How to Start an LLC

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Learn about LLC formation, including information on Registered Agents, naming rules, business licenses, and more.

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Creating an LLC

Setting up an LLC is one of the most important steps in establishing a business. A limited liability company (LLC) offers many benefits to small businesses, including liability protection and tax advantages.

An LLC can be easily formed. Simply follow these 6 steps, and you’re done.

Step 1. Choose Your State

When forming an LLC, the first thing you will need to do is select the state in which it will operate. The best option for most new business owners is to form an LLC in the state where you live and will conduct business.

If your company will have a physical presence (i.e. a storefront or office) in another state, you must register a foreign LLC in each state where you plan to do business.

However, registering your LLC in another state (or multiple states) may incur additional fees and paperwork.

Learn how to form an LLC in your state with our state-specific guides below:

Step 2. Choose a Name for Your LLC

Once you’ve decided where to start your business, it’s time to choose a business name. The rules for business names vary from state to state, but in general, these guidelines should be followed:
  • The company’s name should include the phrase “limited liability company” or an abbreviation (LLC or L.L.C.).
  • Your LLC should not have words associated with a government agency (FBI, Treasury, State Department, etc.).
  • If your LLC includes restricted words such as “bank,” “attorney,” or “university,” you may need additional paperwork and a licensed individual, such as a doctor, to be part of the LLC.
  • Ensure that the name does not conflict with the name of another LLC or business entity that has already been registered with your state.
By choosing a unique name, you can avoid confusion and trademark infringement claims. It might also make sense to check whether a matching domain name is available. For more information about naming your business, read our guide “How to Choose a Business Name” Check your state’s LLC naming requirements and find out if the name you want is available by visiting the website for the state agency that handles business filings. For most states, that’s the Secretary of State.

If you are not planning on filing your LLC documents right away, you may want to reserve the name. Most states allow you to reserve a name by filling out a form and paying a fee. Reservation periods, filing fees, and renewal policies vary from state to state.

LLC stands for Limited Liability Company. It is a simple business structure that is more flexible and offers many of the same benefits as a traditional corporation. For more information, see "What is a Limited Liability Company?".

LLCs are allowed to register a "doing business as" name and use the official name of the entity.

The DBA works much like a personal nickname-you may use your nickname for some purposes and your full legal name for others. To learn more about DBAs, read our What is a DBA guide.

Step 3: Choose a Registered Agent

A registered agent is a person or business that sends and receives legal documents on your behalf. Examples of these documents are court summons and state filing notices.

When forming an LLC, nearly all states require businesses to designate a registered agent. Any person over the age of 18 can serve as your registered agent, as long as they have a physical address in the state where you formed your LLC. Companies can also serve as registered agents.

To learn more about choosing a registered agent, read our article What is a Registered Agent.

Yes. The registered agent can be you or someone else in your company. But you should take into account the following considerations:
As your registered agent, you must be available during normal business hours. Business trips and working outside the office may make this difficult.

Get our registered agent service for LLCs so you don't have to worry about it.

Do you need a Registered Agent?

When forming an LLC with Wise Business Plans, you get a free year of registered agent service. This service provides peace of mind and helps you stay compliant with the law.

Step 4. File your Articles of Organization

You must file articles of organization with your state’s corporate filing office, usually the Secretary of State. Some states call the Articles of Organization the Certificate of Formation or the Certificate of Organization.

Choose your state from the list at the bottom of page to learn more about how to form an LLC there:

Establishing an LLC differs from state to state. The common things you have to include in articles of organization are:

  • Name and address of the LLC
  • Its duration, if not perpetual
  • Name and address of the registered agent
  • The purpose of forming the LLC
  • A business owner or organizer must sign the form, and the registered agent in some states must sign it as well.

Your LLC formation documents can either be completed yourself (you can file online or by mail) or you can hire an LLC formation service to do it for you. The average state filing fee is about $100.

Member-Managed or Manager-Managed?

If you form an LLC, you’ll have to choose how it will be run. LLCs can be managed in two different ways.

  • An LLC may be member-managed, in which all the members (owners) participate in running the business.
  • A manager-managed LLC can be set up in which only certain members or nonmembers/outsiders, or a combination of both, run the business.

Get a Certificate From the State

Following the filing and approval of the LLC’s formation documents, the state will issue a certificate or other document that confirms the LLC’s existence.

