- Hi everyone.
I'm attorney Aiden Durham with 180 Law Co. in Colorado.
And welcome back to All Up in Yo' Business.
(upbeat music)
On this episode of All Up in Yo' Business,
we're gonna talk through the eight steps involved
in starting an LLC.
But first, I would just love
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All right, now let's dive into the eight steps you'll need
to take to start a new LLC.
First off, we need to decide which state we're going
to form the LLC in.
I know people talk a lot about states like Delaware,
Wyoming, Nevada, being the optimal states
to register a business.
But really for most people, you're better off just forming
the LLC in the state where you live
or where you plan to conduct business.
You see Delaware, Wyoming, Nevada
and some other states have certain laws
which can be very beneficial for businesses.
Nevada for example, has no state income tax.
So someone wants to form an LLC there, thinking
that it will help them avoid paying state income tax.
But with an LLC, that really only works
if you yourself live in Nevada.
It doesn't matter if the LLC is registered in Nevada
because you still have to pay state income tax
in the state where you reside.
Also, each state has laws requiring foreign entities
to register if they will be conducting business
within the state.
So if you register their business in one state,
but you're actually operating the business
in a different state, you'll probably still have
to register the business as a foreign entity
in that second state anyway.
Certainly it can be beneficial in some instances
to register the LLC in a particular state,
but most people are gonna be better off registering the LLC
in the state that you live in
or wherever you consider yourself to be domiciled.
After we decide on the state, we need to decide on the name.
The name of the LLC must comply with the state's rules.
The laws are gonna vary but most states require
that the LLC name includes some indication
that it is an LLC.
So you want to include something like LLC or LTD
or limited in the name.
It also can't be the same as the name of another LLC
or other business that's registered with the state.
So once you've decided on the name, search
the Secretary of State's records
to see if the name's available.
Most have some kind of name availability search,
available online.
It's also smart to search the USPTO
or the United States Patent and Trademark Office,
their database to see if the name is available nationwide.
Once we've got the state and the name marked out,
now we need to determine how the LLC will be managed.
An LLC can be member-managed or manager-managed.
A member-managed LLC means that the owners or members
of the LLC are authorized to act on behalf of the LLC.
The members will be responsible for decision-making
and day-to-day operations of the business.
In a manager-managed LLC, the members will elect one
or more managers who will act on behalf of the LLC.
The managers, not the members will handle the day-to-day
and decision-making while the members may only have a say
in certain specific acts or decisions.
Most small businesses, especially single-member LLCs
will choose to be managed by the members.
But whether to operate as manager-managed or member-managed
will largely depend on the specific circumstances
of the business.
So if you aren't sure how your LLC should be managed,
it's best to consult with an attorney.
Then we need to figure out
who will be the registered agent for the LLC.
The registered agent is the person or entity
who will accept service of process on behalf of the LLC.
If the LLC is involved in a lawsuit or legal proceeding,
the other party will need to serve
the LLC with court documents.
The registered agent will accept that service
on behalf of the LLC.
The registered agent doesn't have any ownership interest
or management in the LLC, solely by virtue
of being the registered agent.
The registered agent doesn't have to be a member
or a manager of the LLC.
In most states, the registered agent just needs
to be over 18 and agree to act as the registered agent.
They must also have a physical address in the state,
it can't be a PO box.
So you as the business owner,
you can act as your own registered agent for the LLC.
And you can use your home address
if you're operating the business from home,
there's nothing inherently wrong with that
and it's perfectly common.
But if you don't want to use your home address
or if your business doesn't have a physical office address,
there are lots of options for corporate registered agents.
I've included a few links in the description
to some of my favorite corporate registered agent companies.
All right, so now that we know
the state we're gonna file in, the name we're gonna use,
how the LLC is going to be managed
and we've got the registered agent lined up,
it's time to file the Articles of Organization.
The Articles of Organization is the document that we'll file
with the Secretary of State's office to officially bring
the LLC to life.
