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How to Start a Limited Liability Company (LLC) in 6 Steps

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Many owners go for a limited liability company ( LLC) when selecting a small business arrangement because of the immunity from the obligations it offers. Follow this guide for step-by-step information if you have thought of starting an LLC.

What is a limited liability company?

LLCs are a type of business entity that is similar in many respects to corporations. As the name suggests, LLCs offer their owners the protection of personal liability. They also boast plenty of flexibility in management, taxation, and profit and loss allocation.

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An LLC can own assets and bank accounts as a company; sign leases, loans, and other contracts; and file a lawsuit or be sued. Since it is legally a separate entity from its owners, no one is liable for any commercial obligations or debts.

Limited Liability Company (LLC): A step-by-step guide

Let’s take a look at the six steps dividing you and your limited liability company.

1. Select the state

It is best to open any company, including an LLC, where you’re planning to do business. If the company exists physically abroad, ensure that a foreign LLC is registered in every state where you plan to operate. There are advantages at certain times to forming your business in a state with business-friendly laws. However, before taking this step, check the extra paperwork and the associated fees.

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2. Name the company

Again, the rules relating to the names allowed for the LLC vary from state to state. The following guidelines are generally in place:

  • The word “limited liability company” or its abbreviations must be included.
  • The name must not contain words that may confuse customers with an agency of the government.
  • Restricted words might require additional documentation and a licensed person, like a doctor or a lawyer, could become an LLC member.

3. Choose an agent

The registered agent is a third party, either a person or a business, whose job is to send and receive legal documents on your behalf. Official mail and document filings are included in such papers. The majority of states require you to appoint a registered agent who is a resident of your operating country.

4. File the LLC

To make your limited liability company official, you need to file documents for the formation with the State. These are often referred to as Organization Articles, and you may need a lawyer to help you navigate the process.

5. Create an operating agreement

An operating agreement for your LLC is a legal document that outlines your company’s member roles and ownership structure. In most states, having such a record is not required but for the following reasons it is still a good idea:

  • Organizational purposes: outlines the structure of formation, memberships, and ownership.
  • Management: addresses how you run the business and vote for decisions.
  • Capital contributions: determine which members are providing financial support to the LLC, and how the funds are raised.
  • Distributions: establishes how members share profits and losses.
  • Membership changes: Explains how members are added and removed.
  • Dissolution: explains when and how the LLC could get dissolved.

Having these on paper can help you avoid future misunderstandings.

6. Get an EIN

EIN, or Employer ID number, is your LLC’s Social Security number. It allows you to open the bank accounts and hire people for your business. To get an EIN via a government agency is free and straightforward.

4 More Handy Tips

Once you have figured out the basics, these four details should be taken into account before officially launching your business.

1. Location matters

Rules, regulations, and laws vary from one state to another, so consider the laws of the state before you start an LLC. Analyzing the cost-benefit might do wonders. Overall though, it is best to set it up for convenience in your state of residence.

2. Get professional help

It is important to get professional assistance to steer the process, even though you decide that you take the challenge yourself. An LLC lawyer can help you avoid many obstacles that might slow your progress. Furthermore, if you’re not well versed in tax matters, if you don’t get proper advice, you could miss a tax benefit.

3. Ensure initial capital

As such legal entities don’t give you stock control, investors tend to be free of LLCs. Make sure that you are aware of the corporate risks before you start.

4. Check your privacy

Some states or countries provide additional anonymity and privacy. LLC owners and managers are not required to be included in the Articles of Incorporation in these cases. That means that your LLC does not have to file information with the state personally.

The bottom line

It’s not a massive feat to start an LLC, but it’s also not easy. Before you start your business, make sure that you are familiar with all key terms. Understand the structure and its consequences to maximize your business’s success.