How To Form an LLC (With Maximum Peace-Of-Mind)

1. Choose an LLC Name

This is your LLC’s identity, its brand, its customer recognition. It goes on signage, advertisements, and business cards. Needless to say, your business name is important.

As with most of the steps listed here, LLC name guidelines vary from state to state, but there are a few basic, fairly universal rules.

First, your name needs to be original and can’t match any other name already registered with the state. Plus, each state has certain restricted or prohibited terms, usually words like “bank” or “insurance” that apply to specific business types, profane/vulgar words, or words that imply governmental affiliation.

But once you’ve decided on a name and confirmed that it meets the state’s requirements, lock it down right away! Until your business name is officially approved by the state and you complete your formation filing, other LLCs can still take it. It’s a first-come, first-served world.

The good news is that many states allow you to reserve your company name for a nominal fee until you complete the formation process.

Most state resource websites have free name availability searches, and you can also conduct a name check request by mail. Be aware that, for some business types, you may need to run a secondary check with the Department of Revenue, Secretary of State, or U.S. Patent and Trademark Commission.

Once you’ve decided on a name and reserved/registered it with the state, congratulations! You’ve taken a big first step toward starting your LLC. Keep that momentum going by finding the perfect domain name for your business.

2. Designate a Registered Agent

The state government needs a point of contact for your LLC, someone who can handle official, sensitive documents, maintenance requirements, and lawsuits. This person or company is called a registered agent.

When a company, individual, or government entity seeks formal contact with your business, they will send any relevant documents to your agent, who makes note of the receipt and forwards the correspondence to you right away.

On the surface, a registered agent sounds a bit like a “middle man for middle man’s sake.” However, without an agent, a noncompliant business owner could hide behind the excuse that “I wasn’t aware anything was wrong,” or “I never heard anything about it.” On the flip side, without an agent, a company that hasn’t done anything out of line could be sued without ever knowing it.

The registered agent provides a happy medium so that there is verifiable proof that all relevant documents were both delivered and received. This is an important responsibility, as your agent must be available during all standard business hours to notify you when they receive a document on your behalf and keep you updated on state filing deadlines.

Don’t try to go without a registered agent! Doing so can warrant severe fines and cause your LLC to lose its good standing with the state. Prolonged activity without an agent can even result in your LLC’s administrative dissolution.

Besides, it’s relatively easy to find and appoint an agent. Typically, the only requirements are that they are an individual with a physical, in-state address, or a business entity authorized to do business in the state. Often, business owners will appoint an attorney or professional registered agent service, but family and friends are viable options too. All 50 states even give you the option of appointing yourself.

Even in states where you can serve as your own registered agent, we think it’s still a good idea to have a third-party company or individual handle it for you. Taking on the role yourself would make your personal address publicly available, and require your availability during all business hours, making days off and vacations tricky.

With a third-party registered agent, you can travel around making business deals or taking personal trips without the fear of missing important documents. In short, even if your state doesn’t require you to hire an external registered agent, there are plenty of reasons why we still recommend it.

3. File With Your State

You’ve laid the groundwork for your LLC through late-night brainstorming sessions, coffee break musings, and copious notetaking. Now it’s time to build the proverbial house by officially establishing your LLC with the state.

After choosing a name and registered agent, it’s time to prepare and file your Articles of Organization (sometimes called the Certificate of Organization or Certificate of Formation). This document is the most important part of the LLC formation process, but have no fear.

These are relatively simple documents that require basic information about your business — things like contact info for your new LLC, the name and address of your registered agent, etc. This is what formally puts your LLC on record.

Though the form’s details, appearance, and filing options vary between states, most often, they will ask for the following information:

• Name and address of your LLC
• Nature of business conducted by your LLC
• Name and address of your registered agent
• Names of owners and members of your LLC

Almost every state has an official form or template for your Articles of Organization, most of which include filing instructions. And usually, you can find these forms on the Secretary of State website.

