How to Start an LLC

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Did you know that there were more than 31 million small businesses in the U.S. in 2020? With so many, you might not be surprised to know that there are different ways to structure one. Not all business structures are the same and choosing the right one may offer financial and legal benefits.

One option you have when starting a company is to form a limited liability corporation (LLC). Read on to learn about how to start an LLC and the advantages that come with it.

What is an LLC?

An LLC business structure can help protect its owners (typically referred to as members) from the debts that a company could run-up. From a legal standpoint, it may also protect the members from being personally liable for the company. According to the IRS, members in an LLC don't have to be individuals; they can be corporations or even other LLCs.

The liability factor is what differentiates LLCs from other types of businesses, such as sole proprietorships and partnerships. Under these business structures, you are both financially and legally liable for the company. In a partnership, the actions of one partner could lead to legal action against all members.

When starting an LLC, the first thing you should do is review the rules of the state you plan to file in because they can vary. Some types of businesses are not allowed to form an LLC. If you are starting the company on your own, most states allow you to form a single-member LLC.

How To Start an LLC?

Starting an LLC typically requires more work upfront than other business structures. Here are some major decisions that must be made amongst all the partners:

The State to File In

The first major decision is which state you want to file in. While the state you live in would seem to be the obvious answer, that may not be the case. Some states offer business-friendly incentives to lure companies to file and operate there. There may also be additional fees associated with filing in another state so you should make this decision carefully. 

Selecting a Registered Agent

Most states require an LLC to have a registered agent. A registered agent can either be an individual or a corporate entity located in the state in which you plan to do business. 

A registered agent handles legal documentation on behalf of your business. While the price of retaining the services of a registered agent varies, there are corporations that offer these services for around just $100 a year.

File With the State

Once you have determined where you want to conduct business and selected an agent, you will need to file in the states you plan on doing business in. If you plan on doing business in multiple states, you need to file in each one. This process typically involves sending the organization agreement of your business along with a fee to the relevant state office. Some of the information that you will likely need to provide includes:

  • The name of your business
  • The members of the LLC
  • The business address
  • The name of the registered agent

Finalize the Management Structure

Every organized LLC needs a documented management structure. This outlines how the company is organized, what the responsibilities of the founding members are, and how the company should operate. It can also include items like how to bring on new members and a dissolution agreement should you choose to break up the LLC.

Get an Employer Identification Number

An Employer Identification Number (EIN) allows your LLC to make hirings and open a bank account. The EIN is obtained from the IRS for no cost.

What Other Steps Should You Take?

There are other steps throughout the process of starting an LLC. Read on to learn more about how to make the start as smooth as possible.

Hire a Lawyer

During the process, it is prudent to have a business or tax lawyer look over the filings. They can help catch something that you or the other members may have missed and can provide for a smoother start to the business. You may even want to have a lawyer look over the management structure documentation.

Get Insurance

You should consider getting small business insurance. Even if you and the other partners are protected from liability, the business might have physical items or property you want to insure. A business owners policy can help protect those items in the event of theft or physical damage, and it can help protect your business in the event of a cyber-attack.

If your LLC has employees, you may also want to consider getting workers' compensation insurance. This form of insurance can cover numerous items, including:

  • Medical bills
  • Lost wages
  • Illness
  • Medication
  • Rehabilitation costs

Some states require workers' compensation for businesses with employees but even in ones that don't, it might be beneficial for your business.

Understand the Taxes Involved

LLCs that sell physical products need to register for state sales tax. If the LLC has employees, it should register with the state on withholding taxes. There may also be minor tax fees and requirements for your business to submit an annual report.

Always consult the laws of each state that you do business in to determine the full scope of taxes your business needs to pay.

Are You Ready to Get Your Company Started?

Now that you know what an LLC is, how to start an LLC, and some other steps to take, what are you waiting for? While this is exciting, you should always do your due diligence to avoid a financial penalty later down the line. Seeking legal advice and getting the proper insurance are expenses that can be advantageous.

If you're ready to start your company and want to learn about insurance options, contact us for more information.

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