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Project Description
The concept of a “legal entity” can instill fear in the hearts of aspiring business owners, and even experienced sole traders may feel uneasy about it.
You might find yourself wondering: What exactly is a limited liability company, and how do I begin? Many new business owners are unsure of where to start, but they recognize the importance of establishing one.
If you’re feeling overwhelmed, don’t worry. Although starting an LLC may seem complex initially, it’s actually a straightforward process consisting of seven simple steps. By following these steps, you’ll be on your way to launching your business in no time.
Project Description
The concept of a “legal entity” can instill fear in the hearts of aspiring business owners, and even experienced sole traders may feel uneasy about it.
You might find yourself wondering: What exactly is a limited liability company, and how do I begin? Many new business owners are unsure of where to start, but they recognize the importance of establishing one.
If you’re feeling overwhelmed, don’t worry. Although starting an LLC may seem complex initially, it’s actually a straightforward process consisting of seven simple steps. By following these steps, you’ll be on your way to launching your business in no time.
You will need to follow these seven steps to start your LLC:
Step 1: Name your LLC
Step 2: Select your state
Step 3: File articles of organization
Step 4: Choose a registered agent
Step 5: Create an operating agreement
Step 6: Apply for EIN
Step 7: Comply with tax requirements
Step 1. Name your LLC
LLCs are legal entities, so rules apply when naming one.
Rules vary from state to state, as they do with every step of starting a a limited liability company. You’ll find your state’s laws on its website.
- Your name has to be unique to avoid confusion with an existing registered company.
- It must contain the words LLC or limited liability company in the name, and you can’t use financial words such as insurance, trust, bank, and inc.
Rules vary from state to state, as they do with every step of starting a a limited liability company. You’ll find your state’s laws on its website.
LLC vs. business name: What's the difference?
You have the flexibility to choose whether your LLC’s name aligns with your business name or if they differ. This decision often revolves around branding and marketing strategies.
Your LLC’s name serves as the registered legal identity of your business, and it’s essential to include “LLC” when dealing with tax filings, opening business accounts, applying for loans, and handling legal matters.
Opting for a business name that includes “LLC” can convey professionalism and trustworthiness to potential customers, highlighting your legitimacy as a business entity.
However, there are instances where incorporating “LLC” or its abbreviation may not complement your branding or marketing efforts. In such cases, selecting a catchy and memorable business name that resonates with your target audience might be more advantageous. Ultimately, the choice depends on your business goals and preferences.
Your LLC’s name serves as the registered legal identity of your business, and it’s essential to include “LLC” when dealing with tax filings, opening business accounts, applying for loans, and handling legal matters.
Opting for a business name that includes “LLC” can convey professionalism and trustworthiness to potential customers, highlighting your legitimacy as a business entity.
However, there are instances where incorporating “LLC” or its abbreviation may not complement your branding or marketing efforts. In such cases, selecting a catchy and memorable business name that resonates with your target audience might be more advantageous. Ultimately, the choice depends on your business goals and preferences.
How to get a business name
Simultaneously with registering your LLC name with state and local authorities, you can also acquire a business name by applying for a DBA (doing business as).
This process allows you to operate under a different name from your LLC’s legal name, providing flexibility in branding and marketing efforts. Additionally, obtaining a DBA can be beneficial if you wish to expand your business into multiple ventures under distinct names while maintaining the protection and structure of your LLC.
This process allows you to operate under a different name from your LLC’s legal name, providing flexibility in branding and marketing efforts. Additionally, obtaining a DBA can be beneficial if you wish to expand your business into multiple ventures under distinct names while maintaining the protection and structure of your LLC.
Reserve your LLC name while filing the documents
If you’ve discovered the ideal business name but aren’t quite ready to establish an LLC, you can reserve it by filing with your state’s secretary of state’s office. Reservation requirements and duration vary by state, typically ranging anywhere from 30 to 120 days.
This reservation ensures that your desired business name remains available for your future use while you finalize your plans and preparations for forming an LLC. It’s a proactive step to safeguard your chosen name from being taken by another entity during this interim period.
This reservation ensures that your desired business name remains available for your future use while you finalize your plans and preparations for forming an LLC. It’s a proactive step to safeguard your chosen name from being taken by another entity during this interim period.
