How To Start an LLC In 7 Steps: 2024 Guide
Updated April 11, 2024 at 2:37 pm
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Starting an LLC is an important step in establishing your new business. A limited liability company offers a simple and flexible business structure to separate your business and personal assets and protect your privacy. If set up correctly, it can also offer you many other benefits.
Wondering how to set up an LLC? Our experts have put together this helpful guide, walking you through each step of the process. Read on to learn more.
Vault’s Viewpoint on LLCs
- An LLC is a simple business entity that offers personal liability protection and a flexible structure to its members.
- The details and costs of setting up your LLC can vary from state to state.
- Filing an LLC application is a simple process and can be done independently—but legal oversight can be helpful as you go through the process.
What Is an LLC?
An LLC is a legal designation U.S. business owners can choose for their business. It offers legal protection for personal assets, privacy and a low-cost way to register a new company legally.
Due to its flexible tax structure, some may opt for an LLC tax designation (such as a single-member LLC or a partner-included LLC), compared to other a sole proprietorship.
A tax advisor can guide your business on the best LLC structure.
How to Create an LLC
This seven-part guide offers the steps to starting an LLC. As you go, it can be helpful to remember that each state has its own laws, processes and costs regarding LLC registrations. These details can be found on the state’s business filings website, and should be referenced prior to the submission of your LLC.
Step 1: Choose a Business Name
Before you begin your LLC application, you need a business name. A memorable business name can tell your customers what you do. However, your state may also have specific rules about business names, so consider doing research before submission to ensure that your name is compliant.
Beyond compliance, your business name should be clear to your client base—reflecting your niche and mission as much as possible. Additionally, when registering an LLC, you’ll use the letters “LLC,” “L.L.C.,” or spell out “limited liability company” after your business name. Consider and account for this as you finalize your name of choice.
Though state laws vary, your business name also needs to be unique from other business entities already registered in your state. You can check the availability of business names on the state agency’s business filings website.
If you haven’t already done so, this is a good time to check that your potential business name has an available domain. You don’t want to register your LLC application and later discover the domain name is unavailable.
If you want to reserve your LLC registration but aren’t ready to file the application yet, you may be able to reserve your business name with a reservation form and filing fee. Each state offers guidelines for this process on its state-specific business filings website.
Step 2: Select a Registered Agent
Each state requires LLCs to coordinate with a registered agent. The purpose of a registered agent is to receive legal documents on behalf of your LLC and deliver them to your business. They may also be required to complete other administrative tasks. The responsibility given to registered agents is known as a “service of process.”
Each state has specific requirements for registered agents. Generally, registered agent services are either:
- A state resident who is at least 18 years of age, and who has a physical in-state office address—known as the “registered office.”
- An authorized company that provides registered agent services in your state.
In many states, you can serve as your own registered agent, or you can enlist an employee or another individual to serve as long as they meet the requirements. Registered agents must maintain compliance with state-specific legal requirements, which generally include an in-state physical address, availability during business hours and other legal compliance tasks specific to your state.
If you’re considering serving as your own registered agent, or outsourcing to another team member or service, you might consider discussing your options with an attorney. They can help you to define your scope of need and evaluate your available options.
Step 3: Secure Your LLC’s Articles of Organization Form
Starting an LLC requires submitting your LLC’s registration to the state agency responsible for business filings. The name of this documentation varies from state to state, though it’s often known as the articles of organization.
Each state makes these forms available online at their business filing website.
Step 4: Fill Out the LLC Articles of Organization Form
As you prepare to fill out your articles of organization (or certificate of formation), you’ll see the form requires basic information—such as:
- Your business name and address
- Your business purpose
- Details on LLC management
- Registered agent contact information (and signature, in some states)
- The LLCs duration
- Necessary signatures (which vary, depending on your state’s requirements)
Certain states, like Arizona and Nebraska, require that you publish a notice in the newspaper announcing your intention to register your LLC. Once this step is complete, you can file the articles of organization.
