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The term ‘legal entity’ often strikes fear into the hearts of soon-to-be business owners; even seasoned sole traders sometimes shake at the thought.
You might even be sitting here asking yourself “what is an LLC?” and you’d be in good company. (Click the link if you want to learn more about it.) Many new business owners have no clue what a limited liability company is or where to start; they just know that it’s important to have one.
If any of this applies to you, don’t sweat it; while learning how to start an LLC appears complicated at first, it’s a straightforward multi-step process—7 in total.
And if you follow them, you’ll be up and running in no time.
You will need to follow these seven steps to start your LLC:
LLCs are legal entities, so rules apply when naming one.
Rules vary from state to state, as they do with every step of starting a a limited liability company. You’ll find your state’s laws on its website.
Your LLC and business name can be the same or different; it’s up to you. The reason for the choice is branding and marketing.
Your LLC’s name is your business’s registered legal structure, and you must include LLC when filing tax returns, business bank accounts, loan applications, and lawsuits.
If using LLC in your name suits your business, you don’t need a separate business name. Plus, having LLC in your name instills trust in potential customers, as it shows you’re a legitimate business.
Sometimes a limited liability name or the abbreviation LLC doesn’t suit a company’s branding and marketing campaigns, and a catchy business name that’s engaging and memorable is the better way to go.
You can get a business name by applying for a DBA (doing business as) at the same time as registering your LLC name with your state and local government.
When you find the perfect business name but aren’t ready to form an LLC, you can reserve it by filing with your secretary of state’s office. Reservation requirements and duration vary by state, ranging anywhere from 30 to 120 days.
You can choose to register/form your LLC in any U.S. state, regardless of your location.
Your home state is the most convenient choice in most circumstances. Because local solicitors and lawyers are familiar with their home state laws regarding LLC formation and operating guidelines, it’s helpful to have government offices within reach.
LLC business owners choose to register out-of-state due to lower set up, running costs, self-employment tax, and sales tax.
When registering your preferred business type in a state other than your own, you’re required to have a physical address to receive official mail. You can appoint a registered agent’s office to act on your behalf.
All 50 states have websites dedicated to how to start and run an LLC.
Many larger and different types of LLCs form businesses across multiple states and use a national registered agent to receive official mail on their behalf.
Make sure you’re aware of each state’s requirements for establishing and maintaining an LLC.
Several states could be a better choice when forming an LLC out of state. One is Delaware.
Delaware is by far the most popular choice for those forming an LLC out of their home state and prides itself on having a business-friendly reputation. The reason being is that Delaware doesn’t impose a tax on out-of-state income, meaning you won’t pay tax on out-of-state sales.
And to entice start-up LLCs, filing fees and franchise taxes are very low compared to most other states.
Registering your name in one state doesn’t mean it will be available in another, nor does it stop another business in a neighboring state from using it.
If you are currently doing business in a single state but might expand in the future, securing your LLC in other states could be a wise move.
You can secure your business name in all 50 states and protect your brand nationwide by trademarking it using our trademark registration service.
The first step towards registering your business is to file an article of organization form with your state. Often states use different terminology, such as a certificate of formation or a certificate of organization.
You can download the articles of organization form for free from your state website. Filing fees are state-dependent, ranging anywhere from $50 to $800. General costs differ and you can check them out per state in this LLC cost post.
Once approved, you’ll receive a state certificate of organization proving your LLC’s existence as a legal entity within your state. And that’s great news because you can then do business!
Once you begin doing business, you’re required to pay yearly limited liability fees to your state. This is also known as Annual Registration Fees, Annual Certificates, Annual Reports, or Franchise Tax Reports.
Fees are unavoidable and required to keep your business compliant with your state, regardless of your LLC’s activity or profit.
A question most potential LLC owners ask is, “Can I set up an LLC on my own?” Yes, but regardless of your LLC’s location, you need a registered agent and a registered office because of due process.
A registered agent is an individual who will receive legal and other documents on behalf of your business, such as subpoenas, regulatory and tax notices, and correspondence.