In most states, you can file your Articles of Organization via mail, but filing options and rules are different for each state. Some will allow you to deliver your documents in person or by fax. Most also offer online filing these days (some even require it). It’s important to familiarize yourself with your state’s filing procedures, as an improperly prepared or filed form risks being rejected.

4. Get an EIN

Taxes might not be fun, but they’re a part of life, and your business will need to prepare for them by acquiring a federal tax ID number, also known as an Employer Identification Number (EIN).

Think of the EIN as a Social Security Number for your company. When you file personal taxes, you need to identify yourself using your SSN, and the EIN works the same way.

Most businesses need an EIN because it allows you to hire employees, open business bank accounts, file taxes, and more. In fact, the only common business type that doesn’t require one is a sole proprietorship with no employees.

The primary reason to obtain an EIN is federal and state compliance, but having one also provides some valuable assurances for your company. For example, without an EIN, you would need to use your personal Social Security Number for business purposes, which could lead to a serious privacy breach. Beyond that, you often need to use an EIN to acquire business licenses and permits or conduct certain types of business banking transactions.

Acquire an EIN by completing and mailing the physical form or simply applying online through IRS.gov. Even though your EIN carries a lot of weight, the filing process is pretty simple, and if you complete it online, you’ll receive your number immediately.

5. Create an Operating Agreement

Without established rules, structure, and procedures, your LLC could fall into chaos, dealing with member disputes, money issues, and lawsuits. Not a pretty sight. But you can easily avoid this bad dream by adopting an operating agreement.

In an LLC operating agreement, you’ll lay out the structure of your business, outlining ownership rules and operational standards that will help it run smoothly and efficiently. In addition, the operating agreement will help distinguish your personal assets from the LLC’s, protecting them if your business is sued.

A majority of states actually don’t require an operating agreement, but it’s still a highly important document, crucial to your LLC’s future success, so we strongly recommend drafting one. Regardless of your business purpose, your operating agreement should include the following:

• The identities and roles of each LLC member or owner
• The members’ rights, responsibilities, conduct, voting power, and percentage interests
• Allocation plans for any financial profits and/or losses
• An outline of LLC management structure (whether it’s managed by members or designated managers)
• Guidelines for holding meetings and taking votes
• Buy-sell provisions to determine a course of action to replace a member, if necessary
• Procedures for dissolution and allocation of remaining assets

One of the operating agreement’s most vital functions is defining responsibilities and relations between members. So, if you’re starting an LLC with business partners, it will prevent confusion and arguments down the road, maintaining the company’s internal well-being.

Even for single-member LLCs, it’s nice to have an operating agreement because it can help your case if your limited liability status is ever challenged in court. Essentially, it shields your personal assets by designating your company as a separate entity from you as an individual.

In case it wasn’t clear enough, we’ll say it again: the operating agreement is incredibly important! By creating one, you’re doing a great service for your LLC, ensuring its future stability, efficiency, and protection.

6. Create a Financial Infrastructure

At this point, it’s a good idea to get a handle on your company’s financial matters.

You don’t want to jump headfirst into business activities without first establishing the proper financial framework, or you might end up with a mess come tax time. Start off by creating a business bank account. This is a must for any new business owner because it keeps your business and personal income and expenses entirely separate.

Not only will this account come in handy for streamlining your business finances, but it’s also another step that develops your company’s legitimacy. Let’s say a customer wants to write you a check; it’s much more professional to have them write the name of your LLC rather than your personal first and last name. Or how about invoice payment — does it look better to pay with your personal debit card, or to use business checks or a company credit card?

You’ve set up your bank account. Now what? A wise next step would be to invest in accounting software, especially if you don’t have an accountant on staff or an outside CPA. The last thing a growing business needs is financial uncertainty and an accounting program can help you keep an eye out for discrepancies or potential issues.

Best of all, most of these programs aren’t overly complex or time-consuming, so you don’t have to be a numbers whiz to use them effectively. Further, they can also help you organize your employee info, protect you from audits, assist with tax responsibilities, and more.

