How to Start an LLC: Ultimate Guide for 2023
The person who’s been thinking about starting their own business for years but has yet to take the plunge.
You may need help figuring out where to start, or the legalities of your business ideas seem daunting.
An LLC, or limited liability company, is a great way to start your own business and protect yourself from personal liability.
In this guide, I will show you how to start an LLC in just a few easy steps.
I’ll also compare LLCs to other business models, share what documents you need to get started, and more.
So if you’re ready to take the plunge and start your own business, let’s get started!
Starting a limited liability company (LLC) is a great way to protect your assets while still enjoying the benefits of operating a business.
As a business structure, an LLC is a hybrid between a sole proprietorship and a corporation.
Like a sole proprietor, you’re in charge of your business and personally liable for its debts and obligations.
But like a corporation, an LLC can help protect your assets from being used to pay off business debts.
Here’s a step-by-step guide to starting an LLC.
As small business owners will tell you, your name is your brand.
It’s essential to choose a name for your LLC that is both unique and memorable.
There are a few things to keep in mind when choosing a name for your LLC:
- must end with “LLC,” “LLC,” or “Limited Liability Company.”
- cannot be the same as another business entity registered with the state.
- cannot contain certain restricted words, like “FBI” or “Treasury.”
- cannot imply that the company is something it is not.
To check if your desired LLC name is available, you’ll need to do a name search with your state’s business entity registration office.
When forming an LLC, consider using a domain name registrar to check whether your desired LLC name is also available.
If it is, you can purchase it so that you can use it for your website.
Name reservation is not a mandatory step in forming an LLC.
However, some business owners reserve a name for their LLC as part of the legal documents they file with the state.
A company name reservation is only valid for a limited time, usually 30 days.
Checking LLC name availability is done through your state’s business entity registration office.
To form a limited liability partnership (LLP), you may need to follow different rules for reserving a name.
As part of forming an LLC, you must ensure that someone is available during business hours to accept legal documents on behalf of the LLC.
A registered agent is a viable solution if that entity meets specific requirements.
The LLC’s registered agent must have a physical street address (not a PO box) in the state where the LLC is formed and be available during business hours to accept legal documents served to the business entity.
Various registered agent services can save you time and hassle, from service of process to the business entity to essential tax documents.
In addition, having your own registered agent service offers additional benefits and features that might make your life easier.
An LLC operating agreement is a legal document that outlines an LLC’s ownership and operating procedures.
This agreement forms part of LLC formation documents and allows small business owners to customize their business operations.
The operating agreement is optional in some states, but it’s a good idea to have one even if it’s not legally required.
The business owner then needs to ensure that the secretary of state receives the LLC formation documents.
Such documents include filing Articles of Organization and the LLC operating agreement (if available).
The process of filing LLC formation documents varies from state to state.
As LLC owners, the filing fee also generally depends on the state in which you are forming your LLC.
State fees can range based on the type of business entity you are forming and the number of owners (called members) in your LLC.
Some additional fees might also be required, depending on the state.
After receiving the LLC formation documents, the state will review them and issue a certificate of organization, provided everything is in order.
The next step in the process of starting an LLC is to get a business bank account.
The employer identification number allows the business to open a bank account and file taxes.
You can sometimes get by using your social security number for this step, but an EIN is much better in most situations.
One can obtain an EIN for free from the IRS website.
Your registered agent service can also obtain an EIN on your behalf.
Part of the LLC formation process involves registering your LLC to do business in other states.
A foreign LLC might also need to register with the secretary of state in the state where it is physically located.
While this only applies to some businesses, some LLCs will need to do so if they are to conduct business in other states.
As entrepreneurs who run a specific type of business, you might need to obtain licenses or permits from local, state, and federal agencies.
For example, if you are running a food-related business, you must obtain a food license from the health department.
A business that deals with alcohol must obtain a liquor license from the appropriate state agency.
It is essential to research what licenses and permits your specific business type and location requires.
