One of the most common small business types is a limited liability company, also known as an LLC. A limited liability company is a business structure that provides liability protection for business owners’ personal assets and is a popular formation choice for small businesses. There are others, like sole proprietorship or corporation, but LLC is a popular choice because it’s easy to set up, provides liability protection, and has fewer state and federal rules than a corporation.
Here is everything you need to know about starting an LLC, broken down into steps.
1. Name the business
One of the first and most exciting steps about creating a business is naming it. However, naming a business is not as simple as it sounds. You want to think of something catchy and related to the industry. In addition, you need to make sure that your business name is available in your state.
Most states do not allow two small businesses to have the same name unless you bought a business franchise like a Mcdonald’s or a Wendy’s.
For some, coming up with a name can take seconds. For others, the process is more time-consuming with brainstorming sessions and test groups, which can take months.
Generate a list of names
Generate a list of names that you like. It is always better to come up with a list of names instead of just one, in case the name is not available for you to use in your state.
Here are a couple of tips you can use to come up with a name for your business:
Write down the basic details about your business
Start by describing your business. What does your business offer? Who does it serve? Will you be selling a specific product or service? Who is your target market? Write down the answers.
Now, use some keywords that can describe your business. For example, if you are opening a dry cleaning business, adjectives like fast, quick, clean, spotless, and professional could be on the list.
Try to think of adjectives that customers might use for an online search.
Try not to use anything too complex
Although some words can make your business sound smart, it is always better to be clever. Of course, you can go with something simple like R&R Bakery or C&J photography, but you probably want to level up your business name game to make your business stand out and get more customers.
The same goes for words or last names that are hard to pronounce. You want a name that people can pronounce and remember.
Use an online name generator
If you don’t have time to think of a name or simply cannot find the right words to name your business, you can use online name generators. Thanks to their algorithms, they can save you a bunch of time and come up with different combinations of possible business names in seconds.
This Business Name Generator from Namechk, for example, is a great resource.
Research name rules
While you are in the process of naming your business, you might want to research the naming rules in your state. Some states will not allow two companies to have the same name, even if they are in different industries.
Some states require small business owners to put an LLC as the suffix of their business or other terms like “Limited” and “LTD” after the business name.
Obscene words, words that falsely describe your business, words that promote illegal activity, and other profanity are usually forbidden by law, too.
These rules apply in most states, but you’ll want to research the regulations in your state.
2. Check name availability in your state
Now that you have come up with a list of names for your business, the next step is to see if it’s available. Unfortunately, it is common to come up with a good name, only to find out it is already taken, especially if your business is in a competitive industry.
Here’s a quick look at how to check on the availability of a business name:
1. Visit the Secretary of State website
In most cases, the Secretary of State website has a searchable name database. The business name search tool is different in every state, but all you need to do is type in your business name and review the results.
2. Type the business name in the search bar
There will be a search bar similar to what you see on search engines on the name search tool. All you need to do is type in the exact name or names you came up with and click ‘search.’
3. Review the results
If you enter your proposed business name and there are no matching results, the name is available.
You might see names that are similar to yours. If you do, be careful. Most states require business names to be distinguishable, so there must be a way to tell them apart. Tacking on LLC to a name or making it plural often isn’t enough to distinguish a company name. So, even if your exact name isn’t in use, if there’s something similar, you probably won’t be able to use the name.
The algorithms in these name search tools are not as advanced as those associated with search engines, so make sure you don’t make any typos to ensure accurate search results.
If the name is available and you don’t want anyone else to take it, you can consider reserving the name for future use.
3. Consider reserving the name
If you do not plan on filling your LLC formation anytime soon, you should reserve the name. Some states allow you to reserve your name for a specific time to give you time to gather your requirements before registering your LLC, which is an excellent way to make sure no other LLC applicant can claim the name.
Every state charges a small fee to reserve a name, usually ranging from $20 to $30 for reserving the name for 30-90 days, depending on the state.
However, you don’t need to reserve a name if you plan to file your Articles of Organization papers immediately.
Determine if you want to use a DBA
A DBA, often referred to as a trading name, allows you to conduct business under a name that is different from your registered business name.
If you have aspirations of building a large business, a DBA gives you the ability to create multiple DBAs under one LLC, making things much easier from a tax and accounting perspective. DBA’s also offer businesses privacy protections since they are harder to look up and find the owners of a business than an LLC.
4. Pick a registered agent
As you work through the “how to start an LLC to-do list,” your next chore is to pick a registered agent or representative for your business. Every state requires an LLC to have a registered agent. If you’re a new business owner, this might be a new term.
To clarify this role, here are some FAQS about a registered agent:
What is a registered agent?