Step 2. Select your state
You have the flexibility to register or form your LLC in any U.S. state, regardless of your location.
Typically, opting for your home state is the most convenient choice. Local attorneys and professionals are well-versed in the laws governing LLC formation and operations, and having access to government offices nearby can be advantageous.
However, some LLC owners choose to register out-of-state due to potential benefits such as lower setup and operational costs, reduced self-employment taxes, and favorable sales tax regulations.
When establishing your LLC in a state other than your own, you must provide a physical address to receive official correspondence. You can designate a registered agent’s office to handle this on your behalf.
All 50 states offer dedicated websites detailing the process of starting and managing an LLC.
Many larger or diverse LLCs operate across multiple states and utilize a national registered agent to handle official correspondence.
It’s crucial to familiarize yourself with the specific requirements of each state regarding the establishment and maintenance of an LLC.
Typically, opting for your home state is the most convenient choice. Local attorneys and professionals are well-versed in the laws governing LLC formation and operations, and having access to government offices nearby can be advantageous.
However, some LLC owners choose to register out-of-state due to potential benefits such as lower setup and operational costs, reduced self-employment taxes, and favorable sales tax regulations.
When establishing your LLC in a state other than your own, you must provide a physical address to receive official correspondence. You can designate a registered agent’s office to handle this on your behalf.
All 50 states offer dedicated websites detailing the process of starting and managing an LLC.
Many larger or diverse LLCs operate across multiple states and utilize a national registered agent to handle official correspondence.
It’s crucial to familiarize yourself with the specific requirements of each state regarding the establishment and maintenance of an LLC.
Popular registration states
Several states could be a better choice when forming an LLC out of state. One is Delaware.
Delaware is by far the most popular choice for those forming an LLC out of their home state and prides itself on having a business-friendly reputation. The reason being is that Delaware doesn’t impose a tax on out-of-state income, meaning you won’t pay tax on out-of-state sales.
And to entice start-up LLCs, filing fees and franchise taxes are very low compared to most other states.
Delaware is by far the most popular choice for those forming an LLC out of their home state and prides itself on having a business-friendly reputation. The reason being is that Delaware doesn’t impose a tax on out-of-state income, meaning you won’t pay tax on out-of-state sales.
And to entice start-up LLCs, filing fees and franchise taxes are very low compared to most other states.
Don't stop with your state
Registering your business name in one state doesn’t guarantee its availability in another, nor does it prevent a business in a neighboring state from using the same name.
If your current operations are confined to a single state but you envision future expansion, it might be prudent to secure your LLC in additional states.
To safeguard your brand nationwide and ensure exclusivity of your business name, you can protect it by trademarking. Our trademark registration service can assist you in securing your business name in all 50 states, providing comprehensive protection for your brand.
If your current operations are confined to a single state but you envision future expansion, it might be prudent to secure your LLC in additional states.
To safeguard your brand nationwide and ensure exclusivity of your business name, you can protect it by trademarking. Our trademark registration service can assist you in securing your business name in all 50 states, providing comprehensive protection for your brand.
Step 3. File articles of organization
The first step towards registering your business is to file an article of organization form with your state. Often states use different terminology, such as a certificate of formation or a certificate of organization.
You can download the articles of organization form for free from your state website. Filing fees are state-dependent, ranging anywhere from $50 to $800. General costs differ and you can check them out per state in this LLC cost post.
Once approved, you’ll receive a state certificate of organization proving your LLC’s existence as a legal entity within your state. And that’s great news because you can then do business!
Once you begin doing business, you’re required to pay yearly limited liability fees to your state. This is also known as Annual Registration Fees, Annual Certificates, Annual Reports, or Franchise Tax Reports.
Fees are unavoidable and required to keep your business compliant with your state, regardless of your LLC’s activity or profit.
You can download the articles of organization form for free from your state website. Filing fees are state-dependent, ranging anywhere from $50 to $800. General costs differ and you can check them out per state in this LLC cost post.
Once approved, you’ll receive a state certificate of organization proving your LLC’s existence as a legal entity within your state. And that’s great news because you can then do business!
