A General Step-By-Step Guide to
Forming an LLC
By: Dawn Writes Co.
Forming a limited liability company (LLC) is one of the first tasks undertaken by a new business owner, and for good reason: it separates your personal assets from your business's debts and liabilities while keeping paperwork lighter than a full corporation. Here is what the process actually involves.
Choose Your State and a Business Name
Most business owners form their LLC in the state where they will primarily operate. This matters more than most people realize. Forming your business in a different state usually means you'll still have to register as a "foreign LLC" in your home state, which doubles your filing fees, registered agent costs, and paperwork. Your business name must be unique within your state and must include a designator after the name, such as "LLC," "L.L.C.," or "Limited Liability Company." A quick search through your state's business registry will confirm whether your chosen name is currently available.
Appoint a Registered Agent
Every LLC needs a person or company with a physical address in the state where you plan to file the LLC who can receive legal and government correspondence on the business's behalf. Some states will allow you to serve as your own agent, but you will need to check with your state's Secretary of State to see if that is allowable. You can also hire a registered agent to accept service on behalf of the LLC.
File Your Articles of Organization
This document establishes your LLC's legal existence with the state. It is sometimes called the Certificate of Formation or Certificate of Organization. You file this document with the Secretary of State's office, along with a state-specific filing fee. Processing times vary by Secretary of State office, and most now offer online processing.
Draft an Operating Agreement
Even single-member LLCs benefit from having an operating agreement. This document acts as your business's internal backbone; it outlines ownership, the management structure, and how the business runs. It's worth having one on file even if the state doesn't require it. Often, to open a business bank account, a bank will require an operating agreement to process the request.
Get an EIN
An employer identification number from the IRS is free to obtain and is generally required to open a business bank account, hire employees, or file certain tax forms. Single-member LLCs with no employees can sometimes use the owner's Social Security number instead, but most banks and vendors will ask for an EIN anyway, so it's worth obtaining one from the start. You can obtain an EIN by submitting Form SS-4 or online .
Licenses and Permits
Every state is different, and depending on your industry, whether your business is physically located within a particular city or county limits, or even whether you choose a professional designation (PLLC), you may need additional licenses or permits to operate legally in your state. Check with your state's Secretary of State to confirm whether you need to obtain or file additional items.
Open a Bank Account
Part of the formation process is opening a separate business bank account. This is an important part of setting up your business, as mixing personal and business finances is one of the fastest ways to undermine the liability protection an LLC is meant to provide.
Stay Compliant Going Forward
Once your LLC has been formed, you must remain in compliance with the state of formation. Most states require periodic filings, often called annual reports, along with a fee to keep your LLC in good standing. Missing these can result in penalties or even involuntary dissolution, so mark your state's due date on a calendar as soon as your LLC is approved.
Final Thoughts
A structure built correctly from the start tends to save more time and money in the long run than one built in a hurry. You can ask questions about the filing process by visiting your Secretary of State's website or calling them directly. Additionally, many registered agents will process your formation documents, secure an EIN for the business, and provide you with an Operating Agreement template for a small service fee. Many first-time business owners welcome this service because they want to start on the right foot.