How to Start an LLC in 2023: 7 Easy Steps to Follow
Are you prepared to transform your passion into a flourishing business? Establishing an LLC is a widely adopted and efficient method to safeguard your personal assets and enjoy the advantages of a formal business framework.
However, where should you commence? In this article, we will provide you with a step-by-step guide on how to start an LLC, ranging from selecting a name to completing the necessary paperwork. This will enable you to concentrate on expanding your business with assurance. Let’s begin!
How to Start an LLC in 7 Simple Steps
Numerous entrepreneurs opt to open an LLC due to its protection against liabilities. An LLC is an independent entity from its owners, known as members, which means they’re not personally accountable for any debts incurred by the business.
To create an LLC, you must complete the necessary paperwork with the relevant state authorities. Each state has its regulations and processes, but a few common steps need to be followed regardless of your location to successfully establish your LLC.
Step 1: Choose and Reserve a Name for Your LLC
In most states, it’s not allowed for two different business entities to have the same name. For example, if there are “Joe’s Donuts, LLC” and “Joe’s Donuts, Inc.” in different cities, that would not be permitted. Some states also have restrictions on using specific words in business names, such as “bank.”
To check if your desired LLC name is available, you can search for existing business names online in many states. It’s important to always verify name availability in your state before filing LLC paperwork.
Aside from state law restrictions, it’s recommended to research whether similar businesses in your area already use the same or similar names. Opting for a unique name can help prevent confusion and potential trademark infringement claims. It’s also worth considering if a matching domain name is available.
If you have chosen an available LLC name but aren’t ready to file your LLC documents immediately, reserving the name may be a good idea. Almost every state allows name reservation by submitting a form and paying a name reservation fee. The reservation period length, filing fees, and renewal policies differ among states.
Step 2: Choose a Registered Agent
In nearly all states, it’s mandatory for LLCs to designate a registered agent, also known as a statutory agent. This individual is responsible for receiving legal notices, such as lawsuits and subpoenas, on behalf of the LLC and then forwarding them to the appropriate person within the company.
In most states, any resident at least 18 years old can serve as a registered agent, including a member or officer of the LLC. There are also companies like Northwest Registered Agent that offer registered agent services for a fee.
Step 3: File Organizational Paperwork with the State
Every state has its unique process and requirements for setting up a Limited Liability Company (LLC). Typically, this involves submitting articles of organization that include details such as
- The length of its existence, if not perpetual
- The purpose for which the LLC was formed
- The name and address of the LLC
- The name and address of the registered agent
- The paperwork usually must be signed by the person forming the LLC
In the majority of states, you’ll need to submit LLC formation paperwork to the secretary of state, although there may be some states with a separate department for business filings. Each state has a different filing fee, and the cost of forming an LLC can vary between states.
Step 4: Prepare an LLC Operating Agreement
An LLC operating agreement is a blueprint for how your LLC will operate. It outlines important details like ownership interests, voting rights, profit and loss allocation, meeting procedures, governance, member rights in case of departure or death, and dissolution procedures if the business closes down.
While not always mandatory by state laws and not usually submitted to the state, an operating agreement is crucial for clarifying business owners’ rights and responsibilities and preventing future disputes.
Step 5: Determine the Licenses Needed
Once the necessary documents for the LLC formation have been submitted and approved, the state will provide you with an official certificate or similar document to confirm the existence of your LLC.
Once you have obtained this certificate, you can then proceed to identify any specific permits or licenses that your business may require, such as a zoning permit or liquor license.
Step 6: Get an EIN
Now, it’s time to obtain your Employer Identification Number (EIN). Think of the EIN as a business counterpart to your Social Security Number. It serves as a unique identifier for your business and is vital for essential tasks such as banking, taxes, and hiring employees.
Step 7: Register to Do Business in Other States (Optional)
If your LLC operates in multiple states, it may be necessary for you to register in those states. This involves completing and submitting paperwork similar to what you did when forming your LLC. You will need a registered agent in each state where you’re authorized to conduct business.
