An increasing number of small business owners choose to start an LLC because of its tax benefits and liability protection. Establishing a limited liability company means the company is a separate entity from its owners, also referred to as members. This structure allows the owners to shield their personal assets. They also wouldn’t be personally responsible for the debts of the business. LLCs are also far easier to set up than corporations, which makes them even more attractive to aspiring business owners.
5 Steps to Starting an LLC
Take note that each state follows its own rules and regulations when forming an LLC. However, there’s a general set of procedures to follow regardless of where you live.
1) Decide on a name
Choosing a name for your startup can prove exciting, but it can also be a source of frustration. Your business name should be the same as any other business entity, even if it’s a different business structure. Most states also forbid the use of certain words such as “bank,” “insurance company,” and “corporation.” Don’t forget to check the domain name availability as well, as it can cost you a lot of money if you need to obtain the domain from a third party.
2) Choose a registered agent
All states require LLCs to have a registered agent, sometimes referred to as a statutory agent. The registered agent is the person who receives subpoenas, lawsuits, and official documents on behalf of the company. In most cases, the registered agent is a member of the LLC. However, you can hire a legal services company to take on this role.
3) Prepare the LLC operating agreement
This critical step involves creating the roadmap that illustrates how your company will be run. Some of the most important details to specify include the distribution of membership shares, voting rights of the members, and allocation of profits and losses. Even if your state doesn’t require the filing of an operating agreement, you should still prepare one to clearly define the rights, responsibilities, and obligations of all members of the LLC.
4) File the articles of organization with the state
By now, you should be ready to file the articles of organization. Among the information found included in the paperwork are the name and address of your company, the length of its existence, the registered agent’s name and address, and the purpose for the founding of the LLC. In most cases, the founders of the LLC are the ones required to sign the paperwork, but some states require the registered agent to sign as well. Be prepared for the filing fee, which varies from one state to another.
5) Get a certificate from the state
After submitting the formation documents, wait for the state’s approval. You will be given a certificate confirming the existence of your LLC. From here, you can start obtaining licenses and a tax ID number for your business.
As you can see, establishing an LLC proves easy and convenient for most small business owners. Aside from the fast approval process, this business structure is relatively easy to maintain as well compared to a corporation. Just be sure to invest enough time crafting a detailed operating agreement to minimize misunderstandings among members in the future.