When you want to legally structure your business, you can register to become a limited liability company (LLC). As an LLC, you can protect your personal assets from business liabilities.
However, starting an LLC can be a complicated process for someone who has never done it before.
While the process differs for different states, there are some general guidelines that you can follow to register your company as an LLC.
It can be confusing and frustrating at the same time.
That’s why to simplify this process and help you on your journey, in this post, we’re going to show you how to start an LLC easily without wasting hours of your time.
And along with that, deep dive into the other aspects of applying an LLC like cost, time frame, and much more.
But before diving into that, let’s first understand what an LLC is.
What Is An LLC?
An LLC is a hybrid business structure that protects its owners from being personally pursued for repayment of the company’s liabilities.
LLCs are gaining popularity, as they provide the same limited liability protection as a corporation does without a lot of formalities.
Think of an LLC as something that combines the flow-through taxation of a partnership with the limited liabilities perks of a corporation.
An LLC can be owned by a sole owner. In such cases, the LLC is known as a single-member LLC.
When there is more than one owner, it is known as a multi-member LLC. The members of an LLC can be individual business owners or several partners of the same business.
Is Starting An LLC Worth It?
If you’re a small business owner who does not want to put your personal assets at stake in a business feud, you must consider starting an LLC.
Not only that, it’s much easier to form an LLC than a corporation.
You enjoy the perks of limited liability protection as a corporation does. For instance, you can keep filing your income tax return as an individual. You wouldn’t have to worry about filing a different tax return for your business.
Even though small businesses benefit the most from an LLC, businesses of any size, ranging from one-owner operations to businesses with many co-owners can start an LLC.
Three Key Advantages Of An LLC
Personal asset protection is the feature of LLC that attracts most businesses.
But an LLC comes with even more benefits, such as:
- Limited Liability:An LLC separates you or other individual business members from your business. As an LLC owner, you will not be liable for the debts and legal liabilities of your LLC, should there be any. As a result, your home, bank account, and any other personal assets are safe from the legal obligations that fall upon your organization once it becomes an LLC.
- Less Paperwork:Another major advantage of starting and managing an LLC is that it requires very little paperwork and has fewer formal requirements when compared with a corporation. Also, no other business in your state can use your LLC name. Therefore, you can establish yourself as a unique company in your industry.
- Taxation Benefits:An LLC prevents your company from being taxed twice. The income of an entity is treated as the income of its owners, so they avoid double taxation. All the profits and losses are shared amongst all the members, in the manner they prefer to divide, and not necessarily have to be equal. Moreover, everyone can claim their profits and losses on their personal income tax return.
As LLCs are mostly pass-through entities, business owners qualify for the pass-through tax deduction schemes.
This is an income tax deduction of up to 20% of the net business income generated by the pass-through business.
How To Form An LLC In Six Easy Steps
Starting an LLC is easy (if done correctly).
Read the step-by-step guide below to learn how to set up an LLC in any state.
Step 1: Select Your State
The primary step is choosing the state where you have your business set up or are planning to set it up.
If your business is in different states, you will have to register a foreign LLC in other states. LLC registration in other states has similar paperwork as that you did while forming an LLC in your home state.
However, you will need a registered agent in each state where you want to do business.
Each state has its unique LLC formation requirements. More or less, the documentation is almost similar in most states.
You must file a certificate of formation with the secretary of that particular state and apply online by depositing the required fees.
Step 2: Choose A Name For Your LLC
As the second step, you need to choose the right business name. Since an LLC separates you as an individual, you have to choose a business name that is different from your own.
Ensure to perform a business name search online so that your LLC name is unique. Some of the common state LLC naming rules are:
- The company name must have the phrase limited liability company (LLC or L.L.C.) at the end
- The company’s name should be clear and can’t include words to get the audience confused with a government agency
- The name of the LLC can’t be the same as that of another LLC already registered within that state
You can even reserve your LLC name for a short span by depositing a small fee.
