You want to form an LLC. What do you need to do to be able to start your business? Here is an explanation of the requirements, and a brief overview of how you can use them to start your new LLC.
Starting a new Limited Liability Company, or LLC, is fairly simple. It’s ease of formation is one of the reasons that it is such a popular business type to start. That, and the fact that the owners have personal asset protection. The LLC can be formed without paying exorbitant amounts of money on needless legal fees.
The six general requirements and steps to form your own LLC:
This is a step-by-step guide to what you need in order to begin your LLC. It is simple and easy to follow.
1. A chosen state.
It is generally a good idea to start your LLC in the state where you reside and where you plan on operating your business. Should your business entail having physical entities in different states, you will be required to register a foreign LLC in every state where the business will be operating. These physical entities could include storefronts, offices, sales reps, etc. You might feel compelled to register your business in a state with business-friendly laws, but most often it is simple not worth the effort of the excess fees and paperwork of registering your business in multiple states.
2. An unique name.
It is now time to choose your business name. there are rules and regulations regarding which names are permissible, but these vary by state. However, there are three general guidelines that you have to follow: the name has to incorporate the phrase “limited liability company,” or any of its known abbreviations such as LLC or L.L.C.; the name is not allowed to include words that could be confused with any government agency including, but not limited to, FBI, Treasure, State Department, etc.; should the name include restricted words such as bank, attorney, or university then you might need to get additional paperwork and have a licensed individual, such as a doctor a lawyer, form a part of your LLC.
3. A registered agent
You will need to choose a registered agent who is either an individual or a business that has the legal authority to send and receive legal documentation on your behalf. These papers include any formal correspondence and may include legal summons and document filings. Naming a registered agent is required by most states, and the agent must be a resident of the state where your business is operating, or a company who has the jurisdiction to run a business in said state.
4. Articles of Organization
The formal formation of your LLC is dependent on filing the formation document with the state. This document is generally known as the Articles of Organization, however, in some states it is called the Certificate of Formation or the Certificate of Organization.
5. LLC Operating Agreement
Penultimately, you will need to formulate a legal document that sketches the structure of the ownership, and the member roles of the new LLC. Formally, most states do not make an Operating Agreement obligatory in order to start your LLC, but there are still benefits to having one. This operating agreement is comprised of six primary sections:
1. Organization: defines the time and location of the formation of the company. It also outlines who the members are, and how the ownership is shaped.
2. Management and Voting: this section talks about the management of the LLC and the manner in which the members vote.
3. Capital Contributions: this shows which members are financial backers of the LLC. It also has the function of outlining how additional funds will be raised in the future.
4. Distributions: this section sketches the manner in which the LLC’s profits and losses are distributed amongst the members of the company.
5. Membership Changes: this is a description of the necessary steps that need to be taken for the addition or removal of members, including if and when members are allowed to shift their ownership shares.
6. Dissolution: outlines the conditions that would necessitate the dissolution of the LLC.
6. EIN
If you plan on hiring employees or opening a business bank account, you will need to get an Employer Identification Number (EIN). This number is comparable to a social security number for your LLC. This number can be obtained for free through the IRS website, via fax, or by mail.
Further help:
TRUiC outlines exactly what is required for LLC Formation and provides links to help you better understand the legal implications of starting and operating an LLC.
