Are you interested in starting an LLC in 2023? You’ve come to the right place! In this article, we will guide you through the process of establishing an LLC in any US state, providing you with all the essential information and steps to get started.
Limited Liability Companies (LLCs) are easy to create and offer numerous benefits for business owners. By following our comprehensive, step-by-step guide, you’ll be well on your way to setting up your LLC. To ensure you don’t miss any important points, we recommend reading this article word by word.
To cater to your specific state requirements, simply select your state from the list provided below, and you’ll find detailed information on state fees and the steps to start an LLC in that particular state. While our guide covers the DIY approach to forming an LLC, we also understand that some individuals may prefer the convenience and expertise of professional assistance. With this in mind, we provide information on reliable paid LLC formation services for those who would like additional support. Regardless of your choice, our article will equip you with the knowledge and resources needed for successful business ownership. So, dive into our step-by-step guide on how to start an LLC in 2023 🙂
On this page, you’ll learn about the following:
How to Form an LLC
Before you start planning to set up an LLC, you must know even when there is no additional fee to form your LLC, there can be State fees for formation, annual reports, and other mandatory taxes. Now, let’s know what an LLC is all about. LLC is a business structure that is a mix of both a sole proprietorship and a partnership. It comes with a bunch of advantages. There are a few more things you must know,
- For an LLC, members’ personal assets are not affected by business debts. However, in some cases, if the LLC is sued for business debts, courts might pierce the corporate veil and use the owner’s personal assets to meet their corporate liabilities.
- You can choose a management type in your LLC. It can be member-managed or manager-managed.
- LLCs have pass-through taxation, which means LLCs do not have to pay any corporate income taxes. They only have to pay personal income taxes based on the income of each member.
- Compared to other business structures, LLCs are cheaper to form. Some states have tax deductions on the LLC filing fee (paid to the state government). Hence, it is much cheaper to form an LLC than other business structures.
- You can eliminate all the hassles of setting up your LLC if you select a professional LLC formation service. They will make things easier and better for you. (Recommended)
This is pretty much the basics of an LLC. You can read our guide on the Limited Liability Company to learn more about this type of business structure. As we move forward, here is the step-by-step guide to forming an LLC. Read the basic steps carefully to understand the process.
STEP 1: Select a State
The first step to starting your LLC is choosing the state in which you want to start your business. Ideally, your LLC should be located in the state where you live or where you plan to do business. Different state has different rules and regulations when it comes to forming an LLC. It is necessary to know about the fees, costs, taxation, and other policies in the state before you establish your business. If you hire a professional LLC formation service, you will get all the assistance at once without any delay.
Following is the list of states where you can form your LLC. Select the state you want to establish your LLC and get insights into the regulations, fee structure, taxation, and other information of that state. If you plan to operate your business in different states, you will have to register it as a foreign LLC in that particular state.
Delaware is one of the most desirable states to start your LLC. More than 60% of Fortune 500 companies and about 50% of public sectors have incorporated their businesses in Delaware. Apart from that, Texas, Florida, Wyoming, and California are some of the best states to start your LLC.
Kentucky is the cheapest state to form your LLC. The state filing fee is the lowest among all other states ($40). On the other side, the annual compliance fee is $15 only, which is also quite low compared to other states.
Wyoming and South Dakota are the two states that do not have any corporate income taxes. Also, there is no gross receipt tax to be paid in these two states. In Wyoming, there is no personal income tax as well.
STEP 2: Name Your LLC
In our guide, the next step is to name it. However, before you name your business/LLC, you must know whether the name is available for use or not. You should perform an LLC name search and confirm the availability of your desired name before you start your LLC. One has to visit the Secretary of State portal (link shared in state LLC formation pages) to search and register the name of your LLC. Meanwhile, here are the general LLC naming guidelines,
- The company name should include “Limited Liability Company” or abbreviations like LLC or L.L.C.
- The company name should not include words that might confuse your company name with any government agency (i.e., FBI, State Department, Treasury, etc.).
- Words like Bank, Attorney, University, College, and some others are restricted. They may require additional paperwork on top of a licensed individual like a doctor or lawyer as part of the company.
These are some of the most important points to be noted while naming your LLC. It is recommended to go through our complete guide on LLC name guidelines before you name your LLC. Every state has a minimum business name reservation fee. This fee is mandatory to pay when you reserve your LLC name.