LLCs are a popular and adaptable choice for many small business owners. They’re generally straightforward to establish and maintain in most states. It’s crucial to complete the paperwork accurately and have a comprehensive operating agreement that outlines the rights and responsibilities of the members.
Important Steps to Follow After Forming an LLC
File Annual Reports
Alright, this step is typically relevant once you’ve completed a full year of trading, but it’s good to have an understanding of it now.
An annual report, also referred to as a “statement of information,” is a crucial document that provides your state with important information about your business. It includes any changes or updates that occurred since your last filing period.
By submitting this report, your state can notify you of any additional legal requirements, such as licenses, that may be necessary for your business operations.
A helpful tip is to establish a system for keeping track of all your business transactions. This way, you won’t find yourself scrambling to locate important documents as deadlines approach.
What Should You Include in Your Annual Report?
Please provide your LLC name, office address, registered agent information (if applicable), and the LLC number given by your secretary of state upon formation. Each state has its own unique laws and regulations regarding LLCs, which also include specific requirements for annual report submission.
Annual reports include:
- The names and addresses of your members and managers
- Important identification numbers (e.g., state entity number)
- List of authorized signatories
- Your principal business address
- Annual report filing process
- The purpose of your business
- Your registered agent’s information
To comply with state regulations, it’s typically necessary to submit an annual report for your LLC. This can usually be done conveniently through your state’s website.
It’s important to note that there’s a fee associated with this process, with the amount varying depending on the state. For example, the fee can range from $50 in Mississippi to $500 in Massachusetts.
What Happens if You Don’t File an Annual Report for Your LLC?
Fulfilling the requirement of submitting your annual report within the given deadline is crucial, despite it seeming like a mere formality.
The repercussions of not meeting this deadline can be significant. In certain states, you may face late fees, penalties, and taxes, while in extreme cases, your LLC might even be dissolved.
Open a Business Bank Account
While it’s true that as the owner of an LLC, you aren’t legally obligated by either state or federal law to maintain a separate business account, there are several compelling reasons why it’s highly recommended.
- When you open a business account, you’re effectively separating your personal finances from your business. This is crucial because if you don’t, you run the risk of losing the protection that limited liability provides. By establishing a distinct entity for your business, you significantly enhance the likelihood of maintaining this essential safeguard.
- Having a dedicated bank account for your LLC adds credibility and professionalism to your business.
- Separating your business and personal accounts provides a simpler understanding of your financial situation.
- It aids your accountant in determining the distinction between business-related and personal expenses. This proves particularly beneficial when filing your annual tax return.
- You can monitor your business expenses, ensuring your cash flow stays consistent.
Obtain the Required Business Licenses and Permits
In many states, it’s possible to start an LLC without obtaining a business license. However, it’s still necessary to obtain a business license and other permits to ensure that your LLC operates in accordance with state laws.
The specific requirements for business licenses and permits may differ from state to state. To determine the permits and licenses necessary for your LLC in the state where it’s registered, you can visit the website of the Small Business Administration (SBA). In most instances, it’s possible to apply for licenses and permits online.
- Alarm permit
- Sales tax registration
- Weights and measures registration
- Unemployment and worker’s compensation registration
- Professional/occupational licenses
- Health inspection certification
- General business license
How to Obtain Business Licenses and Permits?
To begin, select the state where you plan to operate, followed by choosing the specific city and county. Afterward, navigate to the Small Business Administration website to gather information on the regulations applicable to your location.
Make sure you have your Employer Identification Number (EIN) handy. If you don’t already have one, you can apply for it on the Internal Revenue Service website.
Next, obtain your business code, which can be found through various websites offering this service. Check if any permits are necessary besides the business license. Keep a credit card on hand to pay the filing fee, which typically ranges from $50 to $500.
Learn More About Tax Requirements
When creating an LLC, one of the smartest investments you can make is hiring an experienced accountant who understands the ins and outs of LLCs. It’s also important to educate yourself about taxes.
The way your business is taxed depends on how you structure it. You can choose to be taxed as a Sole Proprietorship (for Single-Member LLCs), Partnership (for multi-member LLCs), or opt for an S-Corp status.
