If you're starting a business, a smart move is forming an LLC, known as a limited liability corporation. The purpose of an LLC is to limit your liability in the event something happens during the course of business, resulting in a lawsuit being filed against you. While many people think forming an LLC is difficult, in reality, it's actually very easy.
- Where to Organize the LLC
Most businesses organize their LLC in the state where they operate or conduct the majority of their business. Papers are filed with a state's Attorney General's office, where the appropriate fees are paid and annual reporting requirements are laid out.
- Naming Your LLC
Pick a name describing your business, but make sure it's not one already in use or there could be copyright issues. Also, the LLC name does not have to be the same name as the business itself. This is known as a DBA, or Doing Business As name.
- Choosing the Registered Agent
This is the person who is authorized to receive legal papers on behalf of the LLC. Most of the time this will be you, but it can also be another family member, attorney, business partner or other person connected to you and your business.
- Do You Need an Attorney to Form Your LLC?
You can create an LLC yourself, but be sure you understand all the legal aspects before beginning. If you have questions, hire an attorney. While you may pay between $500 and $1,000 for their services, it will be money well-spent to know everything is correct.
- LLC Ownership
All LLCs will issue ownership shares, known as units, when organizing. These are divided among those involved with the LLC, so one member may wind up with more units and, in effect, be the senior partner. This can be done many different ways, and should be done as early in the process as possible.
- Filing Articles of Organization
Done through your state's Attorney General's office, these include the name of the LLC, name and address of the registered agent, and other important information.
- Organize Your LLC Kit
Though not required in all states, many people obtain an LLC Kit for their business. The three-ring binder includes such items as an embossing seal, blank stock certificates, and model operating agreement.
- Choose the Management Structure
The two types of LLC management structures are member-managed or manager-managed. No matter which one is chosen, you can change your mind and switch back and forth if needed at any point.
- Approve the Operating Agreement
Usually a 5-20 page document, the agreement outlines the powers of members and managers, elections, and internal operations. While not required legally, not having one could lead to difficulties later on.
- Get Your Federal Tax ID Number
You'll need this before opening a bank account, and federal law requires you have this before conducting business. Obtained from the IRS, they can take anywhere from one week to one month to receive.