A registered agent is an individual that accepts official mail like tax and legal notices on behalf of an LLC. This person receives sensitive documents, like the service of process papers served during a lawsuit. As a result, the person or company appointed to this role must be a trusted adult, have a physical address (not a p.o. box), and be available during the day to accept documents.
You can also call the registered agent a resident agent or statutory agent.
Can the LLC owner be the registered agent?
Yes, you can be your own registered agent if you live in the state where your business is and have a street address. It’s common for an owner to be the company’s registered agent, but there are other options too.
What are the registered agent requirements?
Most states in the U.S. require LLCs to have a registered agent. A registered agent can be yourself, a professional service, a partner, or a colleague, as long as the person meets the state’s criteria for becoming a registered agent.
The registered agent can be anyone you trust who is over the age of 18, available during regular business hours to accept documents, and who is willing to become the registered agent of your LLC.
You can hire a commercial registered agent too. This service will fill the role for your company at a yearly cost. They’ll accept documents for your business and notify the owner when they arrive. They usually scan the documents to see them immediately and then mail the hard copies.
What other services can a registered agent service provide?
Aside from accepting daytime-delivered documents, a professional registered agent often offers add-on services. Some of the services they offer include:
- Submit annual reports
- Legal services or legal document templates
- Advice for business owners
- Quick online access to business documents
- Sends emails and notifications about updated documents
- Compliance calendar
- Cloud storage
Hiring a registered agent service gets you a lot more value than what you pay for and takes a ton of responsibilities off your hand. If you are thinking about hiring these services? You can always add them later on and register you or someone else as your LLC’s registered agent in the meantime.
Is a registered agent service right for you?
If you are a hands-on owner, you might not need this service. However, suppose you want the responsibility taken off your hands to focus on more important operations and other things related to your business. In that case, you should consider using a registered agent service.
Some of the benefits of hiring a registered agent service are:
- Hassle-free: Your registered agent service will stay on top of important documents. It gives you more time to focus on growing the business.
- You don’t have to worry about daytime availability: One of the responsibilities of being a registered agent is always being available in the daytime to accept important business documents. However, a business owner has tons of other responsibilities, so being in the same location during the day might not be viable for you.
- Compliance with the law: Aside from accepting documents when they arrive, a registered agent service also provides more services that you can utilize at a cost, like filing an annual report or providing legal documents.
- Privacy: The registered agent’s address will be listed on the Articles of Organization, a public record. If you don’t want anyone to know your home address, listing a registered agent on the state-mandated documents can protect your privacy.
5. File Articles of Organization with the state
After ironing out your business name and finding a registered agent for your business, the next step is forming your business by filing the Articles of Organization. The process is different in each state, but here’s what you need to know about the process:
What are Articles of Organization?
Articles of Organization are forms that establish an LLC at the state level. Some states might refer to these documents like Certificate of Formation, but they’re usually a two-page document that you fill out to register a business with the state.
What is the purpose of Articles of Organization?
The primary purpose is to register a new business with the state and provide necessary contact information, like the name and address of a company’s registered agent. It’s the initial step to creating a business.
Where can you find the necessary forms?
You can find all the forms you need online, usually, on the Secretary of State website of the state, you will register your business. Of course, it’s best to submit the paperwork online, but you can print the forms and mail them or drop them off at a designated office.
What information is needed on the Articles of Organization?
The information needed differs from state to state, but they will mostly request information, such as business name, business address, registered agent’s name, registered agent’s address, type of business, owner’s name, owner’s signature.
How are these documents submitted to the state?
You can submit the paperwork online faster than mailing it or even dropping it off in person. Most states provide the quickest approval process for documents filed online instead of physical papers that are mailed or delivered in person.
Is there a fee to file Articles of Organization?
Yes, there will most likely be a $50 to $150 filing fee, depending on the state. You can pay $20 to $50 more for expedited services to make the process quicker.
When are Articles of Organization approved?
You can get approval within seven days if you have submitted complete forms. However, people who pay for expedited service may get approval quicker. Once you get the approval, your business is officially set up.
If you live in one state and want to form an LLC in another, you must file a Foreign LLC Articles of Organization or a Certificate of Formation. Each state has its own set of small business requirements that you can get through the state-specific Secretary of State website. Note that the foreign LLC articles are separate documents that you may have to hunt for on the Secretary of State website in the state you want to file.
Most state LLCs are between $100-$200, with foreign filing costs typically $50- $100 more expensive than domestic filing fees. Some states have much higher filing fees, such as:
- Massachusetts ($500)
- Nevada ($425)
- Tennessee ($300)
- Texas ($300)
- Alaska ($250)
6. Obtain an EIN
State and federal tax I.D. numbers
Most businesses must get a state employer identification number or state EIN and a federal EIN to do things like hire employees and pay taxes.