LLC name search, check if the name is available, and finally reserve it for the future; all these steps require no money (other than name reservation fees) if you are setting up your LLC on your own. You can do these steps for free. On the other side, if you hire a professional, the name search service comes for free with their LLC formation package. The only difference is, hiring a professional will help you speed up the process.
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When it comes to Name Search, ZenBusiness helps you to know if your chosen name is available or not. If it is not available, then you will be notified immediately. So, it will be easier to check name availability by clicking a few times with ZenBusiness.
Reserve Your Business Name
Name reservation is recommended if you’re not registering your LLC immediately. LLC names can be reserved for up to 3 months, depending on the state rules. Within this time, you can register your LLC under the reserved name. If you fail to do so, then the name might be available to use by other LLCs. A reservation fee is required to pay along with the name reservation form submission. In most states, it is not mandatory to reserve an LLC name if you register your LLC right away.
Doing Business As (DBA) or Trade Name
“Doing Business As (DBA)” or Trade Name, or Fictitious Name, is a sort of assumed LLC name. DBA’s name is different from your legal name. It is used as a trading name under which you can conduct your business. Instead of reserving your LLC name beforehand, you can file a DBA as well. You can get the DBA filing form from the Secretary of State’s online portal. Depending on the state, the filing fee varies. DBA filing would also be helpful for you if you change your LLC name in the future. You can read our guide on how to file a DBA to know more about this.
If your desirable name is not available in the state or taken by some other entity, then think of another name according to the naming guidelines. You can add additional words or numbers to your desired names and use them. You can check if your desirable or ‘fictitious name’ is available or not from the SOS website.
Yes, you can change your LLC name in the future. However, the process is a bit complicated, and LLCs have to pay a state fee to change the name. To change the LLC name legally, one has to go through several steps, from searching for a new name available to filing the amendments. It is wise to go for DBA filing instead of changing the name legally. Hiring an LLC formation service will make this part easy for you as they will do the needful on your behalf.
STEP 3: Choose a Registered Agent
A registered agent (known as an agent for service of process, statutory agent, or resident agent) is a person or an organization who receives legal documents on your company’s behalf. The official documents would include official correspondences like state filing notices and legal summons. Anyone aged above 18 years and has the right to conduct business in the state can be a registered agent. This person has to have a physical street address in the state. You can be your LLC’s registered agent as well if you fulfill the eligibility requirements.
However, it is always recommended to hire a professional registered agent service. As your own registered agent, you will have to share your personal address for all legal and public communication. This may harm your privacy, especially if you’re conducting your business from home. Hence, it is better to hire a professional service to take care of all your legal and state-related papers and privacy. You can use their address for official activities. We reviewed some of the best LLC services here, and all of them provide registered agent service as an add-on with their LLC setup packages.
Note that availing services of professional registered agents would be your best option since you will be sure that whoever is handling your legal affairs knows their stuff well. Besides, if you are only looking for registered agent service, not the entire LLC formation package, you can go for this standalone registered agent service.
You can be your own registered agent if you are a resident of the state where you are forming your LLC. However, it is recommended to get a professional Registered Agent to handle your LLC’s paperwork. Remember being your own registered agent means you may have to share your home address and make it public.
The cost of having a registered agent service depends on which state you are forming your LLC in and, moreover, which registered agent service you are hiring. The cost can go up to $300. ZenBusiness offers a standalone registered agent service at $299 (It’s quite good).
There are a few reasons why you shouldn’t be your own registered agent. The address of the registered agent is used to communicate with the SOS or for any legal activities. If you are your own registered agent, you might have to upload your personal address to the public forum. Besides, the registered agent must be at the address during business hours. It won’t be easy for you as you also have to take care of other things in your LLC. Hence, it is wiser to appoint a separate entity as your registered agent.
STEP 4: File LLC Formation Documents
LLC formation documents are the most vital while forming an LLC. These documents are commonly called the Certificate of Formation. Depending on the state, the same document is called by different names, such as Articles of Organization or a Certificate of Organization.
You need to fill in the form (online or in PDF) and send it to the Secretary of State after paying the state fee. Depending on the state, the filing fee varies. The state filing fee starts from $40 (Kentucky filing fee) and can go up to $500 (Massachusetts filing fee). Read our guide on the cost of LLC to know how much you have to spend on forming an LLC in different states. You can file the Certificate of Formation via mail, online, fax, email, or by phone, depending on the state rules.
