One of the biggest milestones of building a business is registering it as a formal legal entity. LLCs are one of the most popular business structures, with more than 21.6 million registered LLCs in the US in 2021.
Forming an LLC does not have to be an overwhelming or complicated process. Here’s a complete guide to everything you need to know about forming an LLC for your business—and making your LLC status work for you.
What’s in this article?
- What is an LLC?
- What are the benefits of forming an LLC?
- How to form an LLC:
- Conduct an LLC name search.
- Register the DBA name.
- Register a domain name.
- File articles of organization.
- Assign a registered agent.
- Write an operating agreement.
- Fulfill the publication requirements.
- Obtain a business license and permits.
- Get an Employer Identification Number (EIN).
- Register with your state’s department of labor.
- Open a business bank account.
- Conduct an LLC name search.
What is an LLC?
An LLC, or a “limited liability company,” is a US business structure that combines aspects of a corporation with a partnership or sole proprietorship into a hybrid entity that protects its owners from liability.
What are the benefits of forming an LLC?
In most cases, it’s in your best interest to form an LLC for your business. Even if there’s no regulatory requirement to form an LLC, there are significant benefits to doing so.
An LLC establishes your business as a legal entity that is distinct from you as its owner. Forming an LLC protects you personally from liability in matters concerning your business, from paying taxes to getting sued.
Clarity with business partners
If you co-own your business with partners, the process of setting up an LLC will prompt you to have a lot of practical conversations. Who’s responsible for what? What happens if someone decides to leave the business? How are profits shared? Even if you think you and your partners are aligned, it’s good to put these decisions in writing, which you’ll do as part of the LLC formation process.
Claiming your business name
You’ll choose a business name, formally register that name, solidify a business entity around it, and make it legally your name.
Fundraising gets easier
Planning on taking out loans or raising outside investment capital to power business growth? Being a registered LLC makes you more legitimate in the eyes of potential lenders or investors, compared to fundraising as an individual.
How to form an LLC
Below are the key steps to forming an LLC. The specific rules and regulations for forming and running an LLC will vary, depending on which state you’re located in.
Conduct an LLC name search
Before officially forming your LLC, you’ll first need to decide on the name you’re going to use. The name you officially register for your business might be the same name you operate under, but it’s also common for businesses to operate using a “doing business as” (DBA) or “trade” name. This is a public-facing name that’s different from the name the LLC is registered under. For example, the official name you’re filing for your business could be Jack’s Snacks LLC, but you’re planning to run a sandwich shop called Jack’s Sandwich Supreme.
While deciding on a name is partly a creative exercise, there are several technical issues you’ll also need to consider:
- Restricted words: Most states have lists of restricted words that can’t appear in LLC names. Be sure to check your state’s list before committing to a name.
- Trademarks: Your business name can’t infringe on any existing trademarks. Business owners can research potential names using the Trademark Electronic Search System (TESS), a database of registered trademarks and prior pending trademark applications maintained by the US Patent and Trademark Office.
- Name availability in your state: You also need to check whether the name is currently being used in your state. The best way to check name availability is through your state’s business office.
Register the DBA name
If you’re planning to operate your business using the same name you’re registering for your LLC, you can ignore this step. But if you’re doing business under a different name, you’ll likely need to register a DBA name in addition to filing your articles of organization. Not every state requires this, so check with your state to find out its policies.
Register a domain name
After you’ve confirmed your desired business name isn’t in conflict with any trademarks and is free to use in your state, it’s a good time to claim your online presence by registering a domain name (or a few of them) for your business website. It’s not a required step when forming an LLC, but it’s something you’ll want to do sooner rather than later to ensure you get the domain name you want.
File articles of organization
In most states, you can complete articles of organization by downloading and submitting a fairly simple document online. The exact information required in this document will vary from state to state, but all of them will require a few basic details:
- Your business name
- The address where your business will be registered (which may or may not be where your physical business is located)
- Your name and the names of any other officers
After filling out the form, you’ll submit it, along with any required filing fees, to the Secretary of State’s office for the state in which you’re filing. The Small Business Administration (SBA) has a list of links to business offices for each state. This is a great place to start learning everything that’s required to file articles of incorporation in your state.
Assign a registered agent
Most states require LLCs to appoint one person as a registered agent. This agent serves as the official point of contact to receive things like service of process notices, compliance-related documents, and communications from any government agencies. This person acts and communicates on behalf of the business and is sometimes one of the LLC’s members listed in the articles of incorporation.
Write an operating agreement
An operating agreement is a document that lays out the structure of key business operations and internal decision-making. What an operating agreement looks like can vary across businesses, but most of them include the following items:
- Percentage ownership among members
- Members’ powers and responsibilities
- Voting rights
- Rules about transfer of members’ ownership
Not every state requires businesses to create an operating agreement in order to form an LLC. But even if your state doesn’t, it’s a useful document that’s worth creating.
Fulfill the publication requirements
Some states require businesses to publish a public notice that announces the formation of a new LLC, usually in a local newspaper. Your state’s filing office can give you details on how to fulfill this requirement, including where and when publication must occur and whether you’ll need to publish more than once.
Obtain a business license and permits
Depending on the type of business you have and the state in which you’re operating, you might need to obtain additional business licenses and permits after you’ve registered your LLC. The SBA also maintains a list of state business license offices that you can use to research licensing requirements.
Get an Employer Identification Number (EIN)
In order to pay taxes as an LLC, you’ll need to obtain a federal tax ID, known as an employer identification number (EIN). This is your business’s version of a Social Security number. You will use it to pay taxes, to open a business bank account, or to apply for loans.
Register with your state’s department of labor
In most states, if your business has employees, you’ll also need to register with the state’s department of labor. If you’re a sole proprietor, then you probably don’t need to do this step.
Open a business bank account
Now that your LLC is a legally distinct entity, it’s important to set up everything the business needs to operate financially separately from you and the other members. The first and highest-priority step is opening a business bank account to serve as the home base of your LLC’s financial operations.
After opening a business bank account, there are other secondary steps you’ll probably want to take to build your business’s financial foundation, such as getting a company credit card and onboarding with a payments processor like Stripe.