Ultimate Beginner’s Guide to Forming an LLC

You’ve had a great day. You have an idea for the next big business venture, and you’re ready to get started. Well, before you dive in headfirst and start spending money on lawyers or accountants, consider forming an LLC first.

An LLC is a legal entity that protects your personal assets from liability of debts incurred by the company. This article will discuss the basics of how to form an LLC for beginners so you can get started with your new business today!

What Is An LLC And Why Should I Form One?

The word “LLC” stands for Limited Liability Company, a type of legal entity that protects its members from being personally liable for certain types of company debt. In other words, if you decide to form an LLC and you end up getting sued, your personal assets (personal savings, house, car, etc.) are shielded from the company debt. This is because the members of an LLC are not considered officers or directors but rather managers that manage the company’s day-to-day operations.

In comparison to general partnerships or sole proprietorships, forming an LLC offers more protection and financial freedom to the members. In other business entity types, each owner or partner is personally responsible for any debts made by the company. But with an LLC, its members are not held liable for these debts as long as they don’t engage in fraud or similar illegal acts.

How Do I Form An LLC?

Below you will find a step-by-step guide to forming an LLC. This LLC formation guide will cover all aspects that you will need to create an LLC, from choosing a state to obtaining a certificate of formation.

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Step 1: Choose your state.

The first step in forming an LLC is deciding which state you will form your LLC in. It doesn’t really matter where you choose to incorporate, as long as the state allows for Limited Liability Companies. However, it may be easier and cheaper if you register an LLC in a state with an existing LLC presence – lawyers and accountants that have experience with LLCs.

You should check the Secretary of State website for your state and read about the LLC requirements for your state. Some states may require you to file an “Articles of Organization” or something similar, which will need to be submitted directly to the Secretary of State (normally online).

Step 2: Name your LLC

It is important to choose a unique name for your LLC. If your desired name is similar to an existing LLC, you will have to make sure that the other LLC does not object to you using it as part of your own name. You should also investigate whether your state allows you to use the name you want (depending on the state in which you are operating, it might be too generic) and whether your proposed name may infringe on any trademarks.

You should also check the availability of your name on the Internet (e.g., at www.internic.net) and in any relevant databases, such as telephone directories or trade directories (e.g., Dun & Bradstreet) before you decide to start an LLC with that name. In addition, make sure that there is no similar name used by a government agency or by another business that would conflict with, or infringe on, your proposed name.

When choosing a domain name, make sure it is not already being used. It’s important to consider all options because the name you choose will be part of your company branding and have a huge impact on future success. Go to Namecheap and check if your chosen name is available to register as a domain.

Step 3: Articles of Organization Filing

The next step is to file the articles of organization with the relevant state authority. This must be done within a specific period after you have made your decision to operate as a limited liability company (for example, in Delaware it is within one month; in California, it is two months).

You will need to fill out an application form and pay a filing fee. In most states, the application for articles of organization is available online. Fill out the form and find a certified public representative (CPA) or other state-authorized people to accept payment on your behalf and file it with the relevant state authority (the Department of State in Delaware, for example).

Step 4: Assign a registered agent

Your articles of organization will state who is your registered agent. This person or company must have a physical address in the jurisdiction of the state in which you are operating, should be available at this address, and must respond to any communications from relevant government bodies (such as tax authorities) on your behalf. Typically, attorneys specialize in this kind of work and will act as the registered agent on behalf of your company.

Additionally, you can choose an LLC service provider that can act as your registered agent. Examples of LLC service providers are companies like ZenBusiness, Incfile, or IncAuthority.

Step 5: Claim your electronic presence

Forming an LLC establishes your legal rights, but it is also important to establish a virtual presence. This means setting up a website for your business and claiming an email address. You can set these things up yourself (there are plenty of online guides), but it is often simpler (and cheaper) to hire a professional.

Step 6: Member-managed vs. Manager-managed

Ultimately, your LLC will consist of two kinds of people: LLC members and managers. Members can be either individuals or other business entities (e.g., partnerships) that own the company. Managers are responsible for running the business’s day-to-day operations but have no ownership in it; they are only managing a role within the company itself.

Your company can either be managed by members (allowing the other owners to take part in management) or by managers. The choice will depend on your needs, so decide which is more suitable for you.

Step 7: Set up an LLC operating agreement

For all LLCs, setting up an operating agreement is a must. This document outlines the rules by which your company members and managers will be bound, including how decision-making will take place (for example, voting on business matters), what kind of roles they have (e.g., who makes decisions for the company), who owns what percentage of the company, and business structure, among other things.

Step 8: Get an EIN

An EIN stands for “Employer Identification Number.” This is a unique number that your company will use to report income taxes and interact with the Internal Revenue Service (IRS) just like your social security number for your company or small business. The IRS issues these numbers, but you can apply online.

You can obtain an EIN through the IRS website through online filing. Make sure to read the instructions carefully before submitting your application, as you will need to provide a range of information about your business and its structure.

Step 9: Ensure compliance with taxation and regulatory requirements

Since you are not a sole proprietorship anymore, it is important to understand that your LLC will need to comply with other requirements and regulations as an entity. For example, all businesses must file an annual tax return (in some cases also monthly). You will also have to pay taxes on any profits made by the company. These taxes are paid at the corporate level and are not passed onto the owners or shareholders.

Annual reports

In addition to tax returns, the state will require you to file annual reports. These will provide information like your company’s name, structure, registered agent (the address at which they can be reached), and a list of members with their percentage ownership interest in the business.

Setting up a limited liability company (LLC) out of state

Once you have formed your LLC, it is possible to register it in other states (there are several ways of doing this and different procedures for each state). The LLC will be required to file a new application form for articles of organization with the relevant government authority and pay a filing fee. It will also need to appoint a registered agent at an address in the state and notify the authority of any changes.

Final thoughts

Forming an LLC is a complex process with many steps, but it allows you to protect your business from liability. It also establishes the legal rights for your company and provides some tax advantages as well. The key takeaway is that forming an LLC will give both you and your business entity more freedom.