company Name

Your desired name must be included, typically with an LLC identifier, such as “Limited Liability Company” or an abbreviation such as "LLC" or "L.L.C." You may want to conduct a preliminary name availability search before submitting the Articles of Organization. If you incorporate online, the incorporation service you purchase will typically include this. Remember that the state holds final approval rights to ensure that a name is not already in use or “deceptively similar” to one in use.

 

2. Business purpose

This explains what your LLC is formed to do or provide. There are two types of business purpose clauses:

- General. Some states accept a general-purpose clause, indicating that the LLC is formed to engage in "all lawful business."

- Specific. Some states require a more complete explanation of the products and/or services your LLC will provide.

3. Registered agent.

Virtually all states require LLCs to have a registered agent in the state of incorporation. The registered agent receives important legal and tax documents for the LLC, must have a physical address (no P.O. Boxes) in the state of incorporation and be available during normal business hours. Many business owners use a registered agent service provider to ensure important documents are professionally and discreetly handled and because of the other compliance services they provide.


4. Organizer.

This is the person or company preparing and filing the formation documents with the state.  Most states require the organizer’s name, signature and address to be included.

 

5. Management Structure.

LLCs can be managed by the members (owners) of the LLC or by managers. When an LLC is managed by members, it more closely resembles the management structure of a partnership. When an LLC is managed by managers, it more closely resembles the management of a corporation, where the owners (shareholders) are not involved in the day-to-day running of the business. You must outline in the Articles of Organization whether your LLC will be member-managed or manager-managed.

6. Members/Managers.

Many states require the names and addresses of the initial members (if member-managed) or managers (if manager-managed) to be included in the formation documents.


7. Legal address of the company.

Supplying the legal or principal business address is optional in many states, but some require it.

 

What else is needed to set up a limited liability company (LLC)?

 

1. Organizational meeting.

After your LLC forms are filed, it is recommended that your LLC hold an organizational meeting of the members/managers. This meeting will help to start an LLC by adopting an operating agreement, issue membership interest certificates to members, and undertake other preliminary matters such as authorizing the opening of a bank account for the LLC.

2. LLC Operating Agreement.

The LLC (limited liability company) is an excellent option for business owners who want flexibility with a minimum of state-required recordkeeping formalities, such as the need to adopt bylaws and hold annual meetings. However, just because formal agreements among the owners are not required, it can be a painful and costly mistake to rely on the default state law provisions to spell out the LLC’s operating rules. The operating agreement is similar to a partnership agreement. Its purpose is to guide the conduct of the business. If the operating agreement is not required to be filed with the articles of organization, it can generally be in written or oral form. As a precautionary measure, the operating agreement should be written to limit future conflicts. 

3. Tax identification numbers, licenses and permits.

A federal tax identification number, or employer identification number (EIN), acts like a social security number and is required for corporations and LLCs that will have employees. Contact your state's taxation department to learn if a state tax identification number is required in your state. Also keep in mind that most businesses need licenses and/or permits to operate—in your city, municipality, county and/or state. Some industries have specific requirements. Government tax and insurance requirements that might apply to your business, particularly if you have employees. For example:
Unemployment insurance
Workers' compensation
OSHA requirements
Federal tax
State and local tax
Self-employment tax
Payroll tax requirements (such as FICA, federal unemployment tax, and state unemployment tax)
Sales and use tax

4. Business bank account.

It is crucial to separate business finances from personal ones. Most banks require company details, such as formation date, business type, and owner names and addresses. If your business is not incorporated, most banks will require a DBA (doing business as or fictitious business name). Contact your bank about requirements prior to opening an account.

 

How much does it cost to start an LLC?

Fees vary from $45 up to $315 depending on the state. See the list of LLC registration fees for all states.

 

 


Start a LLC Business

 

About the author: Mike Enright works with entrepreneurs every day and provides them with the guidance to all things business. As director of small business relationships, Mike leads a team that helps small businesses and entrepreneurs incorporate and assists with compliance support throughout the lifecycle of the business.

 

 

Limited Liability Company (LLC) FAQs

What is a limited liability company (LLC)?
What LLC Forms are required to start a limited liability company?
Who can form an LLC?
Do I need an attorney to form an LLC?
What should I name my LLC?
How many people are needed to form an LLC?
How is a limited liability company (LLC) taxed?
What is the organizational structure of an LLC?
How is an LLC managed?
Should I choose a limited liability company (LLC) or an S corporation?
What is a publication requirement?
Does my LLC need a registered agent?
How do I ensure my LLC always has a registered agent?
How do I get started setting up a limited liability company (LLC)?
What is Rush Filing Service?
Is LLC Rush Filing Service available for every state?
How soon will I receive my documents when I select Rush Filing Service?
Why should I include Rush Filing Service with my LLC incorporation service?