Accountants play a crucial role in ensuring you comply with tax laws and file your returns accurately and on time. They can also save you a significant amount of money over the years by implementing legal strategies to reduce your taxes, which a less experienced accountant may not be aware of.
However, you can also contribute to reducing your accounting bill by learning how to maintain proper debit and credit records.
LLC Tax Filing Tips
To begin with, identify and make use of any applicable tax deductions or credits that your LLC may qualify for. It’s important to proactively review and note down business tax deadlines on your calendar. You can consider enlisting the services of a certified accountant or tax professional to handle your tax filing.
Furthermore, it’s crucial to thoroughly research and comprehend the tax obligations specific to your state. The necessary forms for completing your LLC taxes will vary based on three factors.
- Whether your LLC has multiple members or a single member
- If you opt for the default tax status, you should select a corporate tax status for your LLC
- And if your LLC has employees
Get Business Insurance
Business insurance offers protection against unexpected incidents such as fire or water damage, damage to stock and premises, missed deadlines, and client data breaches.
It also covers everyday risks like slip-and-fall injuries, employee car accidents, and work-related injuries. Some policies even cover supply breakdowns, compensation for business interruptions, and legal expenses.
If you have a business property where customers might injure themselves, you might consider getting public liability insurance.
Certain states mandate additional insurance for LLCs, while others leave it up to your discretion. If you have employees, it’s essential to have workers’ compensation, unemployment, and disability insurance. To determine the specific insurance requirements for your business model, consult your state’s website.
How to Start an LLC – Best LLC Formation Services
Starting a business can be quite daunting and time-consuming. There are many legal and administrative obligations to fulfill, making it challenging for entrepreneurs to navigate the process alone.
Several online business registration services can provide comprehensive solutions to assist entrepreneurs and small business owners in starting and managing their companies.
This blog post will discuss some of the best LLC services and offer guidance on selecting the best one to meet your business needs.
ZenBusiness is an internet-based service that specializes in assisting entrepreneurs and small business owners in establishing and expanding their companies.
They offer reasonably priced and all-inclusive LLC formation packages, which include registered agent services, annual report filing, and additional features. ZenBusiness provides continuous support and access to resources to ensure business compliance and success.
Swyft Filings is an expert in quickly and effortlessly forming LLCs. They provide a comprehensive selection of services for LLCs, such as incorporation, compliance, and registered agent services.
Additionally, Swyft Filings offers personalized assistance to guide businesses through forming an LLC and ensuring compliance with state and federal regulations.
Tailor Brands is an online platform that assists businesses in creating a professional and consistent brand image.
Their services encompass logo design, business card design, and social media branding. In addition, Tailor Brands provides various design tools and resources to empower businesses to customize their own branded assets.
Northwest Registered Agent offers personalized assistance and a wide array of business services, including registered agent services, compliance management, and document filing.
They specialize in helping businesses start LLCs and provide ongoing support and resources to ensure compliance and growth. Northwest Registered Agent is a reliable partner for LLC formation services.
Incfile offers efficient and cost-effective LLC formation services. Their packages include registered agent services, compliance management, and document filing. Incfile’s user-friendly platform simplifies and streamlines the LLC formation process.
Moreover, they provide continuous support and resources to help businesses thrive and remain compliant. Incfile is an excellent choice for LLC formation services focusing on affordability and convenience.
Why Form an LLC?
LLCs have become a preferred choice for entrepreneurs and groups who want to start a new business venture with potential. Several common factors drive people to opt for forming an LLC.
- Low startup cost: Setting up and operating a Limited Liability Company is more affordable than a corporation. In certain regions, the charges can be below $100. For individuals who aim to launch a business without having to invest a hefty sum, LLCs serve as the perfect business model.
- Tax-related benefits: LLCs stand out due to their ability to be regarded as pass-through entities, allowing their income to be reported on personal tax returns, even as business resources are distinct from personal finances. Numerous LLC owners favor this approach as it helps evade the chance of being taxed twice. However, for taxation matters, LLCs can be classified as a single-owner business, a partnership, a C-corporation, or an S-corporation.