In most states, if someone wants to sue you, the court cannot proceed until it has served you. And for that, you need a registered address and be open during regular business hours and available to the public.
Depending on your state laws, you could nominate yourself or appoint your business to act as its own registered agent.
If you want to hire a registered agent service and reduce your paperwork, finding one isn’t difficult. Still, sourcing a legitimate one at a reasonable price can be.
Check with your secretary of state’s office and ask for a recommendation, or, if you want to go the simpler route, register your LLC here at Tailor Brands!
An operating agreement records your LLC’s setup, organizational structure, daily duties, and general rules.
Most states don’t require an LLC to create an operating agreement. But if you’re looking for investors or end up in court because of internal disagreements between partners (it happens), you’ll need one.
An operating agreement covers essential points, such as each member’s responsibilities, profit, and loss allocation, proceedings when a member wants to leave or sell their share, and more.
An Employer Identification Number (EIN), also known as a Federal Tax Identification Number, is used to identify a business entity. It’s a 9-digit number assigned by the IRS to identify taxpayers who are required to file business tax returns.
There are 3 ways you can apply for an EIN:
The preferred method when applying for an EIN is online. Be aware that the online application is available Monday through Friday from 7 a.m. to 10 p.m. Eastern time. Once the application is completed, an EIN number will be issued immediately.
There is also the option to mail in the completed Form SS-4 to the IRS address listed on the Instructions for Form SS-4 PDF or see “Where to File Your Taxes” (for Form SS-4). You’ll receive your EIN in the mail in approximately 4 weeks.
Lastly, you can fax the completed Form SS-4, Application for Employer Identification Number to the appropriate fax number, which you can find here: “Where to File Your Taxes” (for Form SS-4)). You can apply by fax 24 hours a day, 7 days a week. You’ll receive your EIN by fax generally within 4 business days.
Form an LLC,
Death and taxes—the 2 things in life we can’t avoid.
To operate and run daily business activities, you must first get and file any licenses and permits with the state and local agencies, then pay your taxes.
From Alabama (that’s ALA-BAM-A for Gump fans) to Wyoming and the 48 states in between, the rules of LLC reporting and tax filing requirements differ.
That said, most states require an LLC to file an annual report and pay an annual tax or fee. And all impose penalties for failing to file a yearly report or paying taxes, and they aren’t cheap.
I recommend you research your state’s tax rules before moving on to step 6, and if you don’t understand them, hire a tax accountant who can help.
Okay, this step is usually applicable after you’ve been trading for a tax year, but it’s useful to know it now.
An annual report, also known as a “statement of information”, provides your state with crucial details relating to your business, including any changes or information that occurred since your last filing period.
This enables your state to inform you of any added legal requirements, such as licenses you might need to continue doing business.
A good piece of advice is to start a system that records all your business’s dealings. This way you won’t have to spend days or weeks looking for necessary paperwork with a deadline looming ever closer.
What should you include in your annual report?
Include your LLC name, office address, your registered agent’s information (if you’ve used one), and the LLC number that your secretary of state provided upon forming.
Each state has its own LLC laws and regulations and varying requirements for including in an annual report.
Annual reports include:
How to file your annual report
Most states require you to file an annual report for your LLC, which you can do online via your state’s website.
As you may have guessed by now, you’ll need to pay a fee. Fees vary from state to state, ranging from $50 in Mississippi to $500 in Massachusetts.
What happens if you don’t file an annual report for your LLC?
While it may seem a formality, filing your annual report on time is essential, and the consequences of failing to file can be severe. For example, some states may impose a late fee, penalties, and taxes, while others may even dissolve your LLC.
As an LLC owner, neither state nor federal law requires you to have a separate business account. However, there are several reasons why you should:
In most states, you can form an LLC without a business license. Still, you’ll need one and other permits to make sure your LLC operates and complies with state laws.
Requirements for business licenses and permits may vary from state to state. You can find out what permits and licenses you’ll need in your LLC’s registered state by visiting the SBA website. In most cases, you can apply for licenses and permits online.
