If you’ve been wondering how to start an LLC, look no further! Capital Counselor has got you covered. Namely, over recent years, the limited liability company (or LLC for short) has been a popular legal structure for many small business owners. And albeit a relatively simple process, it differs from state to state.
So, if you’re looking to register your new company, keep on reading!
What Is an LLC?
An LLC is a US-specific business structure where the owner of the company is not personally liable for the debts of the company (much like a corporation). Moreover, this business structure also uses flow-through taxation (the same as partnerships), thus making it the best of both worlds — a hybrid entity that utilizes both the limited liability of corporations and flow-through taxation of partnerships.
How to Form an LLC?
Although forming an LLC can vary from state to state, there are some general guidelines that you can follow.
For that reason, we’ve created this easy-to-follow guide to help you form an LLC without much hassle.
Come take a look!
1. Decide Which State You Want to Form Your LLC In
Even though you can form an LLC in pretty much any state — no matter your actual business location — many go on to form an LLC right where their business will be.
Nevertheless, before doing so, there are a few things to consider such as: how much does an LLC cost in that state, state taxes, local LLC laws, and so on.
Another thing worth keeping in mind is recordkeeping. Namely, whether or not it’s more affordable in your home state. Though worry not, as according to the latest startup statistics, 77% of business owners covered most of their initial startup costs solely with personal funds.
2. How to Create an LLC Name
After you pick a state, you have to choose a name for your new business. And although you have some freedom when it comes to this, there are certain general rules that you have to follow.
For one, each state has a different set of words that you cannot use, such as “incorporated,” “corporation,” “bank,” “city,” “insurance,” etc. You can often find your state’s naming requirements on the website of your filing agency.
In most cases, you’re putting personal money into an LLC, so avoid using over-the-top, silly names if you can; rather, make it professional-sounding, something that will stand the test of time. At any rate, it has to end with an LLC designator, such as “LLC” or “Limited Liability Company.”
For example, “Capital Counselor, LLC” or “Capital Counselor Limited Liability Company.”
Also, you cannot use a name that has already been filed or reserved; to ensure that your chosen name is still available, conduct an online search before registering.
Afterward, you can still reserve it even if you don’t want to create your LLC yet or you don’t know how to form an LLC online — most states allow you to reserve the name for a certain period, albeit with a fee.
3. Find a Registered Agent
In order to form an LCC, you must have your own registered agent during the formation stage. Despite this, a lot of new business owners are unfamiliar with the term — hence why, for the sake of clarity, they are often referred to as “statutory agents.”
In short, having a registered agent is critical because of one thing — you need someone receiving lawsuits and official documents on behalf of your LLC.
How much does it cost to set up an LLC? A heck of a lot if you get into legal trouble…
Namely, that is the whole point of having a registered agent. This way you ensure that your legal documents don’t get misplaced or mishandled; in other words, you won’t face any unnecessary (and costly) legal repercussions.
Overall, most of the best LLC services companies provide you with one, so worry not.
4. Get Your LLC Operating Agreement Ready
This is yet another vital step in our how to start an LLC guide. That is to say, you should consider acquiring your LLC Operating Agreement as soon as possible.
What exactly is this document?
Well, as the name suggests, it’s an agreement between the different members of the LLC about how the company will be run. It’s also “proof” that the LLC is a separate entity.
As such, this document is absolutely vital, especially in the case of multi-ownership — it defines the division of ownership, labor, and profit.
However, do keep in mind that the state does not keep this document; it’s your responsibility to store it safely.
5. Prepare Your LLC Formation Documents
Now that you know how to start an LLC company properly, you can start preparing your LLC formation documents, also known as the Certificate of Organization, the Articles of Organization, and the Certificate of Formation.
Whatever they’re called, these are the documents that you have to submit to your state to create your LLC. And like most requirements, they differ from state to state.
Nevertheless, here’s some general information that you need to include:
- Your LLC’s name
- The duration — in case it’s not interminable
- The purpose of forming your LLC
- The name and address of your registered agent
- A statement denoting who will manage the LLC
Important: Those learning how to form an LLC, please keep in mind that whoever will be managing the LCC, they must sign these documents; some states also require the registered agent to sign them, as well.
6. File Your LLC Certificate of Organization with Your State
Once your Certificate of Organization is ready, you should submit it to your state’s business filing agency along with the processing fee, which will then issue a certificate of confirmation.
The entire process can take anywhere between a few days up to a few weeks. Likewise, the processing fee can range anywhere from $50.00 to $100.00.
7. Publish an Announcement
In some states, publishing an announcement that states your intent to form an LLC is also a requirement. Typically, the announcement should appear in a newspaper over the course of a few weeks. As such, this may incur some additional LLC business expenses since you have to pay the newspaper, or in some cases, the state government.
