Most entrepreneurs prefer a limited liability company (LLC) because of its many favorable terms and conditions, including the protection it provides to members against legal and financial liabilities. This means the personal assets of members of an LLC are protected from their company creditors.
If you’re thinking about starting your own LLC, this article would explain to your more about LLCs and walk you through the process of forming one.
What Is A Limited Liability Company?
A limited liability company has many similarities to a corporation, except the fact it offers its owners some personal protection from legal and financial liabilities. LLCs also offer a wide range of advantages, including favorable taxation and management flexibility.
An LLC can act as a separate entity from its owners. Therefore, it could sign documents, leases, bank accounts, and contracts in its own right. This means when an Limited Liability Company is sued, the owners are protected from it, so no member would be liable for the business’s obligations.
What Is The Process For Starting An LLC?
If you’ve already decided and you’re now ready to form an LLC, follow this step-by-step guide. And surely, it’d make your journey a lot easier. (See here for a breakdown of what it costs to form an LLC in 50 states)
1. Select Your State
It’s always best to register your LLC in the state you intend to run your business. If the LLC is an extension of an existing company abroad, be sure to register it as a foreign LLC in each state you plan to operate.
Research about the advantages of the different states before you decide. It may be worth checking all the extra fees required for registration. Who knows, your decision could be based on the requirements of particular states. For instance, legal company registration in Singapore differs from company registration in Canada.
2. Choose A Name
The next step is the naming of your company. You have to choose a unique name that’s not been registered before. To be sure no one else is using the same name, you’d have to do a name search through online directories, county clerks, or the secretary of state’s office or website. Depending on your state, you could be allowed to reserve an Limited Liability Company name for a specified period while you’re handling the paperwork.
Generally, the following rules apply when naming your LLC:
- Your name has to include the phrase ‘limited liability company’ or the acronym ‘LLC.’
- The name mustn’t be confused with a government department.
- Restricted words or phrases may require a licensed person to be a member of your Limited Liability Company and some extra paperwork.
3. Choose Your Registered Agent
A registered agent is a person you authorize to handle all official communications on behalf of your LLC. Your registered agent must have a traceable physical address and be someone trustworthy and competent. LLCs would usually allow someone within the company to perform the duties required of a registered agent. But for official purposes, it’s always important to have a third-party registered agent.
4. File Your Articles Of Organization
To officialize your LLC, you have to file some formation documents, particularly the articles of organization, with the authorities. Generally, states would require some information about your business. This shouldn’t be difficult if you’ve already thought about your business structure and plan. To help you understand what they mean, you may need an expert, like an attorney, to step in.
5. Get An Employer Identification Number
The Internal Revenue Service (IRS) requires all businesses that employ people to have an identification number, known as the Employer Identification Number (EIN). This nine-digit number is used mainly for tax purposes. Therefore, ensure to apply for your EIN so your Limited Liability Company is IRS compliant.
6. Have An Operating Agreement
An operating agreement is a legal document explicitly showing the roles of the members of your LLC. The agreement should also outline the ownership structure of your company and include other information like members’ voting rights, powers of the members, and the distribution of profits and losses. The operating agreement is not compulsory in some states, but it has many benefits for your LLC.
7. Have A Business Checking Account
If you want your LLC to operate effectively and aboveboard, you must keep business and personal matters separate. One way to ensure this separation is by having a business checking account. A business account is important if you’re to keep your personal and business finances clearly separate. In the case of a legal suit, your personal assets would be protected unless they were mixed up in the business assets.
The Bottom Line
Once you’ve gone through all the processes of legalizing your limited liability company, you should be good to conduct your business. However, it’s important to make sure you have an ideal location for your business and have registered with all the local authorities. Also, make it a point to accomplish all the necessary paperwork and ensure your data security is on point. If you need professional help during the process, never hesitate to seek advice.
Starting an LLC is fairly easy. But be sure to do your homework before you begin any process; otherwise, you’ve got this.