If you’re thinking of starting up a business and you’re US-based, then you may want to consider an LLC — a limited liability company. But what are the benefits to creating an LLC, and how can you form one yourself?
We’ll be guiding you through the steps for forming your own limited liability company below, but first, let’s cover what an LLC is.
There are many different business structures available, but the best option for a small business — if you’re based in the US — is an LLC and here is why: an LLC is the simplest and most flexible business structure to form and maintain. It provides the benefits of both a partnership and a corporation. It can be formed by one or more individuals and protects the personal assets of the owners in the event the business goes bankrupt or gets sued.
WARNING: You should know that once you are involved in a lawsuit, it is impossible to form an LLC to protect your personal assets after the fact. Therefore, make sure to form the LLC in advance.
Now, all this might sound all well and good, but we haven’t answered the BIG question: can you form an LLC yourself or should you hire someone else?
It may seem intimidating to do it yourself, but it’s actually pretty easy. Here is where we come in to help you! Follow these simple steps to begin forming an LLC on your own.
Step 1: Name your LLC
To get started, choose a unique name for your LLC. Head over to search your LLC name or on the individual state’s Secretary of State website and make sure the name you’ve chosen is available. Keep in mind that the business name must contain the term “Limited Liability Company,” either spelt out or in abbreviated form as LLC or L.L.C.
The LLC naming can include the following:
- Any combination of capital and lowercase letters, including an uppercase letter in the body of the name. For example, ‘MyAwesome LLC’
- Numbers as well as letters. For example, ‘My10Awesome LLC’
- Any of the following words in their entirety or an abbreviated form: company, association, club, foundation, fund, institute, society, union, syndicate, limited or trust
- Your name or the name of other LLC members
- If the name contains any non-English words, a translation must be submitted along with the application for filing the formation
Also, the name you choose cannot contain words that might cause your business to be confused with a government agency (such as the FBI, the CIA, or the State Department).
Additional paperwork might be required for the following:
- If you include words whose meaning is legally restricted such as a bank or university
- Words the Secretary of State deems lewd, racist, or objectionable
- Your LLC includes a licensed individual such as a professor or doctor
Lastly, try to find an LLC name that distinguishes yourself from competitors and is a unique name that is distinct, memorable, easy to spell, and simple-to-pronounce.
Step 2: Select your registered agent
All state-registered LLCs are required to have a registered agent in the state where the company is formed or doing business in. Your registered agent is your official contact with the state.
There are three ways to choose your registered agent:
- You can be your company’s registered agent. There are a couple of states that allow your company to serve as its registered agent, but this is the exception to the rule. We recommend you check with the state
- A friend or family member can be your company’s registered agent
- You can hire a commercial registered agent for a cost
It’s important to decide on a registered agent that will maintain your compliance immediately and correctly on behalf of your LLC. If you select a friend/family member or act as your registered agent and this isn’t an area of expertise we suggest hiring a registered agent service.
Requirements vary among the states, but generally registered agents must meet the following criteria:
- A registered agent must physically reside in the state of the business
- The registered agent’s address must be a physical street address. PO boxes are not allowed
- The registered agent must be available during normal business hours (Monday – Friday) to receive important state and legal documents
- The name and physical address of the individual are required if the agent is a person
- If the agent is a business, it must be a company registered in the state and is in good standing. In this case, usually, the business name or some record ID is required to identify the business as your agent when you file
Failure to have a properly registered agent for your LLC may result in fines, closure, and possible loss of good standing with the state. Therefore, it is important to keep accurate corporate records with the state so you do not miss receiving legal documents.
Step 3: File your articles of organisation
Articles of Organisation (sometimes also called Certificates of Organisation or Certificates of Formation) are legal documents that outline key details of your LLC. These documents contain basic company information such as the LLC’s name, members, business address, and registered agent, depending on the rules and regulations of the state where the LLC is formed.
The main purpose of the Articles of Organisation is to officially confirm the LLC’s existence as a legal business entity, once filed and approved by the Secretary of State. It is also necessary to legalise your business and prevent any potential disputes between members regarding their rights, duties, and protection of personal assets.
To accomplish this visit the Secretary of State website and learn about the state-specific rules for filing the Articles of Organisation. Then, find and download the appropriate Articles of Organisation form. Most state websites will provide a form or a downloadable PDF copy for you to fill out. It’s that easy!
Step 4: Create your LLC operating agreement
An operating agreement is a document that works as an instruction manual for your LLC. It is a key legal document every LLC should put together in order to clearly outline the rules and regulations regarding ownership and structure as well as the financial and operational layout for the company.
Here are some free operating agreement templates you can use.
- Single-Member LLC Operating Agreement from FitSmallBusiness
- Single-Member Operating Template from TRUic
If you are forming an LLC in California, Delaware, New York, Missouri, or Maine you are required to create an operating agreement. Note that no state actually requires that you file an operating agreement with the Secretary of State.
Your operating agreement is an internal contract that you will keep with your company records. And although it isn’t required for the actual submission to the Secretary of State, it is highly recommended that you create one to protect your LLC from future mishaps and headaches.
Step 5: Get your federal tax ID (FEIN)
A Federal Employer Identification Number (FEIN) is another name for an Employer Identification Number (EIN). They are the same thing. Your EIN is a unique nine-digit number assigned by the IRS to business entities operating in the United States. It is your permanent identification number.
You’ll use your EIN for multiple parts of your business such as opening bank accounts, applying for business licenses, hiring employees, and filing for tax returns.
Once an EIN is issued by the IRS, it is permanent and does not expire. It stays for the life of the business until ownership or structure changes, or other exceptional circumstances.
Obtaining an EIN is easy and free:
- Online – you can apply for the SS-4 online and obtain an EIN number immediately.
- Mail – print out and fill out the SS-4 application form. You can view instructions to fill out the SS-4 form. Mail your completed SS-4 form to the appropriate IRS office. You’ll receive your EIN by mail within 4-8 weeks or longer depending on how busy the state is.
If you have any questions while going through the online EIN Application you can call the IRS at (800) 829-4933.
LLC is straightforward to form and maintain that you can do it by yourself without needing to hire professionals or have specialised expertise. The initial paperwork and fee requirements are minimal to form an LLC.
It is important to pay attention to the rules and requirements relating to fees and taxes in the state in which you’re forming your LLC.
LLCs protect owners from being held personally responsible for lawsuits, loss of personal customer information, or products damaged by the company. In fact, protection is the most important reason why you should have an LLC.
Now that you have the steps go ahead and get started on your business adventure!
Written by VirtualPostMail – our mission is to help businesses fully go remote. We strive to provide the right tools and resources to help you successfully start and run your remote business.