- Liability shielding: The term LLC, as suggested by its name, offers a degree of liability coverage to its members and owners. For example, by appropriately allocating the company’s assets, the personal assets of members are safeguarded in the event of legal action against the firm.
Starting an LLC isn’t overly complicated. There are companies that can assist you with the paperwork and take care of your yearly obligations, like filing annual reports.
How to Start an LLC – Types of LLCs to Consider
When you’re figuring out how to start an LLC, you’ll find a variety of LLC forms to consider. Understanding the different LLC configurations is crucial when deciding on a business structure that matches your company’s core nature and operational intentions. The options for these LLC setups include:
- Single-Member LLC: This Limited Liability Company (LLC) is under the direct control and ownership of one individual. Though it bears a resemblance to a sole proprietorship, this LLC offers extra tax advantages and protection against liabilities.
- Multi-Member LLC: Standard LLCs with more than one member, often divided into manager-managed or member-managed entities.
- L3C: These entities, also known as “Low-Profit Liability Companies,” act as a bridge between nonprofit LLCs and for-profit LLCs where the business cause remains the primary focus rather than earnings.
- Series LLC: Series LLCs are tiered business structures where the topmost LLC owns a series of lower-tiered LLCs through limitless segregation. Each LLC in the series operates mostly independently of one another; their assets are also primarily separated.
- PLLC: A specialized LLC, this business formation type is only available to certain licensed professionals.
- Restricted LLC: Limited Liability Companies (LLCs) under restriction aren’t subject to taxation in the initial decade of their establishment. Similarly, they aren’t allowed to disburse funds to their members. The LLC’s restriction status must be clearly outlined in the organizational articles.
- Anonymous LLC: The term “anonymous” in relation to an LLC isn’t legally defined. It’s a term used when the state doesn’t publicly disclose the ownership of an LLC. Business formation is typically public knowledge, and there might be circumstances where an individual prefers to keep their information confidential. For example, an owner of a single-member LLC working from home might not want this detail to be publicly known. Currently, most states don’t permit the establishment of anonymous LLCs. Currently, only Delaware, Nevada, New Mexico, and Wyoming offer this option.
How to Get an LLC – Frequently Asked Questions
Should I Get an LLC for My Small Business?
The Limited Liability Company is the most prevalent form of business structure due to its simplicity, adaptability, and uncomplicated nature. This setup offers liability safeguarding, meaning individual owners aren’t personally accountable for the company’s debts.
Furthermore, it operates under pass-through taxation, allowing the firm’s earnings to be directly distributed to the LLC owners without initial taxation. These profits are then declared on the owners’ personal tax returns.
Can I File for an LLC on My Own?
Indeed, initiating a Limited Liability Company independently is feasible by adhering to the complimentary, step-by-step instructions on starting an LLC. Alternatively, you can engage the services of LLC Service providers like ZenBusiness or Swyft Filings to establish your business.
How Much Does it Cost to Start an LLC?
The expenses of forming a Limited Liability Company fluctuate based on state registration charges and whether you undertake the process independently or engage a professional firm.
The cost to open an LLC might range anywhere from $50 to $500. Employing an external company to manage your business paperwork and provide extra services could result in an additional cost ranging from $40 to $350, should you opt for this approach.
Is It Possible to Set up an LLC for Free?
The expense associated with starting up an LLC fluctuates depending on the state, but there’s always a charge for registration in any state.
Therefore, even though certain businesses promote “no-cost” LLC formation, it implies they will complete the LLC documentation at no charge. However, the obligatory state filing fee will still be the client’s responsibility.
Bottom Line on How to Start an LLC
Feeling worried about opening an LLC prior to this article is completely natural, given the intimidating legal complexities.
However, now that you understand starting an LLC, you aren’t longer held back. Proceed according to our step-by-step guidelines, and should you encounter any hurdles or require more guidance, refer back to this manual or consult with local business owners.
Alternatively, you might use an LLC creation service such as ZenBusiness for assistance. Rest assured, help is accessible at every stage of the process.