The term ‘legal entity’ often strikes fear into the hearts of soon-to-be business owners. You might even be sitting here asking yourself “what is an LLC?” and you’d be in good company. Many new business owners have no clue what a limited liability company is or where to start, they just know that it’s important to have one.
If any of this applies to you, don’t sweat it. While figuring out how to form an LLC appears complicated at first, it’s a straightforward process, with 7 simple steps. And if you follow them, you’ll be up and running in no time.
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 LLC and business name can be the same or different; it’s up to you. The reason for the choice is branding and marketing.
Your LLC’s name is your business’s registered legal structure, and you must include LLC when filing tax returns, business bank accounts, loan applications, and lawsuits.
If using LLC in your name suits your business, you don’t need a separate business name. Plus, having LLC in your name instills trust in potential customers, as it shows you’re a legitimate business.
Sometimes a limited liability name or the abbreviation LLC doesn’t suit a company’s branding and marketing campaigns, and a catchy business name that’s engaging and memorable is the better way to go.
You can get a business name by applying for a DBA (doing business as) at the same time as registering your LLC name with your state and local government. You will slo need to do a business entity search in order to make sure the exact business name has not been registered.
When you find the perfect business name but aren’t ready to make an LLC, you can reserve it by filing with your secretary of state’s office. Reservation requirements and duration vary by state, ranging anywhere from 30 to 120 days.
You can choose to register/form your LLC in any U.S. state, regardless of your location.
Your home state is the most convenient choice in most circumstances. Because local solicitors and lawyers are familiar with their home state laws regarding LLC formation and operating guidelines, it’s helpful to have government offices within reach.
LLC business owners choose to register out-of-state due to lower set up, running costs, self-employment tax, and sales tax.
When registering your preferred business type in a state other than your own, you’re required to have a physical address to receive official mail. You can appoint a registered agent’s office to act on your behalf.
All 50 states have websites dedicated to how to start and run an LLC.
Many larger and different types of LLCs form businesses across multiple states and use a national registered agent to receive official mail on their behalf.
Make sure you’re aware of each state’s requirements for establishing and maintaining an LLC.
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.
Registering your name in one state doesn’t mean it will be available in another, nor does it stop another business in a neighboring state from using it.
If you are currently doing business in a single state but might expand in the future, securing your LLC in other states could be a wise move.
You can secure your business name in all 50 states and protect your brand nationwide by trademarking it using our trademark registration service.
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.
LLC formation times vary by state but 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.
A question most potential LLC owners ask is, “Can I set up an LLC on my own?” Yes, but regardless of your LLC’s location, you need a registered agent and a registered office because of due process.
A registered agent is an individual who will receive legal and other documents on behalf of your business, such as subpoenas, regulatory and tax notices, and correspondence.
In most states, if someone wants to sue you, the court cannot proceed until it has served you. And for that, you need a registered address and be open during regular business hours and available to the public.
Depending on your state laws, you could nominate yourself or appoint your business to act as its own registered agent.
If you want to hire a registered agent for your LLC and reduce your paperwork, finding one isn’t difficult. Still, sourcing a legitimate one at a reasonable price can be.
Check with your secretary of state’s office and ask for a recommendation, or, if you want to go the simpler route, register your LLC here at Tailor Brands using our LLC maker!
An LLC operating agreement records your LLC’s setup, organizational structure, daily duties, and general rules.
Most states don’t require an LLC to create an operating agreement. But if you’re looking for investors or end up in court because of internal disagreements between partners (it happens), you’ll need one.
An operating agreement covers essential points, such as each member’s responsibilities, profit, and loss allocation, proceedings when a member wants to leave or sell their share, and more.
An Employer Identification Number (EIN), also known as a Federal Tax Identification Number, is used to identify a business entity. It’s a 9-digit number assigned by the IRS to identify taxpayers who are required to file business tax returns.
There are 3 ways you can apply for an EIN:
The preferred method when applying for an EIN is online. Be aware that the online application is available Monday through Friday from 7 a.m. to 10 p.m. Eastern time. Once the application is completed, an EIN number will be issued immediately.
There is also the option to mail or fax in the completed Form SS-4 to the IRS address listed on the Instructions for Form SS-4 PDF or get the fax number at “Where to File Your Taxes” (for Form SS-4). You’ll receive your EIN in the mail in approximately 4 weeks if done by mail or within 4 business days if done by fax.
Death and taxes, the 2 things in life we can’t avoid.
To operate and run daily business activities, you must first get and file any licenses and permits with the state and local agencies, then pay your taxes.
Your state determines your tax filing, license, and permit requirements. You’ll find what you need on the sba.gov website or by contacting your secretary of state’s office.
From Alabama to Wyoming and the 48 states in between, the rules of LLC reporting and tax filing requirements differ.
That said, most states require an LLC to file an annual report and pay an annual tax or fee. And all impose penalties for failing to file a yearly report or paying taxes, and they aren’t cheap.
I recommend you research your state’s tax rules before moving on to step 7, and if you don’t understand them, hire a tax accountant who can help.
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