Are you thinking of starting your own business?
If so, you should consider forming a Limited Liability Company, or LLC. An LLC is a great option for small, medium, and large-sized businesses.
There are minimal requirements to form an LLC and few obligations to run a company under this structure.
It’s no wonder why it’s one of the most popular business structures for many American businesses.
So how do you form an LLC? What are the criteria for determining where to form your LLC?
Here’s what you need to know:
Choose Your Company Name
The first step is to choose a great name for your business. This can be the name of your brand or can be something unrelated.
For example, if you’re a freelancer named John Smith you can choose to name your business John Smith LLC. Or you can detach your name and called it ABC123 LLC if you wanted to!
You have to check if the LLC name is already registered before you can register it. As such, it’s best to have a list of names to choose from.
Articles of Organization
The next step is to file your Articles of Organization. These are documents that list the owners of your LLC and the style of governance.
They’re also known as Articles of Incorporation, Certificate of Organization, or Certificate of Formation in some states.
The rules on how to create your Articles of Organization vary depending on your state. There will be different requirements of what you have to include in this document.
However, you’ll always be expected to include the following in your Articles of Organization:
- Your LLC’s name
- Your registered agent’s information
- Names of LLC owners
- Details on how the company will be managed
After you submit your Articles of Organization, you’ll also have to pay a small filing fee.
LLC Operating Agreement
The next is to create an LLC Operating Agreement for your company. This is where you detail how your company will be run.
This agreement will include the names of the owners of the LLC and the distribution of their ownership.
It will also include information on voting rights, profits and loss distribution, governance rules, meeting information, etc.
It’s best to consult your business attorney on how to draft an LLC operating agreement.
If you know any fellow entrepreneurs, you want to ask if you can look at their LLC Operating Agreements as a template.
Some states might not require LLC Operating Agreements. Nevertheless, it’s always best to draft one to make it easy to run your business. It helps establish rights and responsibilities for the owners of the LLC.
It also helps prevent or reduce issues that might occur among the owners of the LLC. Always work to create an LLC Operating Agreement that works as a “win-win” for all the parties involved.
Registered Agent and Management
A registered agent refers to an individual or organization that handles the legal obligations of the LLC. The registered agent accepts legal papers if the LLC gets sued.
The registered agent has to have a physical address in the state where the LLC is based.
For LLC formation, you can look at commercial registered agents whom you can hire for your business. Any of the owners of the LLC can also act as the registered agent for the business.
Most LLCs are managed by the members or by the owners of the LLC. You can also appoint outsiders to work as managers of the LLC. This is similar to having a Board of Directors for your company.
Laws, Regulations, and Taxes
Before you choose where to register your LLC, you want to educate yourself on the local laws, regulations, and taxes. It’s best to hire a business attorney to advise you on what’s best.
For example, there might be certain laws you have to adhere to for the type of business you run.
For example, if you run a liquor store there are states that have strict rules on the sale of alcohol. The same goes for states that regulate the sale of cannabis.
Make sure you educate yourself on the laws regarding running a business in a state. You also want to learn if you need to obtain a license for the type of business you run.
You also have to look at regulations regarding running a business in each state. You want to choose the regulations that aren’t a hassle for you to comply with.
Finally, you want to look at taxation in your LLC. As of this publication, there’s no federal taxation specifically for LLCs.
But there might be state taxation for your LLC. Similarly, one state might require your LLC to collect sales taxes while others won’t.
Make sure you take your time with this research to determine what laws, regulations, and taxes work best for you.
Filing Fees and Associated Costs
Finally, you want to look at the filing fees and associated costs for running your LLC.
You’ll have to pay a one-time filing fee to establish your LLC. You’ll then also have to pay annual fees to run your LLC.
You want to look at the filing fees and associated costs that work best for your company. For example, one state might have high filing fees but low annual fees. Others will have a low filing fee but expensive annual fees.
You want to consider what works best for your company’s budget. These are regular expenses that you have to account for with your LLC.
You’re Ready to Form an LLC
Now you’re ready to form an LLC and run a successful business enterprise. Start by deciding what type of business you wish to run.
Next, you want to research the best states for incorporating your business. Create a shortlist of names so you can choose what works best for your LLC.
Spend time in finding a reliable registered agent and management team for your LLC. Make sure you also spend time to draft the LLC Operating Agreement that works best for you.
You can find more great tips on entrepreneurship on our website!