2015-06-17 04:03:27StructuringEnglishLLCs combine liability protection and pass-through taxation, making them a popular business structure for new companies. Learn how to...https://quickbooks.intuit.com/r/us_qrc/uploads/2015/06/2015_1_29-small-AM-How-to-Create-a-limited-liability-company-LLC.jpghttps://quickbooks.intuit.com/r/structuring/10-steps-start-llc/How To Create A Limited Liability Company (LLC)

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How To Create A Limited Liability Company (LLC)

A limited liability company (LLC) combines the liability protection of a corporation with the taxation benefits of a sole proprietorship or partnership.

LLCs can have many different owners, but unlike a partnership, those owners cannot be held personally liable for the company’s debts or liabilities. This is similar to corporations, but unlike corporations, LLCs are a flow-through entity, meaning the business isn’t subject to double-taxation.

This guide will walk you through everything you need to know (from government regulations to necessary paperwork) to properly form an LLC. If you’d like to learn about other options when it comes to forming a business, see our video series on choosing the best business entity for you.

1. Choose a Compliant Name

The LLC division of your Secretary of State office (which may also fall under the corporations division) will have certain rules regarding naming. These will vary from state to state, but will most likely fall under these requirements:

  • No copycats: You cannot have the same name as another business on file in your state. Your Secretary of State’s website will have a method for name searching, and some may have a system for reserving your chosen name for a brief period of time until you file.
  • Be clear about being an LLC: The name of your company must signify its status; it should include “LLC,” “L.L.C.,” “Limited Liability Company” or something similar at the end.
  • Avoid prohibited words: Each state has a list of banned words for your LLC name; some words may include “Bank,” “City” or “Corporation.”

Along with the statewide search, make sure that your company name doesn’t violate any federal trademarks. You can search for registered trademarks at the U.S. Patent and Trademark Office website.

In most cases, you will declare your company name in your articles of organization, which we detail in the next step.

2. Create the Articles of Organization

Every LLC must prepare an articles of organization, which states key components of the company, such as its name, address, the owners (called “members”) and its location. For a free customizable articles of organization template, click here.

3. Select a Registered Agent

Most states require that you designate a registered agent, also referred to as the “agent for service of process,” to handle legal correspondence for your business. Your registered agent may be a member of your LLC, or you can outsource the job to a service that will accept documents on your behalf.

4. File With the Secretary of State

About 15 states allow you to file directly online, while others require that you create and submit your articles of organization. Some states refer to the articles of organization as a “certificate of formation” or “certificate of organization,” and each has their own specific rules for filing it.

5. Don’t Forget Your Fee

While partnerships and sole proprietorships allow you to create a business without paying a fee, forming an LLC comes with a price tag. Most filing fees range somewhere around $100, with the lowest being around $40 in Kentucky and the highest being $520 in Massachusetts.

Keep in mind that many states also have annual reporting fees and taxes to consider. For example, California charges LLCs a minimum fee of $800 each year on top of their normal income tax. Check your local Secretary of State office for an overview of your state’s LLC fees.

6. Check If You Have Publication Requirements

In a small handful of states, including New York, there is a “publication requirement” to make your business official. You are required to announce your intention to form an LLC in a local newspaper several times over a designated period of time and submit an affidavit of publication to the filing office.

If this is a requirement in your state, you can reach out to your local newspaper for assistance.

7. Receive Your LLC Certificate 

You should receive your LLC certificate of organization within 10 to 20 business days through your registered agent. Response times may vary by state.

8. Apply for an EIN 

An employer identification number (EIN) is like a Social Security number for your business. It allows you to open a business bank account, hire employees or make business transactions.

To apply for an EIN, you need to fill out and submit an IRS Form SS-4.

9. Get Licenses or Permits 

It’s important to determine whether your LLC needs any permits or licenses to operate on a local, state or federal level. See our guide to starting a business to learn more about your specific license requirements and to find a service that will facilitate and expedite the filing process.

10. Create an Operating Agreement

While not necessary for filing with the state, an operating agreement is an essential document for every LLC. It establishes the LLC’s operations and policies, and explores the rights and responsibilities of its members.

While forming an LLC may be a bit more complicated than its counterparts, it’s nonetheless a great way to ensure you and your co-owners’ personal assets are protected in the long run. To explore all your options for forming a business, see our business entity wizard.

Chapter 7.
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Information may be abridged and therefore incomplete. This document/information does not constitute, and should not be considered a substitute for, legal or financial advice. Each financial situation is different, the advice provided is intended to be general. Please contact your financial or legal advisors for information specific to your situation.