8. Secure an Employer Identification Number
Congratulations, by reaching this step, your LLC is now officially open for business!
Now, it’s time for you to secure an Employer Identification Number (EIN) from the Internal Revenue Service (IRS) — you’ll use this to set up your company’s bank account, prepare income and employment tax filings, and write off certain LLC expenses.
Additionally, you should also obtain a sales tax identification number for each state where you plan on conducting business and register it to the labor department.
9. Open a Bank Account for Your LLC
Although, strictly speaking, this is not a requirement, we’ve decided to add it anyways as it’s crucial that you separate your business finances from your personal ones.
Namely, if you ever face a lawsuit, your personal finances may be used as collateral should you lose at court.
How to Form an LLC Org Across Different States
As previously mentioned, forming an LLC varies from state to state. Some states will require mountains of paperwork or have special conditions that you have to meet in order to form one, whereas others will be more lenient.
At any rate, we drafted short guides for some of the most commonly used states to help you achieve your entrepreneurial dreams.
So, let’s dive right in!
How to Create an LLC in Florida
Creating an LLC in Florida is relatively straightforward and follows the exact same procedure as we explained above. The only difference being:
- You can register a “fictitious name” — also know as a trading name — for your LLC that’s different than the one stated in your Certificate of Organization; you can register it with the Florida Division of Corporations.
- All Florida LLCs must file an annual report with the Florida Division of Corporations to maintain their active status. Note that this will cost you an additional $138.75. And if you’re late, you will be charged an extra $400.00 for the late fee.
How to Create an LLC in California
The same rules also apply when filing an LLC in California except for the following steps:
- Each LLC that’s based in California must pay a franchise tax — a minimum of $800.00 per year to the California Franchise Tax Board (FTB).
- Those with over $250,000.00 in annual net income must pay an additional fee calculated from the total net income.
- LLCs must file form 568 (Limited Liability Company Return of Income) the 15th day of the 4th month following the close of the taxable year.
- Comply with any other state tax and regulatory requirements, such as sales and employer taxes, business licenses, etc.
How to Create an LLC in Texas
Creating an LLC in Texas is also fairly standard with the exception that Texas doesn’t require LLCs to file their annual report.
Nevertheless, do keep in mind that you still have to file your franchise tax reports annually. Naturally, some will find this process quite daring. Hence, it’s always best to check the official website of the Texas Comptroller for more info.
How to Form an LLC in NY
New York is one of those states that require a published annoucement — namely, two newspapers within 120 days of the Articles of Organization taking effect. Moreover, your county clerk has to designate which newspapers you should publish with.
After the publication, you will receive a certificate of publication that you have to submit to the New York Department of State, Division of Corporations.
How much does it cost to start an LLC?
The great majority of the costs come from filing fees, which range anywhere from $40.00 to $500.00; approximately $132.00, on average.
Of course, these vary from state to state, as do most requirements. Nevertheless, we’ve managed to find a complete list of filing fees in the US so that you can check the exact LLC cost by state.
Apart from that, you may still incur additional fees when starting your own LLC, for the following reasons:
- Hiring a lawyer to help you with the process may cost you as much as $1,000.00 to $1,500.00 overall
- Hiring a professional LLC services company may cost an additional $49.00 to $500.00, depending on the provider
How long does it take to form an LLC?
Most states take between seven to ten days from start to finish. Yet, there are also states that take even longer — about four to six weeks. Arizona, for instance, can take as long as 22 to 27 days.
Hence, be sure to prep all your paperwork beforehand for it to go as fast as possible; otherwise, it might take a while.
Can an LLC invest in stocks?
Yes, an LLC can invest in stocks once it’s officially formed. Some LLC types allow only managers to invest in stocks, whereas others may bestow several other members with purchasing power.
Whatever the case, it’s essential to have it documented on the operating agreement.
Can an LLC be a nonprofit?
Yes, but only under certain circumstances. Most entrepreneurs find the process too complicated — hence why they form nonprofit corporations instead. Namely, an LLC can only exist as a nonprofit if it’s wholly owned by a single nonprofit organization that’s tax-exempt.
Not to mention the mountain of paperwork required by the IRS — or the “Limited Liability Companies as Exempt Organization Update.” So, if you’re wondering how to start an LLC as a nonprofit organization, do your homework beforehand; you’re in for a ride.
We hope our quick guide helped you get more acquainted with the subject matter and prepared you for the task at hand. “How to start an LLC” is a question that strikes fear into the hearts of many aspiring entrepreneurs. Yet, the simple truth is — it’s relatively easy and straightforward; SMBs make out 99.9% of businesses in the US for a reason.
Namely, all you have to do is make sure you don’t miss any of the above-mentioned steps and you’re good to go! Acquiring some professional guidance is also highly recommended as laws differ from state to state.