It can be daunting to start a business you’re passionate about and then be held up by all the legal action required to make it happen.
In this article, you’ll learn how to register with your chosen state, obtain an EIN, and get compliant with any legal documents you need for your business.
Read on to learn how starting an LLC can jump-start your business in the right direction with this step-by-step process.
What is an LLC?
Before we begin, let’s briefly go over what an LLC is.
An LLC is a business structure that incorporates elements of both a corporation and a partnership/sole proprietorship. As owners, known as members, enjoy personal liability protection similar to a corporation—they also benefit from pass-through taxation and get taxed as a partnership or sole proprietorship.
Benefits of Starting an LLC
The process of establishing an LLC can be initially cumbersome, so it’s beneficial to understand the benefits for future endeavors. Here are some of the key benefits of starting an LLC:
- Personal Liability Protection
- Flexible Management Structures
- Tax Efficiency (Pass-Through Taxation)
- Professional Image
In addition to these benefits, LLCs offer flexibility in management and organization as well—allowing members to choose the structure that best suits their business needs.
This makes LLCs an attractive option for a wide range of businesses, from small startups to larger established companies.
Steps to Form an LLC
Now let’s get into the fundamentals of starting your LLC. We cover everything from choosing your LLC name and the state in which it will be based.
The legal documents needed to legitimize your business, as well as obtaining an employer identification number and registration in your chosen state.
Below you’ll find 7 actionable steps for you to follow.
Step 1: Choose a State to Form Your LLC
The selection of the state to form your LLC is a crucial aspect of the process of starting a limited liability company. This decision holds significant implications as it affects the legal and financial framework within which your business will operate.
To make an informed decision, you need to consider a variety of factors. These include the cost and duration of the registration process, the taxes and fees charged by the state, and the legal protections and regulations that exist in the state.
Additionally, you may also want to consider factors such as the business climate, accessibility to resources, and the overall economic stability of the state.
With careful consideration and research, you can make an informed decision that aligns with your business goals and protects the interests of your LLC.
Step 2: Select a Name for Your LLC
When forming an LLC, it’s important to choose a name that accurately represents the essence and goals of your business and is legally acceptable.
This name will be used to identify your business and will be featured on all official documents and correspondence.
In addition, the name of your LLC must be distinct and include a legally recognized identifier, such as “LLC”, “L.L.C.”, “Limited Liability Company”, or “Limited”. Another option is to include abbreviations such as “Inc.” for “Incorporated” or “Corp.” for “Corporation”.
E.g. GuitarWorks LLC — WoodenToys Inc.
It’s critical to ensure that the name of your LLC is unique and does not infringe upon any existing trademarks or business names. This not only protects the identity of your business but also avoids legal disputes in the future.
Step 3: File Articles of Organization with Your State
Next, you will need to file an Articles of Organization with your chosen state. This document contains the basic information about your LLC, such as the name, purpose, and ownership structure.
Once the Articles of Organization are filed, your LLC is officially recognized by the state, and you can begin doing business while enjoying the benefits of limited liability protection.
Step 4: Create an Operating Agreement
An operating agreement is another important aspect of the formation process of an LLC. It outlines the policies, procedures, and regulations that govern the internal operation of the LLC and provides members with a clear understanding of their responsibilities and rights within the company.
Although the creation of an operating agreement is not required in all states, it’s highly recommended as it helps mitigate potential liabilities and disputes between members.
It serves as a blueprint for the smooth functioning of the LLC—providing a framework for decision-making and dispute resolution.
An operating agreement can also protect members’ personal assets and ensure that the LLC operates in compliance with state laws and regulations.
So taking the time to create a comprehensive operating agreement is an investment for the future success and protection of your business.
Step 5: Obtain an EIN from the IRS
The EIN, or Employer Identification Number, is a vital component of a successful business. Assigned by the Internal Revenue Service (IRS), this 9-digit number is used to identify your business for tax purposes and is essential in various aspects of your business operations.
This includes filing taxes, opening a business bank account, hiring employees, and applying for business loans.
The EIN also enables the IRS to keep track of your business finances and tax obligations. This is a straightforward process to obtain and can be done either online or by mail.
Obtaining an EIN brings you one step closer to forming your LLC.
Now let’s go over how to register with your state and tie up any loose ends.
Step 6: Register with Your State and Local Tax Agencies
To complete registration in your state, you must designate a registered agent to act as the recipient of official legal and tax documents for your LLC.
The registered agent must be physically present in the state where your LLC is registered. And while some business owners choose to handle this task themselves, it is advisable to check with an attorney or local government to ensure compliance with state laws.
Step 7: Comply with Other Legal Requirements
Finally, depending on which state you register in and what type of business you will operate, there may be extra-legal actions you need to take to stay compliant with the state.
Below are some things to consider when starting your business:
- Business Licenses or Permits
- Filing taxes in accordance with your state
- Industry compliances
To briefly explain these examples, we will give you an overview of what you might encounter in terms of other legal requirements.
For example, if you want to open a restaurant, you will need to take precautions regarding food and alcohol. Certain permits are required for serving beverages with high alcohol content, and food safety is a crucial part of passing regular inspections.
As far as taxes are concerned, every business has a different fingerprint when it comes to tax filing. So, it’s important to know exactly what kind of legal documents you need to allocate.
If you are not sure what other legal steps are required in your industry, it’s best to consult with an accountant or your registered agent to make the most appropriate decisions for your situation.
Start your business journey with an LLC
Forming an LLC is a smart way to get your business up and running. With the benefits of personal liability protection and pass-through taxation, an LLC provides a strong foundation for business success.
By following the seven steps that we went over above, you can ensure that your LLC is properly established and ready to achieve your business goals.
If you need extra help with your finances and staying organized and up-to-date.
Our bookkeeping services can that lighten the load when it comes to maintaining your cash flow, managing your assets, and staying compliant with your taxes.
How does LLC work?
An LLC combines elements of a corporation, a partnership, or a sole proprietorship for liability protection and pass-through taxation.
What state is the easiest to form an LLC?
Delaware and Wyoming are popular and affordable states to form an LLC. However, the ease in which you register your business will depend on the nature of your business and the legal requirements.
Can you set up an LLC in the US if you live in another country?
Yes, a foreigner can register for an LLC online, and with Doola, you can form your LLC in 7 easy steps.
How much does it cost to register an LLC in USA?
Registering with doola can save you time and paperwork for just $297 plus state fees.