Once you begin doing business, you’re required to pay yearly limited liability fees to your state. This is also known as Annual Registration Fees, Annual Certificates, Annual Reports, or Franchise Tax Reports.
Fees are unavoidable and required to keep your business compliant with your state, regardless of your LLC’s activity or profit.
Step 3. File articles of organization
One common question among potential LLC owners is, “Can I set up an LLC on my own?” The answer is yes, but regardless of your LLC’s location, you’ll need a registered agent and a registered office to facilitate due process.
A registered agent serves as the point of contact for your business, receiving legal documents such as subpoenas, regulatory notices, tax correspondence, and other official communications on behalf of your LLC.
In many states, if legal action is taken against you, the court must serve you with the necessary documents, which requires a registered address that is accessible during standard business hours and open to the public.
Depending on state regulations, you can nominate yourself or appoint your business as its own registered agent.
While hiring a registered agent service can streamline paperwork, finding a reputable service at a reasonable price can be challenging. To ease this process, you can consult your secretary of state’s office for recommendations. Alternatively, for a simpler approach, you can register your LLC through Tailor Brands.
A registered agent serves as the point of contact for your business, receiving legal documents such as subpoenas, regulatory notices, tax correspondence, and other official communications on behalf of your LLC.
In many states, if legal action is taken against you, the court must serve you with the necessary documents, which requires a registered address that is accessible during standard business hours and open to the public.
Depending on state regulations, you can nominate yourself or appoint your business as its own registered agent.
While hiring a registered agent service can streamline paperwork, finding a reputable service at a reasonable price can be challenging. To ease this process, you can consult your secretary of state’s office for recommendations. Alternatively, for a simpler approach, you can register your LLC through Tailor Brands.
Step 3. File articles of organization
An operating agreement is a crucial document that records the setup, organizational structure, daily responsibilities, and general rules of your LLC.
While most states don’t mandate the creation of an operating agreement for LLCs, having one becomes invaluable if you seek investors or encounter internal disputes among partners that may lead to legal proceedings.
This agreement outlines key aspects, including each member’s roles and responsibilities, allocation of profits and losses, procedures for a member’s departure or sale of their share, and other important provisions essential for the smooth operation of the LLC.
While most states don’t mandate the creation of an operating agreement for LLCs, having one becomes invaluable if you seek investors or encounter internal disputes among partners that may lead to legal proceedings.
This agreement outlines key aspects, including each member’s roles and responsibilities, allocation of profits and losses, procedures for a member’s departure or sale of their share, and other important provisions essential for the smooth operation of the LLC.
Step 6. Apply for an EIN
An Employer Identification Number (EIN), also known as a Federal Tax Identification Number, serves to identify a business entity. It comprises a 9-digit code assigned by the IRS to distinguish taxpayers required to file business tax returns.
There are three avenues to apply for an EIN:
- Online application: This is the preferred method, available Monday through Friday from 7 a.m. to 10 p.m. Eastern time. Upon completion of the online application, an EIN is issued immediately.
- Mail-in application: You can fill out Form SS-4 and mail it to the IRS address specified in the Instructions for Form SS-4 PDF or “Where to File Your Taxes” (for Form SS-4). Expect to receive your EIN by mail in approximately four weeks.
- Fax application: Complete Form SS-4 and fax it to the appropriate fax number listed in “Where to File Your Taxes” (for Form SS-4). Fax applications are accepted 24 hours a day, 7 days a week. Typically, you’ll receive your EIN by fax within four business days.
Step 7. Comply with tax requirements
Death and taxes, often cited as the two inevitable aspects of life.
Before commencing daily business operations, it’s essential to obtain and file any necessary licenses and permits with both state and local agencies, followed by fulfilling tax obligations.
The specific requirements for tax filing, as well as obtaining licenses and permits, are determined by your state. You can access this information on the sba.gov website or by reaching out to your secretary of state’s office for guidance.
Before commencing daily business operations, it’s essential to obtain and file any necessary licenses and permits with both state and local agencies, followed by fulfilling tax obligations.
The specific requirements for tax filing, as well as obtaining licenses and permits, are determined by your state. You can access this information on the sba.gov website or by reaching out to your secretary of state’s office for guidance.