Even if you are setting up your LLC for free (DIY), you must pay this fee to the Secretary of State to register your business. But, if you buy a formation package from experienced service providers, you can get everything done without any complications. Another reason for hiring a professional is they can speed up your process.
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There are different methods of filing your LLC formation documents. One can file their LLC documents via postal mail, in-person visit to the Secretary of State’s office, online submission, email, and fax. Depending on the state rule, you can file your LLC documents via any of these methods.
Depending on the state, it can take up to 10 working days or more to form an LLC. In some states, it takes less than 24 hours to form an LLC if you file it online.
The cost of filing LLC formation documents depends on which state you are forming your LLC in. The state filing fee can start from $50 and go up to $500. It depends on the state.
STEP 5: Create an LLC Operating Agreement
The LLC operating agreement is not mandatory, but it is encouraged. This legal document outlines the organizational structure and roles of members in your LLC. The operating agreement is a formal agreement between the members of the LLC. Take note that you should have already decided if your LLC is member-managed or manager-managed.
Here are the six main sections of an operating agreement:
- Capital Contributions
- Management and Voting
- Membership Changes
An operating agreement is a document that most states do not require to file officially with the Secretary of State. However, this is one of the most important documents for an LLC. Hence, having an Operating Agreement is always recommended. You can draft your operating agreement on your own. You can also hire a professional. If you hire a good LLC formation service, they will take care of your operating agreement as well.
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It is not always necessary to file an operating agreement. In some states, there is no mandatory rule to file an operating agreement. However, it is recommended to file an operating agreement as it is a legal document that records all the important information about your LLC.
To draft your operating agreement you need to mention some important details about your LLC. Such as the ownership, management, dissolution, voting, and some more details, You can read our guide on Operating Agreement to learn more about it.
STEP 6: Get an EIN
The Employer Identification Number (EIN) is a 9-digit number issued by the IRS. This number is required to identify the type of business structure for general tax purposes. It’s like a Social Security number (SSN) for your LLC. The EIN is vital when you plan to hire employees or open a business bank account. It is also known as Federal Employer Identification Number (FEIN) or Federal Tax Identification Number (FTIN).
To obtain the EIN, one has to fill up the form (online or by mail) and send it to IRS. For online filing, you need the EIN Assistant. If you do not have an SSN, still, you can get your EIN by filling up the form and submit to IRS before you proceed to apply for the EIN.
- Mail to: Internal Revenue Service, Attn: EIN Operation, Cincinnati, OH 45999
- Fax: (855) 641-6935 | Fee: Free
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You can get your EIN by applying through the IRS official website. This is the fastest way to get your EIN. There is no fee charged to get EIN through IRS.
Yes, EIN and the Tax ID (federal) are the same things. LLCs need to obtain EIN or the Federal Tax ID to pay their annual taxes, get business licenses, open business bank accounts, and hire employees.
EIN is needed when you file and pay your business taxes. Every LLC needs to obtain EIN for not only paying taxes, but opening a business bank account, hiring employees, and so on. Read the need for EIN to know why EIN is important!
Congratulations, you are now done with all the necessary steps to form your Limited Liability Company. If you do it yourself, it should take you a long time to understand and do all the steps properly.
However, if you use ZenBusiness, it should be way faster. You will always have a live chat option and phone support with experts for any help you need. Their worry-free service will make things easier for you.
After Starting an LLC
After forming your LLC, there are still some things that you will need. The most important thing is to separate your business and personal assets. LLCs have limited liability protection that protects your personal assets from business liability. This is called a corporate veil. However, the corporate veil can be lifted or pierced by the court if the LLC is sued. In that case, the owners of the LLC become personally liable for their corporate debts. A few things like appointing a legit registered agent, having enough capital, and filing all the major documents with the state can save the LLCs from being pierced into the corporate veil.
Apart from those main steps, there are more things to do after starting an LLC for a business owner. You’ll have to deal with your assets and taxes depending on the management structure. Here are other important things to address when starting an LLC.
- Set Up Business Accounting: It is vital to have a business accountant who will help you take advantage of tax benefits. It will save you and your business tons of money in taxes annually.
