For many small businesses and startups, choosing to form a Limited Liability Corporation (LLC) offers the most benefits. However, there are several steps and requirements that companies have to understand in order to successfully register a business with this structure.
Understanding What An LLC Is
Generally, an LLC is a way to structure a business. What makes it a popular option is its hybrid characteristics. It combines the asset protection feature of a corporation with the flexibility in taxation treatment of partnerships and sole proprietorships. Additionally, the company remains a separate entity from its owners, who are called members.
Before figuring out how to form an LLC, it is best to check the circumstances and needs of the company. Those will determine whether the LLC structure is suitable. Here are some of the reasons why forming an LLC may be the right choice:
- Avoid double taxation. By default, LLCs are not taxed at a corporate level. That means there will be no double taxation to deal with. Instead, the members report business profits and losses in their personal income tax returns. An LLC can elect for a corporation treatment for tax purposes if it thinks that it is more suitable for the company’s activities.
- The company has the freedom to choose where to organize the business. Each state has laws governing businesses. Some may have fewer requirements and lower fees. Some entrepreneurs may think that the only option would be their place of residency. While that may be a good consideration, it is not a requirement. Companies can choose to organize business in a state that offers the most benefits.
- The LLC structure allows flexibility in management. An LLC can decide how it will be managed. The members can be directly involved and share equal responsibilities in the day-to-day operations of the business. Another option is to appoint certain members or hire non-members to serve as managers. Additionally, an LLC does not have to appoint directors or elect officers. There is also no need to conduct periodic board meetings and keep detailed minutes of corporate meetings.
- Making certain changes is easy. Many startups register a business first to ensure the legality of their operations. However, they may not have final plans for the future of the company. In such cases, considering an LLC structure can be advantageous. That is because it is possible to make changes. For instance, selling interest shares in the entity or adding new members will not affect business operations.
How To Form An LLC
Registering an LLC with the state is generally easy. However, it includes the completion of several steps.
- Select a state. Companies have to choose where to organize the business. The place of formation will be the LLC’s home state. In certain cases, some LLCs may opt to do business in multiple states. When that happens, the company will have to choose a home state and register as a foreign LLC in other states. For more information on the foreign qualification process, read our article When To Foreign Qualify A Business.
- Choose a company name. States also have naming regulations that business entities have to follow. They typically include the use of a proper designator like the phrase “Limited Liability Company” or any of its abbreviations, such as “LLC” or “L.L.C.”Distinguishability is also something that companies have to ensure. The company name should be something that no other entity in the state is already using. Check the availability of the company name by conducting a business entity name search on the state’s database.
- Appoint a registered agent. All states require businesses to have a registered agent to serve as a point of contact. The registered agent agrees to receive all legal mail and government correspondence on behalf of the company. The qualifications will also depend on state laws. Check our state-specific registered agent information to find out more.
- File the formation documents. Usually called the Articles of Organization or Certificate of Formation, the formation document will formalize the LLC’s registration. It legalizes the company’s operations in the state as well. The filing comes with a corresponding fee.
- Prepare an operating agreement. This internal document outlines the duties, responsibilities, and powers of LLC members. It sets out the procedures on how to run the company. It may also include provisions regarding the closure of the business or the addition of new members. Having an operating agreement will help an LLC maintain the liability protection feature of the structure as it proves that the company is a separate entity.
- Get an Employer Identification Number (EIN). The EIN may be necessary for tax filing purposes. Companies that hire employees and plan on opening a business bank account will also need an EIN. LLCs can apply for an EIN on the IRS website for free.
How To Form An LLC When There Is No Time To Handle Paperwork
It is possible for companies to register an LLC on their own. However, the completion of the multistep process requires patience. The whole ordeal may take longer than expected. Additionally, attention to detail is necessary because making mistakes can lead to bigger issues.
So what should one do if there is no time for the preparation and filing of formal paperwork?
The answer is simple. It may be best for them to hire a reliable third-party organization like DoMyLLC.
There are many benefits that come with working with a team of experts. Doing so gives companies access to services that will help protect the business owners and the company itself. Leaving the preparation and filing of paperwork to our team can make the whole experience hassle-free. We have knowledge of the business formation procedures in all 50 states as well as the District of Columbia, so we can ensure compliance with state requirements.
Additionally, DoMyLLC offers registered agent services. We can take care of legal mail and government correspondence on behalf of LLCs all over the country as we are authorized to do business in all states.
Choosing the right LLC formation services can help companies focus more on growing the business without worrying about misfilings and missed deadlines. DoMyLLC can offer assistance from consultation to ensure ongoing compliance with the state and other business filings.
Companies can also request personalized solutions to tailor our services to their specific circumstances and needs. Contact us now to find out more about our services and how they can be beneficial to LLCs.
Business Filing Section