Step 3: Pick A Registered Agent
All LLCs are required to have a registered agent. This can be an individual or a company that sends and receives legal papers on behalf of your company and agrees to receive lawsuits in case your LLC is sued.
The registered agent must be a resident of the state where you are registering your business or a company authorized to conduct business in that state. An already LLC member can also act as a registered agent for that LLC.
Your registered agent handles:
- Tax forms
- Legal documents
- Official correspondence including annual reports
- Summons
The majority of the states maintain a list of private service companies to help the individuals who want to form an LLC.
These commercial registered agents provide their services for a small fee.
Step 4: File The Article Of Organisation With The State
You have to officially form an LLC by filing your formation documents with the particular state’s business division.
Every state has its own form and procedure for creating an LLC. Most of the states need filing LLC formation documents with the secretary of state, but some states may have another department to handle LLC business filings.
All states charge filing fees and the LLC cost may vary from state to state.
You can complete the document formalities on your own (file online) or take the help of an authorized commercial LLC formation service like e-delaware.
In general, when filing article organization, the lists includes:
- Name and address of the LLC
- Length of its existence
- Name and address of the registered agent
- Purpose of the LLC formed
Step 5: Create An Operating Agreement For LLC
This is a legal document and the roadmap that specifies the ownership structure and member roles of the LLC formed.
This document describes the voting rights of the members, how profit and losses will be allocated, ownership interests, how the business will be governed, the rights of the LLC members if one of them dies or leaves the business, and the method by which the company will be dissolved if it closes down.
Although many states don’t require it, it is a piece of essential information that outlines how your LLC will be operated and managed.
It is critical to understand that in case of the absence of an operating agreement, state law is authorized to govern how your LLC operates.
The main components that an operating agreement describes are about:
- Organization
- Management and voting rights
- Capital contributions of the members
- Distribution of profits and losses
- Membership changes
- Dissolving procedure of the LLC
Step 6: File LLC With Other States
In order to run a business in other states that are different from where your LLC was formed, you will need to register your LLC in that state as well.
A registered agent is appointed in each state where you want to do business. The agent provides services for LLC formation and handles all legal documents, such as government correspondence and compliance documents on behalf of the business.
Apart from handling and receiving official mail on behalf of your LLC, a registered agent in that state effectively maintains corporate compliance and informs you of legal notices.
They guide and remind you to file annual reports and help resolve potential issues in a timely manner so that your business is not affected.
If you want to form your company in Delaware, we also provide top-class registered agent services at the most affordable cost.
How Much Does It Cost To Create An LLC?
LLC formation has a fee associated with it but the amount varies from state to state. LLC formation cost is relatively cheaper compared to other investments made in a business and the amount varies from $50 to $500 depending on the state applied.
As an example, at e-delaware, we charge anywhere from $179 to $539 for forming an LLC in the sate of Delaware.
The overall cost can be split into two categories viz LLC startup costs and maintenance costs.
LLC Startup Costs
There are various fees that come under the umbrella of LLC formation. To make it simpler, the e- can further be divided into the following heads:
- Filing Fees:Average Cost - $50 for legal services + $50 to $800 as filing fee depending on the state.
Filing fee accounts as the LLC startup costs. You can hire a legal service provider to help you register your LLC or can go on your own.
However, hiring an authorized agent reduces the risk of improperly filing paperwork, which may further lead to paying additional charges to reapply.
- Operating Agreement:Average Cost: $0 to $200
An operating agreement, as already explained, is an internal document describing how your LLC will work.
Here also you can create this agreement on your own, taking the help of professionals to ensure that everything is done correctly.
Legal service providers or local lawyers charge between $50 to $200 depending on the services rendered.
- Publication Costs: This cost varies from state to state
Some of the states like New York, Arizona, and others need publishing notices for a specific period in one or more newspapers. This adds up to additional costs while forming an LLC.