You can get a state EIN from your state tax office and obtain a federal EIN from the IRS by submitting an online application.
Each LLC must obtain an employer identification number through the IRS once their business is filed and processed with the applicable state. The rules that apply for filing an EIN are:
- Your business must be based in the United States
- The person applying for an EIN has a valid social security number or existing EIN
Applying for an EIN is free and only takes a few minutes to apply for through the IRS website, and you will be able to download your EIN at completion. An EIN is occasionally referred to as a federal tax id.
7. Other recommendations
Now that your business is approved, here are other things to look into before starting your business:
Get applicable business licenses and permits
You’ll likely need a license or permit to open your business but they vary significantly depending on the state, city, county, and industry the business intends to operate. You need to contact your local county or city clerk to find out the necessary licenses and permits for your business.
Tracking down all of the different licensing requirements can take some effort, but sites like the Small Business Administration and state-specific “.Gov” sites have information that can help point you in the right direction toward finding out all of the requirements for the place you live and the industry your business operates in.
Obtain business insurance
Depending on the nature of your business, you might need insurance. To find out what type of insurance your business needs, you need to check the state department insurance websites. Many LLCs will need:
- General liability insurance
- Commercial property insurance
- Business income insurance
- Health insurance
- Car insurance
Open a business banking account
Once you have formed your LLC and obtained an EIN, the next step is to open a business bank account so that you can keep your business and personal assets separate. Since an LLC is treated as its unique entity, you want to make sure you don’t mix your personal and business expenses, and having a separate business account is the best way to do so.
Most banks require a copy of the filed certificates of formation in the intended state you want to open the bank account. If you are operating under a DBA name and want checks to be paid to that particular DBA name, you must present a copy of the DBA certificate.
Get a professional logo
Just as a business name is critical to building an identity with customers, a logo is another way to stand out from your competition and create branding opportunities for your new LLC. Here are a few other reasons why a good logo is important:
- Leaves a strong impression with potential customers
- Demonstrates professionalism
- Helps with marketing
- Promotional opportunities
- Impress target customers
File your trademark
Once your business is officially up and running and you finally can focus on acquiring customers, it is a good idea to file a trademark for your business name and logo.
A trademark protects against infringement and has nationwide validity, so if you want to expand across the country, you will have rights to your business name across state lines. Sites like LegalZoom offer trademark services at a reasonable price compared to traditional attorneys.
8. Keep your LLC active
Common mistake business owners make is forgetting to file their annual report with their Secretary of State’s office to keep their business in good standing with the business’s state.
The purpose of annual reports is to help ensure that the state you do business in has the most up-to-date contact information and address on file with the Secretary of State. Every state except Arizona, Ohio, and New Mexico has some sort of filing requirement that you need to stay on top of to avoid penalties.
Find out how to start an LLC in your state
FAQs about starting an LLC
Do I need to register my LLC name with the state?
Yes, every state will require you to register the LLC name to operate your business.
Is every business required to file an annual report?
Most states require LLCs to file an annual or biannual report. In many states, an annual report is nothing more than updating the company’s Articles of Organization. If any information needs to be updated, like the company address or the name of a registered agent, it can be done on the annual report.
There’s usually a filing fee associated with annual reports too.
What happens if I don’t file an annual report?
Failure to file an annual report before the deadline means your business entity is no longer in good standing with the state. Penalties can be levied, and the state can move to dissolve your business.
There are strict deadlines for annual reports, so be sure to review your state’s requirements.
Does a business need an operating agreement?
Businesses should create an LLC operating agreement. A lawyer can write an operating agreement, or you can find some templates online. It is a key document used by LLCs as it outlines the financial and functional decisions, rules, regulations, and provisions of an LLC.
You don’t need to submit this document to the state, but it is always best to have it before operating the business and hiring employees.
Do I need an attorney to start an LLC?
Not necessarily. You can complete all the documents and get templates for agreements online if you cannot hire an attorney. However, sometimes having an attorney is the best move to understand the policies better.
Does an LLC need a board of directors?
No, an LLC structure is a group of self-employed individuals, and you can choose one of them to be the manager instead of creating a board.
How much does it cost to form an LLC?
It usually costs around $50 to $150 to file your Articles of Organization. But expect to pay for other fees, depending on the licenses you need to operate your business.
How can I dissolve an LLC?
You will need to pay off all taxes and file Articles of Dissolution with the state. It is free to dissolve a company in some states, but others still require you to pay a filing fee of $200 or less.
Can an LLC have an unlimited lifespan?
Yes, LLCs can be created with unlimited life, thanks to the recent changes in the IRS code.
Do LLCs need to hold meetings for their members?
Not particularly. As long as LLCs have an operating agreement and there are no significant policy changes within the company, it does not require all members to meet, as long as the manager can handle the operations.
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