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Launch with Confidence: A Comprehensive Guide to Forming an LLC for Your Startup

Entrepreneurs must make countless decisions each and every day, some of which have lasting consequences for the success and stability of the business. One of the most foundational decisions of all is what type of legal structure to choose.

There are countless options for entrepreneurs to choose from, ranging from Sole Proprietorships through incorporation. For a majority of startups, the ideal option is to register as an LLC. But what is an LLC, exactly? And more to the point, how do entrepreneurs get their LLCs off the ground?

LLCs Defined

First things first: LLC stands for Limited Liability Company. This is one of the most popular small business structures in the United States, having been around since the 1970s.

When you register your company as an LLC, you’re creating a whole new legal entity. In other words, the business and the owner are two distinct things. This isn’t the case with Sole Proprietorships or Partnerships.

The implication of this is that entrepreneurs can maintain a separation between their personal assets/liabilities, and those that belong to the LLC. Among other advantages, this allows entrepreneurs to avoid significant personal liability risks, particularly when they are sued or when creditors come knocking.

How to Form an LLC

For entrepreneurs who want to take advantage of the LLC format, what are the required steps?

It’s important to acknowledge that LLC formation can vary a little bit depending on the state where you’re setting up shop. As such, the best tips to start an LLC in California may differ from the guidelines for Florida, Wyoming, or Rhode Island (just as examples).

With that said, here is a good, general overview of what LLC formation requires.

Choose a Name for Your LLC

Every LLC must have a name that isn’t already in use by another LLC within the same state. Thankfully, most states make it easy to determine which names are still up for grabs, providing aspiring LLC owners with searchable online databases.

Also note that most states require your legal business name to include either LLC or Limited Liability Company. You can also register “doing business as” (or dba) names, allowing you to operate your company under other, less formal brand identities.

Select a Registered Agent

Another important step is naming a person or institution to serve as your Registered Agent. Every LLC is required to have an Agent, whose role is basically just to receive any legal or tax correspondence on the LLC’s behalf.

In some states you can serve as your own Agent, while others will require you to hire a third-party. The going rate for a Registered Agent service is somewhere between $50 and $150 annually. When selecting an Agent, the main consideration is choosing someone with a physical address in your state of operation. A P.O. Box won’t do.

Create a Charter for Your LLC

There are a couple of important documents you’ll need to create in order to register your LLC. The first is known as an Operating Agreement, and it functions like a charter or constitution for your business.

Basically, your Operating Agreement lays out the management structure for your company: How will you and your partners split administrative duties? How will you share profits? How will you bring new partners into the fold, or handle a partner who wishes to leave? Clarifying these terms in your Operating Agreement can help you avoid legal conflicts down the road.

File Your Articles of Organization

This is the document you’ll file with your state, officially registering your business as an LLC. Your Articles of Organization might include such details as the mission and scope of your business, our contact information, and the name of your Registered Agent. The specific requirements can vary by state.

When you file, you’ll also need to pay a nominal filing fee to your state. This number can vary quite a bit, and may be anywhere from $15 to over $300.

Claim an Employer Identification Number

Your EIN will be necessary before you can pay your taxes or pay your employees.

The good news is that getting one is easy. If you’re a US resident, you can request one for free from the IRS website. Generally, wait times to get an EIN are quite brief.

Set Up a Bank Account

You’ll also need to set up a bank account for your LLC.

To preserve that separation between your personal and business assets, make sure your account is not in any way connected to a personal savings or checking account.

Maintain Regulatory Compliance

Most states will mandate that you renew your LLC status annually, simply filing paperwork affirming that you’re still in business. You will also need to alert your state should you change Registered Agents, or should your Agent change their contact information.

In one state (California), LLCs must also file a state-specific LLC tax every year.

Launch Your LLC Today

Launching your business as an LLC is one of the single best ways to ensure you’re set up for risk management and long-term success. Follow the guidelines provided here to get your LLC off to a strong start.

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