One of the most common ways to start a small business is by forming what’s called an LLC, or Limited Liability Company. It’s a popular choice because it gives business owners legal protection without all the complicated rules that come with a full corporation.
This guide will walk you through what an LLC is and the five key steps to set one up. I’ll also explain a few parts where state law might differ, so you’ll know when to look up local rules or talk to a professional.
What Is an LLC?
An LLC is a business structure that helps protect your personal finances if something goes wrong in your business. In other words, if your business gets sued or goes into debt, your personal assets, like your home or car, are generally safe. That’s what we mean by “limited liability.”
But there’s more good news: an LLC is simpler than a corporation and often has fewer tax burdens. That’s because the IRS allows LLCs to have something called pass-through taxation, meaning the profits of the business are taxed only once on your personal tax return, not twice like a corporation.
Why Choose an LLC?
There are several benefits to forming an LLC:
- Liability Protection: Your personal assets are generally protected from lawsuits or business debts.
- Flexible Management: You can manage the business yourself or bring in partners.
- Tax Simplicity: Profits and losses “pass through” to your personal taxes, avoiding corporate taxes.
- Professional Image: An LLC can make your business look more established and trustworthy to customers, banks, and investors.
5 Steps to Start Your LLC
Step 1: Choose a Business Name
This is the fun part! You’ll want a name that represents your business well and is easy for customers to remember. But there are some rules:
- The name must be unique in your state.
- It must include the words “Limited Liability Company” or an abbreviation like “LLC.”
- It can’t be too similar to another business name already registered in your state.
Trademark Tip: Before you get too attached to your business name or logo, check to make sure no one else is already using it at the national level. You can search the United States Patent and Trademark Office (USPTO) website or get help from an attorney. This step helps you avoid lawsuits and helps protect your brand from the start.
Step 2: Choose a Registered Agent
A registered agent is someone who receives legal and official state correspondence on behalf of your business. Every LLC must have one. You can be your own registered agent (in most states), or you can choose someone else, like a friend or a professional service. Keep in mind that this is not necessarily the same as a mailing address.
The registered agent typically must:
- Be at least 18 years old
- Have a physical address (not a P.O. box) in the state where your LLC is formed
- Be available during regular business hours to receive important documents
Some states have specific rules, so double-check the requirements where you plan to register.
Step 3: File Your Formation Document
Now it’s time to make your LLC official by filing paperwork with your state. This document is often called the Articles of Organization or Certificate of Formation. The name varies by state, but it means the same thing.
This document will typically ask for:
- Your business name
- The name and address of your registered agent
- Your business address
Many states allow you to file this form online, and there’s usually a small filing fee. At this stage, many business owners choose to retain professional services to make sure all the required documentation is submitted correctly and to free up their time to focus on the other necessary parts of starting a business.
Step 4: Create an Operating Agreement
This step isn’t always required by state law, but it’s strongly recommended, even if you’re the only person with ownership in your LLC.
An Operating Agreement is like the rulebook for your business. It spells out:
- Who owns what share of the business
- How profits and losses are divided
- How decisions will be made
- What happens if a member leaves or the business closes
Having a written agreement helps avoid misunderstandings and keeps everyone on the same page.
Step 5: Get an EIN and Open a Business Bank Account
An EIN (Employer Identification Number) is a unique nine-digit identifier assigned by the Internal Revenue Service (IRS) to businesses for tax purposes. You can get one for free from the IRS.
Even if you don’t plan to have employees, having an EIN helps you:
- Separate your personal and business finances
- Apply for a business bank account
- Protect your personal Social Security number
Once you have your EIN, open a business bank account so you can keep your finances clean and organized. This is a good habit from day one and is essential for protecting your limited liability status.
Ongoing Responsibilities: Keep Your LLC in Good Standing
Setting up your LLC is just the beginning. To keep it active and in good standing, you’ll need to:
- File annual reports with your state (if required)
- Pay annual fees or franchise taxes
- Follow federal and state tax rules
- Keep good records of business finances and decisions
You may also need to apply for local business licenses or permits depending on your industry and location. Check with your city and state for any additional rules that apply to your specific business type.
Final Thoughts
Starting an LLC is a smart and manageable way to launch your business. While laws can vary slightly by state, the basic steps are the same almost everywhere. With a little planning and help from the right professionals, you can build a strong legal foundation for your business.
Remember, this guide is just the beginning. Don’t hesitate to ask questions, seek help, and keep learning as you grow your business. That’s how great entrepreneurs succeed.
For a complimentary initial consult, you can reach us at [email protected]
DISCLAIMER
The materials and information contained in this article are for informational purposes only. These materials do not constitute legal advice nor does engaging with this website create an attorney-client relationship. Accordingly, you should seek legal counsel from an attorney knowledgeable about the specifics of your situation before taking or refraining from action. Nazzaro PLLC has attorneys that are licensed to practice law in Washington, Texas, Washington D.C., California, and New York.
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