Not all business owners need to convert their sole proprietorships or small businesses into Limited Liability Companies (LLCs). However, starting an LLC according to state laws can help you structure your existing business simply and inexpensively.
How to Form an LLC
Forming an LLC might initially appear to be an involved and complex process. But nothing could be further from the truth. With the necessary paperwork such as the certificate of formation, you will be able to start an LLC with minimal fuss.
An LLC denotes a business entity where the owners can incorporate their business to enjoy certain benefits. Among other things, it limits the personal liability of the business owners by distinguishing their business assets from their personal ones.
Why You Should Consider Starting an LLC
You could choose to form an LLC or a Corporation based on various considerations such as the type of business, the LLC taxes, etc. Many entrepreneurs prefer running their businesses as LLCs because doing so yields various benefits such as:
- Limiting the Owner’s Personal Liability (or Personal Asset Protection): Entrepreneurs will always feel vulnerable in times of financial adversity. If your business defaults on a loan, your creditors will be able to claim your personal property to satisfy your business liabilities. However, when your LLC experiences a downturn, the laws governing LLCs will protect your personal assets in the event of bankruptcies, lawsuits filed against your business, etc.
- A Favorable Tax Structure: In an LLC structure, all earnings or losses pass on to the owners of the company. As such, the business will not have to pay any taxes. Rather, the owners will pay the taxes due when they pay their income tax. Thus, you will not need to file a separate tax return for the LLC.
- Ease of Raising Capital: With an LLC, raising capital from investors becomes much easier for business owners. All that they need to do will be to bring in additional members. These members will contribute property, funds, or services to the LLC.
- Simple Process: The process of starting an LLC remains simple and efficient. It involves four or five steps (detailed subsequently), which you can deal with easily.
What Paperwork Will You Require to Start an LLC?
To form an LLC, consider the steps that follow.
Pick a Name for Your LLC
If you’re establishing a new business or converting an existing one into an LLC, you will need to give it a unique name. Most states will not permit you to pick a name already in use by another establishment within the same state. Some states will also require you to suffix the company’s name with ‘LLC’, ‘L.L.C.’, or ‘Limited Liability Company’.
The laws that govern LLC licensing requirements vary from one state to the next. For instance, states like California and Maryland will only require you to pick a unique name for your LLC and add the prescribed suffix to it. Other states like Illinois, New York, Pennsylvania, etc. will want you to avoid using certain restricted words in the name. Using these words will require submitting additional paperwork.
In some situations, you might not want to file your LLC documents immediately. In this scenario, consider reserving the chosen (and available) LLC name. For this, you’ll simply need to file a form and pay the name reservation fee. However, check the reservation period and renewal policies applicable, as these vary from one state to the next.
Submit the Articles of Organization
The Articles of Organization (or the Certificate of Organization) ranks among the most important LLC formation documents. It establishes your company as an LLC. It also reserves the name of your establishment.
Before you file this document, ensure that it contains all details including the:
- Company or Entity Name and Address
- Registered Agent Name and Office Address
- Governing Authority Type and,
- Effective Date
In some states, you will be able to file organizational paperwork online. Others will require you to mail the documents along with the cheque to a specific address. Following the instructions provided at the time of submission will help you complete this step quickly and satisfactorily.
Select a Registered Agent
By law, each LLC must have a registered agent. A registered agent refers to an individual or a company that accepts legal papers (such as lawsuits, subpoenas, etc.) on behalf of the LLC in case someone sues the LLC. The agent will need to:
- Be 18 years of age or older
- Have a physical address in the state where you register the LLC and,
- Be available in person during normal business hours
The registered agent will not only accept official mail on behalf of your LLC. They will also ensure that your LLC business plan remains compliant with the prescribed rules and regulations in the state. For instance, the agent will notify you about legal notices or send annual report filing reminders.
Create an LLC Operating Agreement
It can be worth mentioning that most states do not require you to create an operating agreement for your LLC. This agreement details the owner and operator guidelines for the LLC. Hence, it provides the foundation for the way you operate your business. For this reason, having an LLC Operating Agreement can be useful to avoid confusion and disagreements.
Determine the Permits and Licenses that Your LLC Needs
You will also need to ensure that your LLC complies with all the prescribed tax and regulatory requirements. In some cases, the industry in which your LLC operates might necessitate obtaining additional business licenses.
For instance, your LLC might require additional local and state business licenses based on its location and type of business. So, you’ll need to consult experts or check the state laws to determine your business licensing requirements.
Do You Want to Register the LLC Out of State?
In some situations, an LLC might conduct its business in more than one state. This will necessitate registering the LLC to do business in other states.
For this, you will need to fill out and submit all the documents and paperwork you submitted and filed when you formed the LLC. You will also need to identify a registered agent in each state where your LLC will carry out its business.
How Much Does It Cost to Start an LLC?
To meet the prescribed LLC licensing requirements, you might need to pay certain fees including the:
- State Filing Fee: This fee will be payable when you file your Articles of Organization in the state. The fee will vary from one state to the next. It can range from $40 to $500 depending on the state in which you start your LLC.
- Publication Fees: Some states require you to publish a statement of formation about the LLC in local newspapers. Depending on the state in which you form the LLC, this cost could range from $40 to $2,000.
Name Reservation Fee: Except for Alabama, reserving the name of your LLC remains optional in all other states. In Alabama, you will need to pay a fee ranging from $10 to $28 for reserving the name of your LLC.
How Long Does It Take to Start an LLC?
In many states, creating an LLC will not take more than a week or 10 business days. But this will depend on the speed with which the state typically approves LLC formation documents that formally confirm the existence of the LLC. Some states can even issue the approval for your LLC within three business days.
To speed up the LLC processing timelines, some states offer expedited processing services for an additional fee. For instance, Arizona usually takes 22 to 27 business days for processing the paperwork. However, if you pay an additional $35, the processing time will reduce to seven to 12 business days.
Do You Want to Start an LLC of Your Own?
When you want your business to have recourse to the legal protections that corporations typically enjoy, consider forming your own LLC. If you can organize your business plan and paperwork, you could receive the state’s approval of the LLC within a month.
Starting an LLC will:
- Protect your personal assets by distinguishing them from your business resources
- Keep your tax returns simple – you won’t need to file a separate tax return for the LLC
- Help you avoid double taxation and,
- Give your business a more professional and official aura with the words LLC attached to it
Do you want to form an LLC quickly? Use LawDistrict.com LLC Operating Agreement creation service to save time and trouble. Avoid unnecessary hassle in negotiating the finer points of state laws by answering the questions given in our online document editor. After paying the fee, you will receive your customized LLC Operating Agreement.
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