Step 5: Submit Your Articles of Organization
Now, you’re ready to review the articles of organization for accuracy and submit them to the state. You’ll need to pay a filing fee, which varies from state to state.
Once your LLC is approved, you’ll receive a state certificate confirming the official registration of your LLC. You can use this certificate to get an employer identification number (EIN), which is an important tax ID number for your business. It’s not just for tax season though—you can also use the EIN to set up a business bank account.
Step 6: Draft an LLC Operating Agreement
An operating agreement outlines the terms of your new limited liability company. The terms explore legal, financial and management rights of the members, as well as other key areas of business management. Examples of details and pathways that are included in the operating agreement include profit distribution, how members exit the LLC and capital contributions to the business.
Not all states require an operating agreement, but it’s a useful document to consider for your LLC or solo business. It outlines the rights and responsibilities of each member in a written, binding way, protecting your business from liability associated with confusion or uncertainty. You can create your LLC operating agreement using free online template options, or via a skilled business attorney.
Curious about which one you should choose? Generally speaking, solo-member LLCs should find the free online templates sufficient. They are often legally binding and penned by an attorney, and can be secured by opting into a firm’s email list or another similar task.
Those with a more complex, multiple-member structure may benefit from an experienced attorney to outline the legal considerations formally with them prior to creating an operating agreement, leaving no stone left unturned in your business operations.
Step 7: Maintain Your LLC
Once you form your LLC, you’ll want to ensure you comply with any state regulations. For example: Some states require filing annual reports and annual fees, in addition to other routine compliance tasks. Your state’s business filing website outlines the details applicable to your state.
If you don’t want to manage these details, you don’t have to. You can hire companies to help you maintain LLC compliance.
What Is The Difference Between Sole Proprietorship and a Single-Member LLC?
A sole proprietorship business structure is someone who does business under their own name. Sole proprietors file business income and taxes on their personal tax return, and take responsibility for the businesses’ debts and liabilities under their name. There’s no personal liability protection in a sole proprietorship.
A single-member LLC offers a separate legal entity. While still one owner, the LLC structure requires an operating agreement and must have annual meetings and keep official meetings. An LLC also offers enhanced credibility and limited liability protection for personal assets.
For taxation purposes, a single-member LLC still reports business income and expenses on personal tax returns.
What’s Next: What To Do After Creating an LLC
Starting an LLC is fairly simple once you understand the tax structure benefits for your business. A small business accountant or lawyer can offer specific guidance.
After registering your LLC, you may need business licenses and permits. Your state’s official website offers guidelines on any necessary licenses and permits. Familiarize yourself with state requirements to maintain LLC compliance, such as annual reports or fees.
With your LLC in hand, you can focus on running the business.
Frequently Asked Questions
What Are the Benefits of Setting Up an LLC?
Establishing an LLC offers multiple benefits. Besides personal liability protection, LLCs are easy to form, have flexible taxation, management and distribution options, and offer your business privacy and credibility.
LLCs also have minimal record-keeping and reporting requirements, and they offer tax advantages that can vary by state.
How Long Does it Take to Set Up an LLC?
The timeframe for setting up an LLC varies by state, though the average at the time of this publication is between 7 to 10 days. Some states offer same-day approval if filed online, while others might require additional time. Arizona has a 30-day standard processing time.
How Much Does It Cost to Start an LLC?
Fees for starting an LLC vary by state. There are state filing fees to consider, which can range from $34 to $500. There are also possible attorney fees for creating the operating agreement, fees for publishing your notice in the newspaper (if your state requires it), and fees for hiring a registered agent. You might also have to pay doing business as (DBA) fees if you choose to get a DBA for your business.
As a result of these fees, LLC costs can start at a minimum of $100 and go up depending on the type of business, the complexity of the case and the state-specific requirements involved. It’s important to note that some states have annual LLC fees to include in your overall LLC costs.
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