After you receive the certificate, you can take care of business matters such as getting a tax ID number and business licenses, as well as setting up a business bank account.

Step 5. Create an LLC Operating Agreement

Having an operating agreement is essential to your LLC. It dictates how your company functions internally and with the public. It’s therefore imperative to make sure your business structure works for you.

Even if most states don’t require it, you should have an operating agreement for your LLC.

In the absence of an operating agreement, state law governs your LLC. An LLC operating agreement describes the ownership structure and the roles of its members.

An operating agreement contains some of the following sections:

  • Organization: This section describes when and where the company was created, who are the members, and what ownership structure it has.
  • Management and Voting: This section discusses how the company is managed and how decisions are made.
  • Capital Contributions: Here you’ll designate which members contribute to the LLC and how more funds will be raised in the future.
  • Distributions: This shows how the company’s profits and losses are shared among its members.
    Dissolution: This section explains how an LLC can be dissolved.
  • Membership Changes: The procedure for adding and removing members is explained here, as well as what happens if a member dies or leaves the business
The laws of most states have their own “default” rules regarding how these things work in an LLC. Operating agreements let you adjust the rules according to your unique circumstances.
 
If there’s no LLC operating agreement, then, if something unexpected happens, your LLC’s future may be determined by state law at that moment. With a successful contract in place, you are able to control your company’s future.
 
Putting together an operating agreement may seem daunting. It is best to consult a lawyer for guidance on the requirements of your business or to hire a business formation service.

Yes. To open a bank account and maintain limited liability, a single-member LLC must have an operating agreement.

With Wise Business Plans LLC Formation Service, you can complete all the paperwork and formalities required to start a limited liability company online.

Step 6: Get an EIN

An Employer Identification Number (abbreviation: EIN) is a nine-digit tax identification number that is assigned to your LLC. Consider it to be your company’s social security number. These numbers are used by the IRS to track business entities for tax purposes.

If your LLC has more than one member, it must obtain its own Employer Identification Number (EIN) from the IRS, even if it has no employees.

If you form a one-member LLC, you will need an EIN only if the LLC will have employees or if you elect to have it taxed as a corporation rather than a sole proprietorship (disregarded entity).

You can obtain an EIN by completing an online application on the IRS website or you can file form SS-4 via mail.

Step 7. Doing Business in the Other States (Optional)

You may need to register for business in other states if your LLC does business in more than one state. In order to do so, you’ll need to fill out and submit paperwork similar to the paperwork you filed when you formed your LLC.

Furthermore, each state where you are authorized to conduct business will require you to have a registered agent.

Many small business owners find LLCs to be a popular and flexible option. It is relatively easy to establish and maintain an LLC in most states.

It is, however, important to complete the paperwork properly and create an operating agreement that outlines the members’ rights and responsibilities.

These are the six steps you need to take to create an LLC most of the time.

There are three states that require you to publish notices in local newspapers. These are Arizona, Nebraska, and New York.

Are you Looking for LLC Formation Service?

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What to do After Creating an LLC

After you’ve formed your LLC, named it, and filed it, you need to do a few more things to get it fully operational.

Separate your personal and business assets

If your personal and business accounts are mixed, your personal assets (house, car, and other valuables) will be at risk. Here are the steps you need to take to protect your LLC.

1. Create a Business Plan:

If you decide that an LLC will be a good choice for your business in your state, your next step is to create a business plan (although it is not required), so that you have a roadmap for what you will do and how you will accomplish it.

Business Plan Template

Free: Business Plans Examples

Do you need help creating a business plan? Check out these six free, proven business plan examples from different industries to help you write your own.

2. Open a Business Bank account

Separate business bank accounts are not legally required for LLCs.

However, we still recommend opening a separate business bank account to maintain your LLC’s legal protections.

Here are some reasons why you should open a business account:

  • Separates your personal assets from the assets of your company, which is necessary for asset protection.
  • It simplifies business accounting
  • Having a bank account can make it easier to obtain credit for your LLC
  • Payments can be made by credit card
  • You can prove to the IRS that you run a business
  • Your LLC will look more professional with it

Recommended: Discover which banks offer businesses the best business bank accounts, ATM access, interest-bearing accounts, and online and mobile banking options.