Now not all states call it Articles of Organization though.
Some call it a certificate of formation
or certificate of organization.
Exactly how you file the Articles of Organization
and what you need to include in it
is really gonna depend on the state.
Each state's different.
Many States have a form available
which you can complete and file online,
Colorado for example.
And for most states, the Articles of Organization
are gonna ask for information about the LLC's name,
its address, the name and address of the registered agent,
whether the LLC is member or manager-managed.
And we'll typically ask for some information
about the LLC's members and or managers.
Although there are plenty of states
that do not require information about the members
or managers on the Articles of Organization.
You'll have to pay some filing fee
when the articles are filed.
The fees, again, gonna depend on the state,
but they're typically around 100 bucks or so.
So nothing outrageous.
Also timing is gonna depend on the state.
Some States like Colorado are instant,
the Articles of Organization are accepted
and filed as soon as we submit the form.
But some states may take a few weeks to officially accept
and file the Articles of Organization.
Sometimes depending on the state, we will need
to file some additional information
with the Secretary of State after we submit
the Articles of Organization.
California for example, requires you to file
a statement of information within 90 days
after the Articles of Organization.
So you wanna check the requirements for the state
that you filed in to see if you'll have
to make any additional filings.
Again, every state is different.
And now, congrats.
You are now the proud owner of a brand new LLC.
Once the Articles of Organization are filed and accepted
with the Secretary of State,
the LLC is officially alive and in existence,
but our job is not quite done yet.
Now that the LLC has been formed,
it's time to prepare the operating agreement.
Even though most states don't require it,
you should have an operating agreement for your LLC.
The operating agreement is an internal document
which will describe how the LLC will be run,
including how it will be managed,
how decisions will be made for the LLC,
it'll describe how the members will get distributions
from the LLC and what happens if an LLC member dies
or becomes disabled, things like that.
If there are multiple members in the LLC,
the operating agreement will be a really important tool
in avoiding disputes
that can ruin your business partnerships.
But even in a single-member LLC,
the operating agreement is important because it helps
to uphold the limited liability protection
that we get from the LLC.
Next we wanna get a tax ID number from the IRS.
A tax ID number or EIN or Employment Identification Number
is required if the LLC has multiple members.
Single-member LLCs are not required to have an EIN,
unless the LLC will have employees
or elect to be taxed as a corporation.
But even if the EIN isn't required for a single-member LLC,
meaning you don't have employees,
you still can get an EIN and you still usually should.
Most banks are gonna require it
if you wanna open a business bank account.
So sometimes a single-member LLC
will need it solely for that reason.
Either way, even if it's not needed,
it's a good idea to just get an EIN.
It's free anyway and you can apply at irs.gov.
Lastly, you may need to get some additional business
or tax licenses.
This is going to completely depend on the type
of business you're operating and where it's located.
Some states and local jurisdictions require
a business license if you wanna operate your business there.
You may also need a sales tax license
if you'll be collecting sales tax
or a payroll tax license if you'll have employees.
Again, this is all gonna depend on your specific business
and location, so it's best to contact an attorney
in your area if you need help determining what,
if any licenses will be required for your business.
So there you have it friends,
the eight steps in starting an LLC.
Pick the state, pick the name, determine the management,
get the registered agent, file the Articles of Organization,
draft the operating agreement, apply for an EIN
and get any required business or tax licenses.
It is always best to work with an attorney in your state
to set up an LLC.
But if you're a DIYer or on a tight budget,
you can do it yourself.
I've partnered up with a company called Legal Inc
to provide a great tool which allows you
to form an LLC online in any state
from the comfort of your own home.
Visit this link or check the description to get started.
That's all for this episode folks.
Drop a comment below, lemme know what you think.
And again, be sure to check the description
for links to additional information and resources.
Thank you all so very much for watching.
I'm Aiden Durham, and I'll see you next time.
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