Introduction: Form an LLC

You may not need to follow all of the processes mentioned below depending on the state in which you plan to form an LLC. More information on the specific actions you'll need to take to properly establish an LLC can be obtained from your state's business office.

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Step 1: Select a Business Name

It's vital that you think about the name of your new LLC. In addition to picking a good name for commercial and marketing purposes—for example, one that can help you expand and establish brand identity—there are also important legal considerations.

To begin, your LLC must explicitly specify that it is a limited liability corporation in its business name. This means that the name of your business must include a term like "LLC" or "Limited Liability Company." You also can't use any words in your name that are prohibited in your state for LLC names. For example, most states forbid the use of terms like "bank" and "insurance." Check your state's list of restricted words to make sure your business name doesn't contain any prohibited words.

Check to determine if any current trademarks conflict with your intended business name. To check for potential infringement, use the Trademark Electronic Search System (TESS), a database of registered trademarks and prior pending trademark applications maintained by the US Patent and Trademark Office.

(Note:- While a trademark search isn't needed, it's a good business decision because it will show you whether a trademark has been registered or applied for that is too similar to your intended LLC name.)

Step 2: Check the Availability of Your Business Name

Check to determine if your chosen business name is already in use by another company in your state after you've made your decision. More information on determining if your proposed business name is already in use by another company should be available from your state's business office.

If your desired business name is already taken, your state may enable you to reserve it until your paperwork is completed. Most states will automatically register your business name when you file your articles of incorporation, so you won't have to do it yourself.

In addition to ensuring that the name you've chosen isn't already in use by an existing LLC in your state, you'll want to ensure that your business name, or a variant of it, is available for purchase as a domain name. The WHOIS database is a handy resource for such queries. If your preferred name is also a domain name, you should buy it as soon as possible to avoid losing it to another domain name buyer.

Step 3: Register a DBA Name

Most LLCs operate under their business names, but you'll need to register a DBA ("doing business as") name if you want to conduct your company under a different name. A DBA name is a name that isn't the same as your LLC's legal business name. It's also known as a fictitious name or a business name. Check with state officials to learn about the process if you plan to utilize a DBA name.

Step 4: File Your LLC's Articles of Organization

You must file articles of organization with your state when forming an LLC. The document is commonly referred to as "articles of organization," although your state may refer to it as something else, such as a certificate of formation.

The articles of incorporation are often basic paperwork obtained from your state's business or filing agency. In some states, you may be able to get a blank copy of the form online. While the information required varies by state, you will usually only need to provide the name and address of your LLC, as well as the names of its members. You'll need to file your articles of incorporation with your state, along with the requisite filing fee, once you've finished them. Most states require you to file your articles of incorporation with the Secretary of State, but some may need you to fill them with a different body. The Small Business Administration maintains a list of links to state business offices on its website. Check this list for a link to your state's business office, where you may discover more about where to file your articles of incorporation and, if necessary, the filing fee.

Step 5: Designate a Registered Consultant

In most states, an LLC must have registered consultants. The person who receives service of process notices, government correspondence, and compliance-related documentation on your behalf is known as a registered consultant, also known as a process server. In most cases, one of the LLC members will be designated as the registered consultant.

Step 6: Draft an Operating Agreement

Although most states do not require an LLC operating agreement, it is still a good idea to have one. A fundamental contract that sets a framework for key internal business decisions is an operating agreement. Operating agreements commonly address themes such as member ownership percentages, voting rights and obligations, member powers and duties, and terms governing the transfer of member interests. It's also worth mentioning that, while most states do not require operating agreements for LLCs, others do. You should check with your state to see if an operating agreement is required.

Step 7: Fulfill the Publication Requirement

In some areas, you may be required to publish a notice in your local newspaper announcing the formation of your LLC. Contact your state's business filing office for more information on the notice's language, how many times it must be published, and any other requirements that may apply.

Step 8: Obtain Business Permits and Licenses

You'll need to get the essential business permissions and licenses to conduct your business after you've registered your LLC. The types of permissions or licenses you'll need depend on state and local government requirements as well as the industry you're in. The Small Business Administration website has a list of state business license offices.

Step 9: Open a Bank Account for Your LLC

To keep corporate funds separate from personal funds, your LLC must have its own bank account. Various institutions will have different documentation requirements for opening a bank account for an LLC. Check with your bank to see what documents are required to start a business account.

Benefits of an LLC

Limited liability companies (LLCs) provide flexibility and security. This attracts business owners to the corporate structure. Members of limited liability firms are referred to as shareholders rather than shareholders.

Flexibility

Different tax treatment options are available to an LLC. They can pick between sole proprietorships, partnerships, S companies, and C corporations for tax purposes. As long as the company does not want to be handled as a C corporation, it has the option of being treated as a flow-through entity.

A flow-through entity's income is recognized as the income of its owners. This means that LLC owners can avoid paying multiple taxes. Income is taxed twice: once at the business level and again when given as dividends to shareholders. Income is taxed at the individual member level rather than the company level in an LLC.

If the business elects to be taxed as a partnership, income might be distributed to members in ways other than ownership percentages. In the operational agreement, members agree on this.

Protection

Limited liability businesses can also take advantage of corporate benefits. The company's limited liability status is the biggest advantage. The corporation is a separate legal entity. This shields members and owners from personal liability for the business's activities and obligations.

A simple example would be if a firm employee is discovered engaging in illegal environmental activities. Legal action against the company to recover damages may be threatened. The court can seize the firm's assets, but not the owners', to recover damages. The only exception would be if the owner was aware of the illegal activity and continued to accept it.

Drawbacks of an LLC

The fees and taxes associated with the business structure are the main disadvantages of limited liability firms. However, because each state regulates LLCs differently, restrictions might be a disadvantage.

Fees and Taxes

Despite the fact that limited liability firm owners avoid double taxation, they must pay self-employment taxes. Because the owner is both an employee and an employer, these taxes are paid twice.

Some jurisdictions additionally charge an annual fee for the limited liability protection offered by LLCs to their members. A franchise tax is another name for this charge. For example, the state of California charges limited liability firms an annual fee of $800 that rises with net income.

Regulations

As previously stated, an LLC is governed by state law, which can have a significant impact on how the firm operates in many situations. Some states, for example, may dissolve a limited liability company when one of its members dies. The company will continue to operate in other states, and the membership shares of the deceased member will be given to their executor.

These examples show the state's default resolutions. In circumstances like the one described above, LLC members can select how they want the company to proceed and document it in the operating agreement. As you can see, the operating agreement is an important document that members should not overlook while forming their business.

It's also crucial to think about how the organization might operate in international marketplaces. In Canada, for example, an American LLC will almost certainly be classified as a corporation because the distinction between the two is not recognized.