3. Get a Business Credit Card

Learn how a business credit card can benefit your LLC  

  • For end-of-year tax purposes, it can help categorize and separate all business expenses.
  • You can use a credit card to build your business credit score, which is crucial to obtaining a line of credit or a business loan in the future.
  • It allows you to keep track of department expenses by giving employees multiple cards (with multiple budgets).
  • This can smooth out your cash flow and reduce the impact of short-term ups and downs in your business. Even if you are temporarily short of funds, you can use a business credit card to make critical purchases.
  • The use of a business credit card can keep your accounting in order and protect your personal assets by not mingling them with those of the business.
  • In many cases, business credit cards offer better terms than personal cards, such as lower interest rates, higher credit limits, longer interest-free periods, and discounts for early payments.

Recommended: Take a look at our review of the best small business credit cards for a closer look at business credit cards and their benefits.

4. Hire a Business Acoountant

A business accountant will help you take advantage of the tax benefits of an LLC and will save your business thousands of dollars in taxes each year. Getting in touch with a business accountant as soon as you start your business will ensure that you receive the best advice.

Getting Business Insurance for Your LLC

Most states require all businesses with employees (including corporations and LLCs) to carry workers compensation insurance. Liability insurance isn’t typically a legal requirement, but it’s highly recommended. Liability insurance protects your business assets from lawsuits. Without it, a lawsuit could force your company out of business.

You can manage risks and grow your LLC with business insurance. There are 10 types of small business insurance, and these are the most common:

  • General liability insurance protects your business from lawsuits. Most small businesses purchase general liability coverage.
  • Professional liability insurance protects professionals and businesses from claims of negligence from their clients or customers. Liability insurance typically covers negligence, copyright infringement, personal injury, and more.
  • Workers’ compensation insurance: Covers illnesses, injuries, and deaths resulting from a worker’s work.

Ready to Protect Your Business

Let us help you with your business insurance needs.

 

  • General business liability insurance
  • Medical insurance
  • Term life insurance
  • Workers’ Comp
  • Surety bonds
  • Commercial auto

Apply for a Business License or Permit

Prior to starting a business, many companies are required to obtain a variety of permits and licenses from federal and state agencies. Even if you don’t think that you need a license to do business, you should make sure by checking with your state’s division of professional licensing.

Most online businesses are more fortunate than offline ones, as they can often avoid most permits and licenses. However, the law is changing rapidly, so it is a good idea to double-check.

You should contact both your local business license department and a CPA. If you want to find out which licenses and permits you need for your specific business, this is the quickest way to do it.

For any business needing a permit, now is the time to register. Business activities such as the sale of alcoholic beverages, mining, drilling, transportation, and logistics require federal permits. State and local rules differ regarding permits.

Need a Business License? We simplify the process.

We can help you obtain business licenses, tax registrations and seller’s permits.

Register Your LLC with State Taxes

Depending on the nature and location of your business, you may have to pay several taxes.

  • If you are selling a physical product, you will need to register your company for sales tax.
  • If you have employees, you have to pay unemployment insurance tax and employee withholding tax.
  • In addition, you may be required to submit an annual report or biennial report.

Make Sure you Check the Hiring Laws

Last but not least, do not hire someone unless you are following state and federal hiring laws. Below are the major requirements for hiring:

  • Employees must be eligible to work in the United States.
  • You must notify the state of any new hires.
  • Employees must have workers’ compensation insurance.
  • It is your responsibility to withhold employee taxes.
  • Place compliance posters in visible areas of your workspace.
  • Employers must receive at least minimum wage as often as required by the state (weekly, biweekly, etc.).

How to Form an LLC FAQ

It depends entirely on your small business and its needs. A sole proprietorship may be sufficient for a freelancer or solopreneur.

An LLC, however, offers many advantages, including protection from legal and financial problems your company may face. In addition, LLCs have more options when it comes to taxation. You should seek legal and tax advice before forming any kind of business.

An LLC can protect your assets and is the easiest and most affordable legal business entity to form and maintain.
We have a Business Structure guide to help you choose the right business type for your small business.

A corporation is a legal business entity that is controlled by a board of directors and owned by shareholders. The benefits of forming a corporation are limited to businesses that rely on external investors or that need to trade stock publicly.
Learn why LLCs are the best legal business entity for most small businesses in our LLC vs Corporation comparison.

Depending on your state, the cost of creating an LLC varies. You can expect to spend a minimum of $50-500 to form an LLC and about $100 per year to maintain one.

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