Accounting software is a godsend come tax time, because it puts every single expense you’ve incurred for the entire fiscal year in one convenient place. That means you won’t miss any potential deductions because you’re missing receipts, or because you kept multiple ledgers, etc.

If you’re ready to begin your business activities, but haven’t considered your LLC’s financial structure yet, make it a priority!

7. Handle Taxes, Licenses, and Permits

Take a deep breath, because you’re almost to the end. This is the home stretch, the smaller, albeit equally important, details of LLC formation.

The vast majority of businesses require at least one license, permit, or tax registration to maintain state compliance. There are thousands of separate licensing jurisdictions in the United States, and each one has specific requirements based on what type of business you conduct.

States, counties, and municipalities all have their own licensure requirements, so your LLC might end up needing multiple licenses from different levels of jurisdiction.

Your state’s official website is a reliable roadmap to business licensure, offering information on various departments and licensing boards, so it should be your first stop.

Once you figure out which licenses and/or permits you need, acquire the appropriate applications, fill them out, and mail them to your state’s Secretary of State office. For most business types and purposes, you should receive your licenses and permits in less than a week after they receive your documents.

Additionally, if you have employees or sell taxable goods/services, you’ll need to complete registration with relevant government entities in order to properly file your company taxes. It’s best to get these issues ironed out early in the formation process, rather than down the line when they could present more serious problems.

This is another area where a business services company can save you a lot of time and energy. They’ll research which types of licenses and permits your business needs, then send you the applications and instructions for submitting them to the relevant government entities.

Understand Maintenance

LLC formation isn’t a “one and done” process. While you won’t need to renew your Articles of Organization, each state has ongoing maintenance requirements that keep your business in good standing. The two most common examples are annual reports and Certificates of Good Standing.

Annual Reports

Just like you want to stay on top of your LLC’s activities and finances, the state wants to stay informed about its businesses. Annual reports typically are rather simple documents that keep your state in the loop regarding important changes to your company.

For example, you might need to submit an annual report that lists your LLC’s address, registered agent information, whether ownership is domestic or foreign, the name and personal address of at least one LLC member, etc. It’s nothing terribly complicated, but it’s crucial to keep the state regularly updated regarding the tentpole structural elements of your business.

The name says it all – annual reports are due once per year, although different states have different due dates. Some states require a biennial report every two years instead, and a few have no reporting requirements at all. Check with your state of formation to determine its specific procedures.

Certificates of Good Standing

These documents are issued by the state and simply state whether or not your LLC is currently in good standing. Examples of situations that may require a Certificate of Good Standing include:

• Financiers considering lending money to your company
• Completing large banking transactions
• Bringing on potential investors or new business partners
• Renewing licenses or permits
• Selling your business
• Registering to conduct business in an additional state

Obviously, annual reports have predictable timing, but Certificates of Good Standing are much more circumstantial. It’s a good idea to keep one on hand, or at least familiarize yourself with the process to acquire one before you actually need to do so.

If you plan to hire an LLC formation service, keep in mind that some of them include annual report service in bundles, like ZenBusiness.

Conclusion

Here we are at the end of your LLC formation journey. Each step of the way is simple on its own, but managing them all together can be a daunting task

Hopefully, this guide helped to simplify and streamline the process for you. As you forge ahead to start your LLC, refer back here to ensure that you don’t overlook any steps or take any wrong turns.

Having a partner along the way can offer vital assistance and reassurance, so if you find yourself struggling, it’s worth looking into good LLC services through our website for the best 7 options — or through much more direct/opinionated websites that only recommend the top LLC services) who can handle it for you without breaking the bank.

We’re totally confident you can tread this path alone, but there’s no shame in handing off the responsibilities either.

And while this marks the conclusion of your LLC formation journey, it’s just the beginning of a brand new, much more exciting business venture. Best of luck to you along the way!