In 2023, American entrepreneurs launched a groundbreaking 5.5 million small businesses, with the majority opting for LLC status. Experts predict this trend will continue in 2024, largely due to the streamlined process of creating and registering an LLC.
Rather than the complex, slow procedures of the past, starting an LLC in 2024 boils down to seven simple steps (plus a few extra tips):
Key Points:
- Form an LLC in Seven Steps: Choose a unique name, designate a registered agent, determine your LLC’s structure, create an operating agreement, and file articles of organization.
- Set Your LLC Up for Success: Adhere to federal and state laws, plan for taxes early, and establish a strong financial foundation.
- Compare Different LLC Types: While LLCs offer various benefits, selecting the most suitable from the eight types is crucial.
Start an LLC in Five States:
1. LLC in Texas
2. LLC in Florida
3. LLC in California
4. LLC in New York
5. LLC in Pennsylvania
The Seven Steps of Creating an LLC:
LLCs provide business owners with liability protection, lower startup costs, and greater management and tax flexibility. One of the key benefits is how quickly and easily one can start an LLC. Filing for an LLC online can be done in an afternoon, with approval taking as little as a couple of business days, depending on the state.
Step 1: Choose Your Business Name
Your business' name is often the first point of contact with potential customers. It should be unique, memorable, and legally compliant. Ensure it:
- Distinguishes from competitors
- Includes a business-type designator
- Avoids restricted terms
- Respects existing trademarks
Step 2: Designate a Registered Agent
A registered agent receives legal documents on behalf of your LLC. They must be a state resident over 18 with a physical address in the state or a registered agent service.
Step 3: Determine Your LLC's Structure
Decide between member-managed (owners actively participate) or manager-managed (selected managers handle operations) structures. This decision impacts daily operations and legal responsibilities.
Starting an LLC is a significant step in establishing your business. By following these steps and utilizing the resources available through TRUiC, you can successfully start an LLC and enjoy the benefits it offers to small business owners.
- Draft an LLC operating agreement
Creating a written operating agreement is crucial for any LLC. This document outlines your LLC's operational and financial guidelines, including its structure, ownership interests, and profit distribution. Even if your state doesn't legally require an operating agreement, it's wise to draft one to:
- Prevent conflicts among members
- Add an extra layer of personal liability protection
- Ensure smooth operation of your LLC
- Protect personal assets
While owners of a single-member LLC can create their own operating agreement, it's advisable to seek advice from a qualified business attorney for multi-member LLCs. Though this may increase your startup cost slightly, it can save you time, money, and potential conflicts in the future.
- File your LLC's articles of organization
After finalizing your LLC's name, registered agent, and operating agreement, it's time to tackle the paperwork. You'll need to file your LLC's formation paperwork, which might be called "articles of organization," "articles of incorporation," "certificate of information," or "Statement of Information," depending on your state. These articles typically include details such as:
- Your LLC's name
- The main business address
- The purpose and duration of the LLC
- Whether the LLC is managed by its members or a manager
- The registered agent's name and address
- The signature of one or more organizers
Many business owners use an online service to simplify the LLC formation process and ensure correct submission of documents. Whether you choose to handle the paperwork yourself or enlist professional help, most states allow online filing of LLC articles of organization. Filing fees vary but usually range from $50 to $200. Processing times vary as well, with some states offering instant processing and others taking a few days to weeks (with potential expedited processing for an extra fee). Once your LLC paperwork is approved, you'll receive a certificate of formation from the state, officially confirming your LLC's existence. - Obtain an EIN and open a business bank account
With your LLC officially established, you can apply for an Employer Identification Number (EIN) from the IRS. This nine-digit number identifies your business for federal tax purposes, similar to how an individual's Social Security number works. While single-member LLCs without employees can use the owner's Social Security number, many financial institutions require an EIN for opening a business bank account. Using an EIN instead of a Social Security number can also help protect your personal information, even in single-member setups. For multi-member LLCs or those with employees, an EIN is required by federal law for hiring employees, filing taxes, and obtaining business licenses. You can obtain an EIN at no cost through the IRS website. Once you have an EIN, you can set up a business bank account to manage your LLC's finances. - Obtain necessary business licenses and permits
Depending on your business type and location, you may need one or more licenses or permits to operate legally. Common licenses and permits include:
1. Seller's permit: Required for businesses selling taxable goods or services in states with sales tax.
2. General business license: Required in some states or localities for all registered businesses.
3. Industry-specific licenses: Regulated industries may require specific licenses, such as liquor licenses or commercial fishing permits.
4. Registration in other states: If your business operates in a state other than where it's formed, you may need to register as a foreign LLC in that state.
5. DBAs (Doing Business As): If your business operates under a name other than your legal name, you may need to file a DBA. Requirements vary, so check with your city, county, or state.
Industry trade associations and local government offices can provide guidance on the licenses and permits your business needs. Alternatively, a business advisor can help ensure you have all necessary licenses and permits to operate legally.
Post-LLC Creation Tasks: What Comes Next?
After creating your LLC, there are several time-sensitive tasks to address. While not all are technically required, many are essential for legal operation, such as obtaining permits. Others, like understanding tax laws specific to LLCs, can save you money and trouble if done correctly.