Tax requirements
From Alabama (that’s ALA-BAM-A for Gump fans) to Wyoming, and all the 48 states in between, the regulations governing LLC reporting and tax filing requirements vary.
However, in most states, an LLC is typically required to file an annual report and pay an annual tax or fee. Failure to comply with these requirements may result in penalties, which can be substantial.
It’s advisable to thoroughly research your state’s tax rules before proceeding to step 6. If you find the regulations confusing or overwhelming, hiring a tax accountant who specializes in LLC taxation can provide valuable assistance and guidance.
However, in most states, an LLC is typically required to file an annual report and pay an annual tax or fee. Failure to comply with these requirements may result in penalties, which can be substantial.
It’s advisable to thoroughly research your state’s tax rules before proceeding to step 6. If you find the regulations confusing or overwhelming, hiring a tax accountant who specializes in LLC taxation can provide valuable assistance and guidance.
Steps after forming an LLC
File annual reports and beneficial ownership information
Annual report filing:
This step typically becomes relevant after you’ve been operating for a tax year, but it’s beneficial to understand it early on.
An annual report, also referred to as a “statement of information,” is a document submitted to your state, providing essential details about your business. This includes any changes or updates that occurred since your last filing period.
Submitting this report allows your state to notify you of any additional legal requirements, such as necessary licenses to maintain business operations.
A valuable tip is to establish a systematic approach for recording all your business transactions. This organization ensures you won’t scramble to locate vital documents as deadlines approach.
What should be included in your annual report?
Ensure to include your LLC name, office address, details of your registered agent (if applicable), and the LLC number provided by your secretary of state upon formation.
Keep in mind that each state has its own set of LLC laws and regulations, along with specific requirements for annual reports. Familiarize yourself with your state’s regulations to ensure compliance.
An annual report, also referred to as a “statement of information,” is a document submitted to your state, providing essential details about your business. This includes any changes or updates that occurred since your last filing period.
Submitting this report allows your state to notify you of any additional legal requirements, such as necessary licenses to maintain business operations.
A valuable tip is to establish a systematic approach for recording all your business transactions. This organization ensures you won’t scramble to locate vital documents as deadlines approach.
What should be included in your annual report?
Ensure to include your LLC name, office address, details of your registered agent (if applicable), and the LLC number provided by your secretary of state upon formation.
Keep in mind that each state has its own set of LLC laws and regulations, along with specific requirements for annual reports. Familiarize yourself with your state’s regulations to ensure compliance.
Annual reports typically encompass the following details:
- Principal business address: The primary location where your business operates from.
- Names and addresses of members and managers: Information about individuals involved in the management or ownership of the LLC.
- Significant identification numbers: This may include your state entity number or any other relevant identification numbers associated with your business.
- Purpose of your business: A brief description outlining the nature and objectives of your LLC’s operations.
- List of authorized signatories: Names of individuals authorized to sign official documents or conduct business transactions on behalf of the LLC.
- Registered agent’s information: Details of the registered agent designated to receive legal and official documents on behalf of the LLC.
These components collectively provide a comprehensive overview of your LLC’s structure, operations, and key personnel, ensuring compliance with state regulations and facilitating effective governance of the business.
How to file your annual report
Most states require you to file an annual report for your LLC, which you can do online via your state’s website.
As you may have guessed by now, you’ll need to pay a fee. Fees vary from state to state, ranging from $50 in Mississippi to $500 in Massachusetts.
As you may have guessed by now, you’ll need to pay a fee. Fees vary from state to state, ranging from $50 in Mississippi to $500 in Massachusetts.
Beneficial ownership information reporting:
With the implementation of the new Corporate Transparency Act (CTA) on January 1, 2024, numerous businesses will soon be mandated to disclose beneficial ownership information (BOI).
Ensuring compliance with the CTA is essential to avoid significant fines. Certain companies and business entities may be exempt from reporting requirements, and the deadline for submitting BOI varies depending on the registration date of the business.
Ensuring compliance with the CTA is essential to avoid significant fines. Certain companies and business entities may be exempt from reporting requirements, and the deadline for submitting BOI varies depending on the registration date of the business.
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