Limited liability companies are a popular way of structuring a business because it allows an owner or owners to limit personal liability for actions taken by the company. While attorneys or accountants can set up LLCs for you, it can be simple to complete the formation process yourself. It’s important to remember that every state will have different rules related to forming an LLC. Be sure to look at laws specific to your state before proceeding. Here’s what you should know about starting your own LLC.
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1. Find Out State LLC Laws Before Choosing A Name
Any name you choose for your LLC will have to comply with your state’s laws. While some states vary, in general, most don’t allow an LLC name that’s a duplicate of an existing business name or extremely similar to an existing one. States can also have other restrictions on the type of name you choose. As an example, in Texas, an LLC name can’t include profane language that’s obscene in nature, such as sexually explicit language. The name you choose shouldn’t only comply with state laws, but also properly represent your business. It’s a good rule of thumb to have a name that’s easy to remember, easily spelled, distinguishes you from competitors, and suggests the services or items you sell.
2. Include LLC In Your Name
Most states will require you to include “LLC,” “L.L.C.,” or “Limited Liability Company” as a part of your company’s name. These identifying letters shouldn’t be omitted from your business transactions, marketing materials, or advertisements. In some cases, leaving “LLC” out of your name when doing business may cause a judge to rule you entered a business deal as an individual and not as an LLC. If that were to happen, you’d potentially be found personally liable, and not receive the limited liability shield you anticipated.
3. Check If The Name You’ve Chosen Is Available
The name must be available for you to register your LLC with it. You can check name availability by looking through the secretary of state’s database of registered names. A majority of states will have a database online that you can search through for a small fee. In addition, some states will let you reserve a name for a short period of time before registration, so that no one else takes the name while you’re deciding whether to use it or not.
4. Decide If You’ll Trademark The Name
If you feel your name is creative or very original, you might also want to consider registering it as a trademark. Trademarking your company name can protect you from trademark infringement by other companies. Trademarks allow you to hold a domain as yours, along with any other intellectual property related to your business. Your business name can be trademarked through the US Patent and Trademark Office by visiting their website and filling out the form.
5. Determine How The LLC Will Be Managed
When setting up an LLC, you choose who runs your company and how it is to be run. There are two main options. Member-managed LLC is where all the owners get to participate in running the business. It’s the most commonly utilized structure since most LLCs are small businesses, without any need for separate management. This is typically the default structure in most states if you don’t designate a structure for your LLC.
A manager-managed LLC involves only designated members, and occasionally outsiders, being given the responsibility of running the LLC. This structure can be useful when some members only want to be a passive investor. The structure can also be advantageous when ownership is too large to allow everyone to manage, or if some members aren’t particularly skilled in managing.
6. File “Articles Of Organization”
You’ll need to file “articles of organization” with the secretary of state where you plan to do business. While a majority of states use the term “articles of organization” when referring to the document required to create an LLC, other states call it a “certificate of formation” or “certificate of incorporation.” Your legal address, business purposes, general business structure, names of members, and LLC name will need to be included in your articles of organization.
7. Choose A Registered Agent
Along with filing the articles of organization, you’ll need to choose someone to be the LLC’s “registered agent” for service of process. In most states, the registered agent can either be an individual resident of the state or a domestic or foreign entity registered to do business in the state. In general, it’s usually one of the partners of the LLC who will act as the agent.
8. Obtain Required Business Licenses And Apply For An EIN
License requirements vary according to the state or county you do business in. Contact the county clerk’s office to determine if permits or licenses are required for your specific business. Once you’ve obtained any licenses you need, apply for an employee identification number. An EIN is a number that’s assigned for IRS purposes, similar to your social security number. They’re used by corporations and small businesses to account for employee tax withholding. If you’re a solo member LLC and don’t have any employees, your social security number can be used instead.
9. Write An Operating Agreement
If your LLC has multiple members, writing an operating agreement can help protect your LLC. In nearly all cases, you can choose your LLC’s operational rules. If you don’t have an operating agreement, the “default” rules that are in place in your state will govern in the event of any disagreement. Operating agreements can make your LLC more legitimate in the court of law, define management and financial structures, and override state default rules. Most operating agreements should include how much each member of the LLC owns, member rights and responsibilities, how LLCs vote, how profits and losses are allocated, rules for holding annual meetings and voting, rules related to a member’s buyout, and how an LLC is managed.
With planning and preparation, starting an LLC can be a simple process to complete. Keeping these tips in mind will help you get your LLC properly established. Another thing you’ll have to be mindful of with an LLC is tax obligations. If you have trouble filing an income tax return, you can find information to assist you at this link: https://taxfyle.com/income-tax-return-calculator/.