- Get Licenses and Permits: You need to check if your business will require any business licenses or permits so that you can stay compliant. Licensing requirements would vary per state and county or city laws.
- Separate Personal Assets From Business: Your LLC offers limited liability protection. It is vital to use dedicated business banking and credit accounts to avoid mixing them with your personal accounts. Otherwise, your personal assets (your home, car, and other valuables) would be at risk if your LLC gets sued.
- Understand Your LLC’s Federal Tax Options: LLCs get taxed as pass-through entities. It means all of the business’s profit goes through the LLC member’s tax returns. The member pays self-employment taxes and income tax on their share of business income after tax. Meanwhile, LLCs can also be taxed as S corporations (S corps) or C corporations (C corps). The former allows LLC members to be taxed as employees. It reduces the tax burden in certain circumstances.
- Register Your LLC for State Taxes: There are several taxes that you might need depending on the nature and location of your business.
- Get Business Insurance: Generally, businesses with employees must get workers’ compensation insurance. Meanwhile, general liability insurance is not a legal requirement, but it is highly recommended to protect your business assets from lawsuits.
LLC Formation Review
Time needed: 5 minutes
To recap, here’s the step-by-step tool. Click on the steps in this list to read the full detail.
- Choose a state
The first thing you should do is choose the state where you will operate your LLC because requirements vary per state.
- Name your LLC
Next, you must choose a company name, including the phrase “limited liability company” or one of its abbreviations (LLC or L.L.C.).
- Choose a registered agent.
In most states, it is mandatory to select a registered agent for your LLC. Get a professional Registered Agent from LLC formation services to get things done hassle-free.
- File formation documents
Filing a formation certificate is necessary when forming an LLC. Depending on the state, it can be called any of the following: Certificate of Formation, Articles of Organization, or Certificate of Organization.
- Create operating agreement
An operating agreement is not a strict requirement, but something encouraged when you start your LLC.
- Get an EIN
The Employer Identification Number (EIN), also called Federal Tax Identification Number, identifies a business entity like a social security number but for a company.
When and Why You Should Form an LLC
The right time to set up an LLC is when you want your business to grow, protect your assets and build strong customer relationships.
At its core, an LLC merges the limited liability protection of a corporation with the flexibility and ease of management of a partnership. This unique combination allows business owners to shield their personal assets from potential lawsuits or debts incurred by the company. This means that if the LLC faces financial difficulties or legal disputes, the personal assets of the members, or owners, are protected and not able to be utilized to satisfy any judgments against the business. This significant advantage provides a sense of security and peace of mind to entrepreneurs, who can focus on the growth and development of their business without the fear of personal financial ruin.
Another compelling reason to form an LLC is the flexibility it offers in terms of management and decision-making processes. Unlike other structures, such as corporations, LLCs are not bound by the rigid framework of a board of directors, shareholders, or formal meetings. Instead, the members have the freedom to create their own rules and regulations, allowing for a more streamlined decision-making process. This level of autonomy enables businesses to make quick adjustments and adapt to market changes seamlessly, a crucial aspect in the increasingly fast-paced and competitive business environment.
Aside from limited liability protection and flexibility, forming an LLC also holds several potential tax advantages. By default, an LLC is classified as a pass-through entity, meaning that its profits and losses are passed through to the members’ personal tax returns. This arrangement bypasses the double taxation typically faced by corporations, where both the company’s profits and the dividends distributed to shareholders are subject to taxation. The pass-through taxation of an LLC generally results in lower overall tax burdens for the members, as they can incorporate business losses into their personal tax returns and utilize various tax deductions available to them.
It is worth noting that the decision to form an LLC should not be solely based on these advantages, but also on the specific requirements and goals of the business. For instance, if a company plans to seek substantial external funding or eventually go public, it may be more suitable to consider alternative structures such as a C corporation. Additionally, different states have various regulations and guidelines for establishing an LLC, which should be considered when making this decision.
In conclusion, forming an LLC can be a highly advantageous choice for many entrepreneurs due to its limited liability protection, flexible management structure, and potential tax benefits. However, it is important for individuals to assess their unique circumstances and consult with professionals, such as lawyers or accountants, to ensure that the LLC structure aligns with their specific goals and needs. By carefully evaluating the benefits and drawbacks, aspiring business owners can make an informed decision about the best legal structure for their venture and set themselves up for long-term success.