To ensure your LLC’s longevity, you must consider its annual requirements.
For starters, one must file an annual report with the secretary of state.
Then, one must also file federal and state tax returns based on business income.
Professional services can help an LLC business stay in good standing with the state.
The IRS website also has a section dedicated to small business taxes.
LLC filing as part of the proper business formation allows different types of LLCs to be formed.
Different tax implications might be in place, whether having a single-member LLC or a multi-member LLC.
In addition, one can have a manager-managed LLC, which means the members do not actively participate in the company’s management.
Like other types of LLCs, manager-managed LLCs’ personal assets are protected from business debts and liabilities.
The members themselves run member-managed LLCs, and all members must actively participate in the management of the company.
This type of LLC might be more common among smaller businesses with only a few members.
One of the main benefits of having an LLC is liability protection.
As a limited liability company (LLC), business owners are not liable for business debts and liabilities.
Business debts are considered separate from personal debts, so the personal assets of LLC owners are protected.
In addition, business filings and taxes are done with the owner’s tax returns.
The LLC model provides more protection for business owners than a sole proprietorship management structure.
Other business models, such as S corporation and C corporation, might better suit businesses with a higher liability risk.
Let’s now consider taxes for LLCs.
Based on state law, state taxes will apply to LLCs.
These taxes can be in the form of annual filing fees or taxes on business income.
In addition, other taxes might also apply.
For example, employment taxes will have to be paid if the LLC has employees.
For tax purposes, one might also have to pay franchise tax if the LLC is doing business in multiple states.
Other taxes that might apply to LLCs include self-employment tax, use tax, property tax, and excise tax.
Apart from the documents I’ve already mentioned, other documents are required for LLCs.
The statement of information is a form that provides updated information about the LLC.
Such information includes:
- the business name and address of the LLC
- the names of its members
- the name and business address of its registered agent.
The state’s website usually offers all the required forms and instructions for other documents.
Businesses can calculate their taxes using one of two methods: the cash method or the accrual method.
Under the cash method, companies report and pay taxes on their income when they receive it.
Such a method is the most common in small businesses.
Under the accrual method, businesses report and pay taxes on their income when they earn it, regardless of when they receive payment.
This method is more common among larger firms.
The IRS requires businesses to pay taxes on their income, which is all the money that a company receives in exchange for goods or services.
Such money may arise from sales, interest, investments, and loans.
Businesses must also pay taxes on any gains from selling property or equipment.
A federal tax election is a decision made by a business about how it will be taxed.
This election can include choosing which tax bracket to file under, what deductions to claim, and whether to pay estimated taxes.
Businesses can file the appropriate forms with the IRS to make federal tax elections.
An LTD is a limited liability company, while an LLC is a limited liability corporation.
The main difference between these two abbreviations is that an LLC offers more flexibility in taxing and structuring.
A DBA is a trading name that a business can use instead of its legal name.
A DBA allows businesses to operate under a different name from their legal name.
Businesses must file the appropriate forms with their state’s business office to register a DBA.
Form LLC-1 is the Articles of Organization.
This is the document businesses use to establish their LLCs.
This form must be filed with the state’s business office.
The form LLC-1 usually includes information such as the LLC’s name, address, and the names of its members.
No, income tax is not the same as business tax.
Income tax is a tax levied on individuals’ and businesses’ incomes.
Business tax refers to that which is levied on businesses’ profits.
Yes, getting a business credit card can be a good idea.
Business credit cards can help businesses manage their finances and expenses.
They can also help businesses build their credit history.
To sum up, LLCs are a type of business structure that offers personal liability protection and flexibility regarding management and taxes.
Knowing the steps involved in forming an LLC can help you decide if this business structure is right for you.
Further reading on AdamEnfroy.com: The right LLC formation service can help you with the process and ensure that all the required paperwork is filed correctly regarding your new business.
With various types of businesses you can start, it’s essential to understand the pros and cons of each before making a decision.