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- The exact steps for forming an LLC vary by state, but it’s a similar process in most states.
- You’ll need a business name, a registered agent, articles of organization, and an operating agreement in certain states.
If you’re working on setting up your own business, there’s a good chance you’re looking to open a limited liability company, or LLC. This business structure gives you limited liability protection similar to a corporation, plus the flexibility of a sole proprietorship or partnership, making it a popular choice for small business owners.
The main perk of an LLC is that it generally can protect your personal assets (like the money you’re saving up to buy a home or retire) from certain liabilities or debt that come with owning your business. In other words, in many cases, a creditor you owe money to through your business usually won’t be able to come for the money in your personal accounts. Having an LLC can also legitimize your business, which may be a benefit to many small business owners.
If that sounds good, follow these steps to open your LLC.
7 Steps to Form an LLC
- Check what requirements your state has
- Name your business
- Pick a registered agent
- File your articles of organization
- Create an operating agreement
- Plan for the future
- Consider a professional service
1. Check what requirements your state has
LLCs are regulated by states, which means that you’ll have to meet the specific requirements outlined by the state where you’re registering the LLC. You’ll find this information easily on your Secretary of State’s website.
While most steps necessary to establish an LLC will need to be done no matter which state you live in, the specific guidance for how to do each step — like naming your business and picking a registered agent — can vary.
2. Name your business
Now that you have a business, it’s time to choose a name for it. While you’ll want something catchy and easy to market, it’s also important to make sure that the name you choose meets your specific state’s requirements.
First, you’ll need to ensure that the name you choose isn’t being used by another LLC in your state. You can typically do a name search on the Secretary of State’s website (here’s Illinois’ search tool, for example).
In general, you’ll need to have certain words in the name that make it clear your business is an LLC, such as “Limited Liability Company,” “LLC,” or “L.L.C.” Many states will also prohibit you from including certain words in the name. In New York, for instance, you can’t include the words “academy,” “bank,” “finance,” “union” and many more.
3. Pick a registered agent
Every LLC has to have a registered agent who acts as the point person for any legal matters that may come up and for the Secretary of State to send any official paperwork to. Generally, that person (or business) must have a physical address in the state where your LLC is registered and be available to receive mail there during working hours. They also have to be at least 18 years old.
You can name yourself as the registered agent, but it may not be the best idea. If you’re worried you might not be available to serve as the point person or might not be able to keep up with important mail, it might be best to outsource this role. There are registered agent services you can use, though they’ll come at a cost.
4. File your articles of organization
Next, head back to the Secretary of State’s website to find the articles of organization that you’ll need to file. You can also meet with someone in the department in person or by phone if you prefer.
The exact information you’ll have to fill out for the articles of organization will vary by state. Still, you can expect to be asked for basic information like your LLC’s name, address, services, and how you expect it to be managed. You’ll also need to pay a filing fee.
Keep in mind that the articles of an organization may be called something different, depending on the state. Alabama and Texas, for example, call it a “certificate of formation.” Some states also have publication requirements, which means you need to publish an announcement of your new business in a newspaper.
5. Create an operating agreement
While you’ll likely divvy up responsibilities for anyone in your business on your own, you may also be required to do so via an operating agreement. These agreements outline how your business will be run and delegate roles and power to different members. That may include voting procedures, rules around daily operations, and ownership rights within the company.
Only some states require you to create this type of agreement, but it is a good idea to do so even if you don’t technically have to.
6. Plan for the future
Opening an LLC may be your first priority, but there are other tasks to take care of during the process, like getting your employer identification number (EIN). An EIN is an identifying number that the IRS will use for tax reasons, but it’s not always required for opening an LLC.
You may also want to open a business bank account to ensure you keep your personal and business assets separate for bookkeeping and tax purposes. Plus, look into what exactly you need to keep your LLC active in your state, which may include filing an annual report.
7. Consider using a professional
A lot goes into opening and operating your own business, but you don’t have to take care of everything on your own. Block Advisors, part of H&R Block, can help you decide which type of business structure is best for you, such as an LLC, and help you open that business. Using an online service to incorporate your business will help ensure that you submit all of the necessary paperwork required in your state of incorporation. This could save you time now and headaches later.
With Block Advisors, you’re not on your own once your business is up and running. The service provides tax help, including filing your taxes with a professional or on your own with help from a live expert. You can also opt for one of its bookkeeping services, which range from a step-by-step guide to doing your own bookkeeping to working with your own dedicated accountant.
If you’re looking to scale, Block Advisors also offers payroll services, which help you pay your employees each pay cycle and can make sure you stay compliant. There are three tiers to choose from — the basic service comes with a dedicated accountant, up to the premium service, which includes timekeeping, human resources assistance, and more.
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