How to Start an LLC: Tips and Instructions

Who can own an LLC?

LLCs can be owned by one person or multiple, and even by other businesses. LLC owners are called “members.” There’s no limit to how many an LLC can have.

How are Limited Liability Companies managed?

Some LLCs are member-managed, meaning the company’s day-to-day operations are managed entirely by its members. Other LLCs are manager-managed, which means non-members or only specific members handle the company’s day-to-day operations.

Basically, if an LLC has even one non-managing member, it is manager-managed.

Step-By-Step Instructions

The process may be slightly different in your state, but in general, forming an LLC requires that you do the following:

1. Name Your LLC

Once you’ve picked a name, make sure it’s available. All states have a database where you can browse available business names. You can also reserve your name in most cases, which can be a good idea if you’re not quite ready to register your business.

2. Appoint a Registered Agent

A registered agent is a business or individual who accepts official and legal documents on your LLC’s behalf. All states require LLCs to appoint one. The registered agent must have a physical address in the state where you conduct business, and needs to be available there during business hours.

3. Submit Articles of Organization

Articles of Organization officially form your LLC with the state. They’re accompanied by a filing fee, which varies by state. Most states charge around $100 to file.

4. Draft an LLC Operating Agreement

An operating agreement details how your LLC will be run. Operating agreements can cover everything from the purpose of the LLC to describing what to do in the event of a member departure. They are an essential formation document if you hope for smooth business operations.

5. Get an EIN

An EIN (Employer Identification Number) is basically your company’s social security number. Getting an EIN is free through the IRS and you’ll typically need one before opening a company bank account.

6. Open and Fund a Bank Account

Your LLC needs its own bank account to keep personal and company funds separate. This helps with organization, but it also helps maintain your limited liability. Members will need to figure out how much money the LLC needs to get started, then fund the bank account with that amount.

What to include in Articles of Organization

Here’s an overview of the type of information most states require in their LLC formation documents:

• Company Name
  Your name needs to include “Limited Liability Company” or an abbreviation like “LLC.” Many states also prohibit the use of certain words in company names, such as “bank” or “trust.”
• Duration
  Most LLCs don’t have an end date. But if yours does, that date would be listed in the duration section.
• Effective Date
  If you want your LLC to be formed on a specific date, as opposed to right when the Articles are filed, that date is listed here. There are generally state rules for how far into the future the effective date can be (usually 90 days).
• Registered Agent
  Most states require you to appoint and maintain a registered agent. The registered agent can be you, a different member of your LLC, someone else (as long as they have a physical address in the state), or a commercial registered agent.
• Principal Office Address
  This is the street address where your LLC conducts business, though some commercial registered agents will allow you to use their physical address instead.
• Management
  Some states’ Articles ask whether the LLC is member-managed or manager-managed. They may also ask for names of members and/or managers. This is not the norm, but in states where it’s required, such as Louisiana and Arizona, there’s no getting around it.
• LLC Organizer
  This is just the person signing and submitting the articles. They don’t necessarily have to be a member of your LLC. If you hire a business or attorney to complete and submit your formation paperwork, they’ll sign here.

Where do I submit LLC Articles of Organization?

Most states require Articles of Organization to be submitted to the Secretary of State’s office, either by mail, in person, or via an online system. Some states have a different office set up to receive such documents, such as the Arizona Corporation Commission.

Regardless of where your state collects Articles, the function is the same: to file your formation paperwork and register your LLC with the state.

What is an annual report?

Annual reports are informational updates about your LLC, filed with your state. Most states require annual reports or something like it, such as a biennial or periodic report. A handful of states, including Arizona, do not require annual reports for LLCs.

Annual reports are submitted to the same office that files Articles of Organization and are typically accompanied by a filing fee.

If you fail to file a required report, your business may fall into bad standing and potentially be dissolved.

Do LLCs pay taxes?

The IRS treats LLCs as pass-through or disregarded entities by default. This means profits and losses typically pass directly to members who file individual tax returns and pay their own taxes. In other words, the IRS treats single-member LLCs as sole proprietors and multi-member LLCs as partnerships.

LLC members are usually required to pay individual income taxes on earnings, along with Social Security and Medicare contributions.

Business taxes can get complicated fast. In all matters involving taxation, you should speak with a professional tax adviser.

Alternative LLC Tax Elections

LLCs can elect with the IRS to be taxed as another form of pass-through entity: S corporation. An S corp election renders LLC owners as employees who must be paid reasonable salaries.

LLC-Specific Taxes

About 10 states impose taxes on LLCs directly.