Establishing an LLC is a significant step that many business owners will take – one that provides a blend of flexibility, tax advantages and liability protection. However, businesses may sometimes overlook the amount of time that it takes to complete this process. Why does this matter? The speed of LLC formation can influence a company's launch timeline. It can also affect strategic planning and even funding rounds. If you're ready to move your business idea from concept to reality, understanding the time frame for establishing an LLC is key.

According to a survey conducted by CB Insights, unproductive business planning – such as failing to allow for the time it takes to form an LLC – was among the top reasons that small businesses fail. When time is one of your most valuable assets, understanding the process and timeline for setting up an LLC can provide a realistic foundation for planning – and it can help you to avoid potential pitfalls down the line.

Below are the general steps required to form an LLC, as well as an estimate of the time that each step takes, which will allow you to better strategise your business development from inception to launch.

What's in this article?

• What is an LLC in America?
  
• What types of businesses form LLCs?
  
• How to become an LLC
  
• How long does it take to form an LLC?
  

What is an LLC in America?

LLC stands for "limited liability company". It is a specific type of business structure that combines elements of partnerships and corporations. Here are a few key characteristics of an LLC:

• Limited liability
  Like shareholders of a corporation, all LLC owners are protected against personal liability for business debts and claims. This means that if the business can't pay a creditor, the creditor cannot try to collect the debt from an LLC member's personal assets – such as their bank account, house or car. This concept is often referred to as "limited liability".

• Flexible profit distribution
  LLCs can distribute their profits as they see fit. Unlike a common partnership where it is split equally between partners, LLCs have the flexibility to distribute the profits in different ratios.

• Management
  Members of an LLC can either manage the company directly or appoint a manager to handle the business's affairs.

• No double taxation
  Unless an LLC chooses to be taxed as a corporation, it is considered to be a "pass-through" entity, meaning that business income and expenses are reported on the personal income tax returns of the owners. This way, profits are only taxed once.

• Flexibility in decision-making
  Generally, LLC members make decisions collectively, unless an operating agreement has designated a manager or managers to do this instead.

What types of businesses form LLCs?

Because LLCs offer flexibility, protection for personal assets and tax advantages, they can be a beneficial structure for a wide range of business types – from small startups to larger established companies. Here are a few examples:

• Consulting businesses
  Many consultants choose to form LLCs because there is typically a low level of risk associated with their work, and they often work as an individual or as part of a small team. Consultants benefit from the personal liability protection that an LLC structure provides.

• Property companies
  Many property investors form LLCs to protect their personal assets against liabilities associated with their properties. For example, if a property investor owns a property through an LLC (rather than as an individual) and someone is injured on the property and decides to take legal action, the property owner's personal assets are protected.

• Retail businesses
  Brick-and-mortar shop owners, as well as e-commerce business owners, might choose to form an LLC to protect their personal assets against potential business debts or legal action.

• Service providers
  Service providers – a category that includes therapists, photographers, personal trainers and many other professionals – might face liability from client interactions and can benefit from the protections that an LLC offers.

• Small contractors
  Construction or renovation businesses often have a high level of risk associated with their work, and an LLC can offer them protection against potential liabilities.

• Tech startups
  Many technology startups choose the LLC structure in the early stages because it's flexible and easy to set up. As the business grows, it might transition to a corporation – especially if it's seeking venture capital.

In addition to these examples, there are many other business models that might find advantages in establishing an LLC. It's important to assess your business's particular requirements and seek advice from a business consultant or legal professional to determine the most suitable structure.

How to become an LLC

Becoming an LLC involves several actions. Here is a brief overview:

• Choose a name for your LLC: your business name must be unique and end with "LLC" or "Limited Liability Company". Most US states have an online database where you can check name availability.

• File the articles of organisation: your articles of organisation include information such as your business's name, its purpose and the names of the owners. You will need to file this with your state's Secretary of State office, along with a filing fee, which varies by state.

• Choose a registered agent: every LLC must have a registered agent – an individual or business entity who is responsible for receiving important legal documents on behalf of your LLC.

• Create an operating agreement: this is a legal document that outlines the ownership and operating procedures of the LLC. Not all states require an operating agreement, but it's a good idea to have one.

• Get an Employer Identification Number (EIN) from the IRS: most LLCs are required to obtain an EIN from the IRS, even if the LLC doesn't have any employees. The IRS uses the EIN, which is also known as an employer tax ID, to identify your business for tax purposes.

• Register for state and local taxes: depending on the state in which your business is located and the nature of your business, you may need to register for state taxes (such as sales tax or employee withholding tax).

• Obtain any necessary business licences and permits: depending on the type of business and where it's located, you may need certain licences and permits to operate legally. Check with your local and state government to see what's required.

How long does it take to form an LLC?

The time it takes to form an LLC can vary depending on different factors, including the state in which you're filing and the method you're using to file. Here are some general timelines:

• Name approval
  Most states allow you to check the availability of a business name online and reserve it if it's available. Typically, you can complete this step in a few days, but the timeframe varies by state.

• Articles of organisation filing
  Once you have reserved a business name, you can file your articles of organisation. If you submit these online, the approval could come from anywhere within a few days to a week. If you send the documents by post, it might take a few weeks. Some states offer expedited service for an additional fee.

• Operating agreement and EIN
  Generally, you can create your operating agreement and obtain your EIN in a single day, but it's important to put as much time as is necessary into creating your operating agreement to ensure that it meets your business's specific needs.

• Additional permits and licences
  The time that it takes to acquire additional permits and licences for operating your business can vary widely, depending on your industry, location and the specific licences you need. This process can take anywhere from a few days to several months.

If you submit your forms online – and there aren't any issues or delays with your application – the process of forming an LLC can take a few weeks. However, if you need specific licences or permits to operate your business, or if you send in your forms by post, it can take anywhere from several weeks to a few months.

Bear in mind that this is a general guideline and that the process may vary by state and country. Check with your local Secretary of State office or a legal professional to get the most accurate information for your specific situation.