Step by Step Guide: How to Start an LLC

How to start your own LLC

LLC is an acronym of Limited Liability Company. Many entrepreneurs choose to set up an LLC because of the liability protection and flexibility it offers. The rules to form an LLC vary from state to state, however, it’s generally easier to set up than corporations.

Step 1: What is an LLC?

An LLC is one of the most popular ways of setting up a business. As the name suggests, it allows business owners to restrict their liability, meaning that if your LLC files for bankruptcy or is hit with a lawsuit, the owners are not held personally responsible. For example, you won’t have to use any of your personal assets to pay for claims or debts against the LLC. An LLC is typically set-up either by an attorney or an accountant. However, one thing you should keep in mind is each state has its own set of rules regarding the formation of an LLC. Therefore it is important to look at your state laws before proceeding.

Step 2: Name your LLC

This is a crucial step to be taken into consideration when looking at how to start your LLC. The name you choose for your LLC must comply with the laws of your state. Make sure to choose a unique and memorable name that draws attention immediately. The name should be something your customer will remember. Keep in mind that some states have restrictions on what you can name your LLC. For example, some states do not allow “corporation”, “city”, or “bank” to be in the title of an LLC. You can contact your state LLC office to find out if the name you’ve proposed is available to be used, and you can also reserve your LLC name by paying a small fee for a short period until you file the items of the company.

Step 3: Pick a Registered Agent

When creating an LLC for your small business you need to appoint a registered agent. Also known as a statutory agent, this person will receive all legal documents and official notices that pertain to the LLC. In most states, anyone can become a registered agent so long as they’re 18 or older. You can also look for companies that charge a small fee for registered agent services. However, when choosing a registered agent, you need to keep a few things in mind. Make sure your registered agent:

  • Has a legitimate working office.
  • Is able to receive unlimited forwarding of government mail.
  • Is familiar with all types of corporate filings.

Step 4: Form an Operating agreement

Forming an operating agreement is another important step in this process. It is a roadmap that defines how your LLC will operate. This agreement specifies things like:

  • The voting power of each member of the LLC
  • Ownership interest
  • How profits and losses will be managed
  • The manner in which business meetings will be conducted
  • How the business will be managed
  • The rights of the members

While forming this agreement is not a legal requirement of setting up an LLC, it’s still crucial that business owners define their roles and responsibilities.

Step 5: File Paperwork & Get Licensed

Every state has its own requirements when forming an LLC, but in general there is some general information you’ll have to submit:

  1. The LLC address and name
  2. Existence length
  3. Address and name of registered agent
  4. The business purpose

In some states, a person creating the LLC signs the papers while in some states, the registered agent must also sign. In most states, you need to file LLC formation documents with the state secretary. However, in a few states, there is a separate department that handles the paperwork. Almost every state charges filing fees but the cost of forming an LLC varies from state to state.

5. Get the Right Insurance

While and LLC may provide some liability protection from bankruptcy or lawsuits, it’s best to have the right insurance policies in place. There are different types of liability insurance available for LLCs. The types of policies you’ll need depends on several factors like the level of risk associated with your industry, where you operate, and whether you have any employees. Some policies for LLCs to consider include General Liability insurance, Product Liability insurance, Professional Liability insurance, and Workers Compensation insurance.

The costs of insuring an LLC varies depending on the business and the types of coverage you are looking for. Many carriers will calculate premiums depending on your business location, number of employees, payroll, claim history, and your products and services.

When planning how to start your LLC, it is important to understand all the aspects of forming one. An LLC is a flexible and popular business solution that works for many small business owners. It is easy to setup and maintain in several states, but make sure you check with your local government office to ensure you have all the proper documentation. Once you have everything in place to start your LLC you can get back to what’s really important, growing your business.


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