If you are thinking about forming an LLC, then you have come to the right place. LegalZone makes the process of starting your own limited liability company fast and easy with our simple and straightforward LLC educational material. Use the information below to learn how to form an LLC using LegalZone’s step-by-step guide.
Step 1: Choose Your Business Name
In order to start an LLC, you must choose a name for your business. While forming your LLC as a sole proprietorship or partnership is relatively simple and requires very little paperwork, incorporating it as a corporation or limited liability company involves filing several documents with state authorities and setting up more complex procedures. Start by checking to see if your desired business name is available on your state’s online database (usually under corporations). If so, reserve it immediately – failing to do so could result in someone else using that name when they establish their own company. In most states, however, reserving a name does not give you ownership of it until you register your LLC.
Step 2: File Articles of Organization with the State
Next you’ll file the articles of organization for your LLC with the Secretary of State’s office, which will create a public record of your LLC’s formation. To file your LLC with the state, you’ll typically have to pay a filing fee. Depending on the state and its administrative rules, the name you choose may be reviewed by other state agencies to make sure it is not offensive or unprofessional. The Articles of Organization filing requirements vary from state to state, so we recommend calling your Secretary of State office directly to find out what documents are needed to start an LLC in your particular state.
Step 3: Obtain a Tax ID Number
After you’ve filed your LLC documents, visit your local IRS office. Bring a copy of your LLC filing and submit Form SS-4 to obtain your Tax ID number. You may also want to apply for state licenses or permits at some point in time (for example, for a business bank account or tax-exempt status). This is not necessary but can be helpful as it gives you access to tax breaks/credits and shows legitimacy as a business owner. Do note that starting an LLC does not provide any special tax benefits from a personal tax perspective. You will still pay taxes on company profits at your personal income tax rate (which is likely lower than if you were operating as a sole proprietor) and be able to deduct most of those costs when completing Schedule C.
Step 4: Decide on an Operating Agreement
If your LLC will have more than one owner, consider putting together an operating agreement to outline all of your business rules and structure. Otherwise, skip to Step 6. If you do decide to create an LLC operating agreement, it should include such things as ownership percentage shares, capital contribution amounts and rules for distribution of profits from your LLC. You’ll also want to decide whether to put any restrictions on transferring your ownership share (such as having a 90-day waiting period before any shares can be transferred). It’s also a good idea to add language about who will make decisions if multiple members are required to sign off on something or who will oversee operations in an emergency if a primary member is unavailable.
Step 5: Get Started With Bank Accounts and Business Licenses
When it comes to incorporating your business, one of the most important first tasks is opening a bank account. For example, without a bank account, you’ll have no place to deposit your cash flow and earnings. This applies even if you’re using credit cards or PayPal as your main payment methods. You still need a business checking account that serves as your official financial institution for tax purposes and other legal uses. Your bank will help ensure that all of your business transactions are protected by federal law and that sensitive information is kept safe by complying with federal regulations. In addition to opening a bank account, make sure to get started with any other necessary licenses or permits needed for your LLC.
Step 6: Hire Employees
When starting a small business, figuring out how to hire employees for your LLC can be a difficult task. There are numerous legal and financial considerations that come into play when hiring employees. Plus, even though federal law requires employers to withhold Social Security and Medicare taxes from employees’ paychecks regardless of whether they have a payroll system in place, most small business owners still like to have their own payroll system in place because it helps them account for all employment-related expenses and ensures tax compliance throughout their business structure. However, hiring employees does not mean that you have to go all-in on a payroll service; more often than not, small businesses start by outsourcing these responsibilities to an outside firm or set up simple systems on their own.
Step 7: Decide on How Much Money You Need To Start a Company
When you start your LLC, you need to decide how much money you need to start your company. Think about how much you will be spending on office supplies, software, marketing costs and other similar expenses that are needed to run your business. Also, think about how much money you will be investing in order to launch your company and get it started. If these costs add up to more than $5,000 or so then an LLC may not be right for you because there are more complicated ways of forming a business that require more startup money. If your startup expenses are less than $5,000 then set aside a minimum of $2,500-$3,000 as your start-up fund.
Step 8: Consider Hiring an Accountant
Accountants don’t just crunch numbers – they can help entrepreneurs structure an LLC to maximize tax deductions, too. That said, it’s up to individual businesses to ensure they’re paying their fair share of taxes. Accountants aren’t responsible for a company’s tax obligations (those are legal matters), but accountants can help entrepreneurs be aware of any gaps in their knowledge and also point out areas where funds might be better spent. If anything seems unclear or confusing, consider hiring an accountant to guide you through forming your LLC. Your business could pay off in dividends later on. You can read more about how accounting relates to LLCs here .
Step 9: Select Your Business Structure and File Your Required Forms
Typically, LLCs are classified as a pass-through tax entity. They don’t pay taxes themselves, but instead pass their income and losses through to their members. But it’s possible to elect your LLC as a C corporation, which means it would pay corporate income taxes and file a separate corporate tax return (most LLCs are taxed like partnerships). If you want to be taxed as a corporation or otherwise incur C corporation tax liability—in other words, if you want your business structure to match its legal structure—you’ll have to file additional forms after forming your LLC. In addition to completing your state’s formal incorporation paperwork, in most cases you will have to submit Form 8832 Entity Classification Election and any required business licenses and permits.
Section 10: Set Up Your Office & Get Started
First things first, it’s important to make sure your office space is set up correctly. Depending on your business and industry, that may mean buying office furniture or setting up a virtual office to serve as your address and business phone number. In addition to setting up your office space, it’s important to set up your official LLC structure before you get started—unless you want to run into tons of issues down the road. It may be easier than you think: All states have online LLC filing services that can help walk you through every step in under an hour. You’ll be able to file online and receive confirmation immediately so there’s no confusion about when (or if) your LLC was successfully formed.
How LegalZone Helps You Start Your LLC
If you’re just starting out on your business journey, then you may be trying to figure out how exactly legal entities like LLCs work. LegalZone can help you get started on a new business by forming your LLC and helping you file all necessary documents with your local government as we’ve outlined here. We have everything you need at a low price, including free educational articles. Plus, we guarantee that our work is done right or your money back! Is there any reason not to get started today? Contact us today to get started!