You can start an LLC for free. For that, you need to follow a few simple steps. First, select the state you want to set up your LLC, get an LLC name, find a registered agent, file your certificate of formation, and finally, get your EIN to start your LLC for free. Other than the state filing fees, you don’t have to bear any costs to form an LLC.
If you are a resident of the state you are willing to start your LLC, then you can file your LLC. However, it is always worth having a professional than doing it by yourself to manage legal complexities and paperwork.
The cost of an LLC depends on the state. On average, the registration fee ranges from $50 to $500, along with annual report fees.
An LLC or limited liability company protects your assets and increases your business’s credibility. These are the most affordable legal business entities in terms of formation and maintenance. However, LLCs aren’t ideal when attracting investors.
Both LLC and Sole Properitership have their advantage and disadvantages. When it comes to single-member LLC vs Sole Proprietorship, both have similar tax benefits also.
To renew your LLC, you need to file an Annual Report every year by paying a stipulated fee. If your LLC is expired, then submit a renewal form to activate the LLC operation.
Why LLC Meaning is So Important
When and Why You Should Form an LLC
Deciding to start your own business is an exciting venture that involves ample thoughts and decisions. Among the crucial choices, one must make is determining the legal structure that best suits their business needs. While for some, registering as a sole proprietor might seem like an easy and straightforward path, many others find that forming a Limited Liability Company (LLC) proves to be a more favorable option. In this editorial, we will discuss when and why entrepreneurs should consider establishing an LLC.
Timing is everything, and the same applies to deciding when to form an LLC. The ideal time often depends on the nature and specific circumstances of the business. Generally, individuals prefer establishing an LLC during the early stages of a business venture. This is particularly valuable when entrepreneurs are investing a significant amount of personal resources and capital, as it provides them with essential legal protections right from the start.
One of the primary advantages of forming an LLC lies within its name itself: limited liability. By creating an LLC, entrepreneurs separate their personal assets from the assets of the business. This separation provides critical asset protection, safeguarding the owner’s personal wealth in the event of lawsuits, debts, or bankruptcy. If unfortunate circumstances prevent business debts from being paid, creditors are generally only able to seek compensation from the LLC’s assets.
Additionally, an LLC shields its members from personal liability concerning the actions or negligence of their employees within the scope of their work. This means that in most cases, the owners cannot be held personally responsible for the actions or mistakes made by their employees within the daily operation of the business.
Beyond liability protection, establishing an LLC also carries tax and financial benefits. LLCs are known for promoting tax flexibility, allowing entrepreneurs to choose how they want their business to be taxed with the options of pass-through taxation or electing to be taxed similarly to a corporation. The choice depends on their financial goals, both short-term and long-term. LLC members directly report their business profits and losses on their personal tax returns without an additional corporate tax level. This often simplifies tax filing obligations, streamlining tedious processes and potentially leading to potential tax savings.
An additional financial benefit of forming an LLC is its potential to attract external investment and favorable credit terms. With the heightened credibility and perception of stability that an LLC structure lends, it becomes easier for entrepreneurs to access capital and qualify for loans. Having an established legal entity demonstrates a commitment to the business and enhances the trust of potential investors.
A striking advantage of making your business an LLC is the flexibility it offers for management. Traditional corporations often face rigid hierarchies, stakeholder decisions, and ongoing formalities. However, an LLC can avoid some of these drawbacks while maintaining a certain level of organization and reputable stature. Generally, LLCs possess fewer management and reporting requirements, allowing entrepreneurs to focus on running their business effectively.
Overall, the decision to form an LLC is not one that should be taken lightly, but it is undoubtedly an option entrepreneurs should consider seriously. With the advantages of liability protection, favorable tax treatment, enhanced financial opportunities, and management flexibility, the benefits of establishing an LLC can greatly outweigh any additional paperwork or costs involved. Ultimately, consulting with legal and financial professionals to ensure the option aligns with your business aspirations would be a prudent next step.
*Note: This conclusion has been written as part of the editorial comment’s continuation.
A limited liability company (LLC) takes about a week on average to form. If the business entity is filing it online, then it may take less than 24 hours. The above-mentioned simple steps will help you in your LLC filings with the state. You will get multiple filing options like by mail, online, email, or/and fax. Choose any available mode of filing, comply with regulatory requirements, and registration requirements to form your LLC in the selected state. For more information, leave a message below.