LLC Maintenance Costs
Once your LLC is registered, it is time to take care of maintaining costs. These costs can be further divided as:
- Taxes:Average cost varies from state to state
Just like an individual or a business, LLCs must also pay taxes. The same is deducted from the profits of the members as a pass-through income.
A majority of state tax LLC in a similar manner as of the federal government. But, some states also charge a mandatory LLC franchise fee as taxes.
However, LLCs are given a chance to write off certain startup costs, say up to $5000, that includes attorney fees, market research, office space, equipment cost, and some other fixed expenses.
- Cost of Registered Agents:Average cost ranges from $0 to $300
You are also required to pay fees to a registered agent of the state. They are the only source of contact between the LLC and state and are available during all business hours, and accept services of lawsuits and other legal documents on behalf of your LLC.
Typically, these service providers charge $100 to $300 per year, according to the services they render.
How Long Does It Take To Setup An LLC?
The overall turnaround time required to get an LLC largely depends on the state. However, the average time is 7 to 10 business days, while some states may take around 6 to 10 weeks.
Some of the states give approval immediately, once the articles of organization are submitted, and it can be as fast as 3 business days.
It also depends on the time of the year when you have decided to form an LLC, as the states may be busy at that time of the year.
For example, there is usually a heavy filing volume for LLCs at the beginning and the end of the year. It is advisable to plan LLC forming accordingly so as to avoid inconvenience.
Some states also charge an extra fee for speeding up the process, reducing the turnaround time to as low as 10 days.
FAQs Related To Starting An LLC
- How are LLCs taxed?
An LLC is a business formation that behaves like a corporation but can avoid paying corporate taxes. The LLC is taxed as a ‘pass-through entity’, just like a partnership or sole proprietorship firm. All of the profits or losses incurred by the LLC pass through the business to the LLC members (owners) and they have to pay taxes as their personal tax returns. On the whole, the LLC itself does not pay federal income taxes, although some states may impose an annual tax on LLCs.
- Is an LLC good for a small business?
LLC is most suitable for a small business as it offers flexibility, tax advantages, and personal protection to the entrepreneur. Forming an LLC is one of the best business solutions and they are inexpensive, easy to form, and simultaneously simpler to maintain.
- What is the owner of an LLC called?
Limited Liability Company can have single ownership or there may be more than one owner. If someone is all or a part of an LLC, you are a member of that LLC. Most LLCs are managed by their members, while others may appoint managers on their behalf to help operate an LLC.
- What kind of tax return does an LLC file?
A single-member LLC is taxed as a sole proprietorship, while LLCs having multiple members are taxed as partnerships. The IRS treats an LLC as a sole proprietorship or partnership, depending on the number of members in the LLC. Moreover, LLC owners are allowed to be taxed as a C corporation or S corporation. This can be done by filing an election with the IRS.
- Is it better to have a sole proprietorship or LLC?
A sole proprietor owns a business including the assets and is personally liable for all business debts and lawsuits. While an LLC is treated as a separate entity where the members running an LLC are not personally liable for LLC debts and lawsuits. Thus, forming an LLC is better than having a sole proprietorship. Most sole proprietors are known to benefit from converting their sole proprietorships to LLCs, as they offer better liability protection and are inexpensive to start and run.
Conclusion
Running an LLC helps add credibility to a business and assures customers that yours is a real business. Also, Limited Liable Companies are relatively easier to form and run.
They require less paperwork, unlike C corporations. LLCs don’t have to assign formal officer roles, hold annual meetings, and record company minutes or pass resolutions.
The ownership flexibility and the option to choose how they want to be taxed are big considerations to form an LLC.
We hope now you have a clear understanding of how to start an LLC.
But if you’re still confused or don’t want to get into this hassle, we have a perfect solution for you.
We at e-delaware have a team of professionals who can do all of this work for you starting from preparing your documents to filling your LLC at a very minimal cost.