How to obtain business licenses and permits
First, choose your state, then decide which city and county you’ll be operating in. Next, visit the Small Business Administration website and look for information regarding city and state regulations for your location.
Ensure you have your Employer Identification Number (EIN) available. If you don’t have one, go to the Internal Revenue Service website and apply.
You’ll then need your business code; you can find it using any of the many websites providing this service. Also, check if you require any permits besides the business license.
Have a credit card ready to pay the required filing fee, ranging from $50 to $500.
One of the best investments you’ll make when starting an LLC is employing a seasoned accountant whose experienced with running LLCs, and educating yourself about tax.
The method in which you will be taxed depends on how your form your business structure. You may elect to be taxed as a Sole Proprietorship (in case you’ve formed a single-member LLC), as a Partnership (multi-member LLC) or instead elect an S-Corp status.
Accountants are there to ensure you abide by federal and state tax laws, file your returns on time and in the correct manner. But they can also save you a small fortune over the years by applying legal tax reduction strategies that a less experienced general accountant might be unaware of.
But you can also help yourself and reduce your bill by learning how to keep your debit and credit books in order.
LLC tax filing tips
First, find and take advantage of any eligible tax deductions or credits available to your LLC.
Second, always review business tax deadlines in advance and add them to your calendar. Plus, you can always hire a certified accountant or tax professional to file your taxes.
Third, research and understand your state’s tax requirements.
The forms you’ll need to complete your LLC taxes depend on 3 things
Business insurance can help protect you against unforeseen mishaps, like fire and water damage, stock and premise damage, a missed deadline, or a client data breach.
Common everyday risks such as a slip-and-fall injury, an employee car accident, or a work-related injury. Some policies also cover supply breakdown, business interruption compensation, and legal costs.
You might need “public liability insurance.” in the case of a customer injuring themselves while on your business property.
Furthermore, some states require LLCs to have additional insurance, while others leave it up to your discretion. In addition, if you have employees, you must have workers’ compensation, unemployment, and disability insurance.
Visit your state’s website to find the exact insurance requirements your business model requires.
If you were feeling anxious about forming an LLC business before this post, it’s normal. After all, it can seem like a giant leap into the legal unknown.
Now that you know how to start an LLC, there’s nothing stopping you.
Follow our steps one at a time, and if you get stuck or need further advice, revisit this guide or reach out to other business owners in your area.
Support is available every step of the way.
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An LLC isn’t required, but forming an LLC can help protect your personal assets. Through an LLC, you can open a business bank account, among other things, and it comes with potential tax benefits that allow you to save money. Additionally, an LLC can signal to customers, partners and potential investors that you’re a legitimate business.
We’ll take care of it for you. Choose from either of our LLC Bundles and get a professional, all-in-one LLC formation service. Simply fill out our online form, and we’ll help you get your EIN (tax ID), apply for an LLC, and more!
The cost for applying for an LLC depends on which state you’re operating in and what licenses you may require for your business. State filing fees range between $50-$500, depending on the state. Additional fees may apply if you choose to hire a professional service to submit your LLC application.
Both corporations and LLCs can protect business owners from liability. That said, LLCs have one or more individual members and are less formally maintained than corporations, while corporations have shareholders, and stricter reporting requirements than LLCs.
This depends on the state in which you’re starting your business. It usually takes between 7 to 10 days to form an LLC.
A registered agent, or a statutory agent, refers to a third-party individual or business entity that can accept official documents on behalf of your business. The main purpose of a registered agent is to receive things like tax forms and legal documents, government correspondences, and notices of a lawsuit.
In most states, the law requires you to appoint a registered agent when you form an LLC. Registered agents can include a friend you trust, a service like Tailor Brands, or even yourself, as long as the designated person is over the age of 18 and has a physical address in the state where your business is formed.
This portion of our website is for informational purposes only. Tailor Brands is not a law firm, and none of the information on this website constitutes or is intended to convey legal advice. All statements, opinions, recommendations, and conclusions are solely the expression of the author and provided on an as-is basis. Accordingly, Tailor Brands is not responsible for the information and/or its accuracy or completeness.