How do you form an LLC?
The LLC, or Limited Liability Company,
is one of the most popular ways to structure a new business in America.
A great option for small businesses and single-owners,
LLC's are a flexible and simple alternative to corporations.
LLC’s allow business owners to protect their personal assets, gain credibility, minimize taxes
and streamline their administrative responsibilities.
Best of all, they are easyand inexpensive to start.
There are two ways to start an LLC: You can form one yourself,
or you can hire a service to do it for you.
In this video we will take a look at both options and help you decide how to go about
forming your own Limited Liability Company.
LLCs are a formal business structure, recognized at the state and federal level.
Let’s start by looking at how to form an LLC on your own:
You can form an LLC on your own, and it will save you some money.
The process does not require lots of complicated paperwork, and you can easily find all of the necessary
forms on our website for free at howtostartanllc.com.
Every state has different laws, and we provide videos and detailed instructions for each state on our website.
Generally speaking, there are six steps you will need to take
to start a new LLC:
Step One: Choose Your State
For most new business owners, the best option is to form your LLC in the
state where you live and where you plan to conduct your business.
When an LLC is first formed in it’s home state, it is also known as a “Domestic LLC” in that state.
If your business then expands to other states, your domestic LLC will need to be registered
as a foreign LLC in each other state you have a physical presence or employees in.
There are sometimes benefits to forming your LLC in a state that has business-friendly laws,
such as Delaware or Nevada.
However, this is rarely worth the extra fees and paperwork
of having to register your LLC in multiple states.
Step Two:
Next you will need to choose a name for your business.
Every state has its own rules aboutwhat kinds of names are allowed for LLCs.
In general, you will need to observe these naming guidelines:
Your name must include the phrase "limited liability company," or one of its abbreviations
LLC or LLC with a period following each letter.
Restricted words such as Bank, Attorney, Law office etc. may require additional paperwork
and may also need a licensed professional to be part of the LLC.
Your name cannot include words that could confuse your LLC with a government agency
such as FBI, Treasury, State Department, etc.
You cannot use a name that has already been registered. To see if your name is available
in your state, you will need to do a name search.
This free service is available on your state’s secretary of state website.
Check out our free guide for finding the direct link for your state.
We also recommend that you check to see if your business name is available as a web domain.
Even if you don't plan to make a business website today, you may want to buy the URL
in order to prevent others from acquiring it.
Step Three: Then you will need to nominate a registered agent for your LLC.
Depending on your state a registered agent is sometimes referred to as a
resident agent,
statutory agent,
or agent for service of process.
A registered agent is a person or business that is a point of contact.
They send and receive legal papers on your behalf.
These documents include official correspondence like legal summons and document filings, which
your registered agent will receive and forward to you.
Your registered agent must be a resident of the state you're doing business in, or a corporation
authorized to conduct business in that state.
If you nominate an individual, they can be a member of your LLC, including yourself.
To learn more about choosing a registered agent, you can watch our video on the topic,
or check out our webpages.
Step Four:
To officially create an LLC, you will need to file formation documents with the secretary of state.
The most common name for this document is "Articles of Organization." It is also known
in some states as a "Certificate of Formation" or "Certificate of Organization"
Your LLC formation document outlines the organizational structure of your business.
The Articles of Organization require three primary pieces of information:
One: Your LLCs unique and legal name.
Two: The name and street address of your registered agent
Three: You must decide who will act as the manager of the LLC. There are two options:
The first is Member-managed, where all members of the LLC manage the company. This is good
for small organizations, where everyone is involved in day-to-day operations.
The second option is manager-managed, where individuals are appointed to manage the LLC.
This is appropriate for larger organizations, where not everyone is
involved in the day-to-day affairs of the business.
You will also have to pay a one-time fee to the secretary of state.
This cost varies per state.
We have a video and a webpage that can provide you the exact details for your state,
but the price ranges between 40 and 500 dollars, with an average of about 125 dollars.
Once you have filed your Articles of Organization and paid the fees,
the state will then process your application.
Most states take three to seven working days to process an application.
If your application is successful, you will have officially formed an LLC.
If the application is not accepted the most common reason for an LLC not to be formed
is that the LLC naming guidelines were not followed.
Step Five:
Although not every state requires it,
you should always create an operating agreement to establish ownership terms and member roles for your LLC.
This foundational document is the core of your LLC,
and will help you maintain your organization, as well as further establish your LLC as a separate legal entity.
There are six main sections of an operating agreement:
Organization outlines when and where the company was created,
who the members are, and how ownership is structured.
Management and Voting addresses how the company is managed, as well as how the members vote.
Capital Contributions covers which members financially support the LLC, and how more funds will be raised in the future.
Distributions outlines how the company's profits and losses are shared among members.
Membership Changes describes the process for adding or removing members,
as well as if and when members can transfer their ownership shares.
And Dissolution, which explains the circumstances in which the LLC may be dissolved.
An operating agreement is an internal document. It does not need to be filed with the state.
However, it should be updated every time there is a change in membership or management at the company.
You can download a free sample operating agreement or create a custom one using our free operating agreement tool at
howtostartanllc.com.
Step Six:
Lastly, you’ll need to get an Employer Identification Number, or EIN, from the IRS.
Also known as a Federal Tax Identification Number, your EIN is like a social security number for your LLC.
An EIN is how the IRS tracks your business for tax purposes, but it is also necessary
to open a business banking account, and legally hire employees.
The good news is that EINs are free, and can quickly be obtained by visiting the IRS.gov website.
To recap, these are the six steps to setting up an LLC on your own:
One: Choose your state
Two: Choose a name
Three: Nominate a registered agent
Four: File your articles of organization
Five: Create an Operating Agreement
Six: Get an EIN
When you have completed these steps you will have an official LLC recognized
at the state and federal level.
Congratulations!
Now that you understand how to form an LLC, you might realize
that you don’t want to do it all yourself.
In that case, you might consider the second way of forming an LLC:
Two: Hire a Professional Service
The second way to form an LLC is nearly identical, with the difference being that you pay to
have a company form the LLC for you.
There are many professional formation services for hire, and we provide detailed reviews
of the top providers on our website.
Service packages can involve many aspects of business formation
including drafting operating agreements,
so you will have to choose based on your needs and budget.
Primarily what a professional service offers, in addition to filing your articles of organization,
is acting as your registered agent.
Registered agent services typically have a fee ranging from 50 to 150 dollars.
In most situations, however, this is a small price to pay for the convenience and benefits provided
by a professional service.
A hired registered agent helps you stay organized by keeping your business mail separate, and
is available at all regular business hours to accept official mail and legal papers
on your LLC’s behalf.
A final and important additional benefit of using a service is privacy.
A professional service will provide a level of privacy by withholding your personal name and home address
from the LLC’s contact information.
Thereare many reasons you might not want your personal
information easily accessible and associated with your business,
hiring a professional LLC formation service is an easy way to accomplish this.
Now that you have seen the different ways you can form an LLC,
take some time to research your options.
Every state has different laws, and many professional services are available
to help you along the way.
Click on the links in the description below to research the top 5 professional formation services
or get more information on how to form an LLC on your own.
We provide tools to help you draft an operating agreement, as well as other contracts and resources
to help accelerate your small business, all free of charge.
We would love to see you succeed in your entrepreneurial dreams.
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Visit us at HowtostartanLLC.com,
And good luck starting your new business!