LLC stands for limited liability corporation, and learning how to start an LLC is something many business owners decide to do because it protects their personal assets from any business debts or other legal issues. But forming an LLC is also a really flexible business structure, and they’re incredibly easy to start.
Whether you’re first starting out or ready to take your business to the next level, you can start an LLC in just a few steps. This article is going to walk you through each of the steps to form an LLC for your business.
How to start an LLC in 7 steps
Step #1: Pick a name for your LLC
You’ve got a great business idea, or maybe you’ve been running your business as a solopreneur for a little while now, and you’re finally ready to start setting up an LLC. The first step is choosing a name. If you’ve been operating your business for a while, you may already have a name in mind for your LLC.
Before you get too set on a name search existing names for availability. States require the new businesses to have distinguishable business names, meaning your name needs to be different from businesses that are already in operation.
You can check to see if your business name is available by checking with your state’s business filing agency. Most have a link to a business entity search on their website, or you can find your state’s database by searching “[name of state] business entity search.”
Besides rules about distinctive names, most states also have a list of restricted words or ones that are troublesome. Like, you might not be able to use the word “architect” without proof that you’re actually an architect.
Having a unique name prevents trademark infringement claims and confusion between you and another business. It’s also worth checking to see if there is a domain name available for the LLC LLC name you want before settling on something. You give a really cohesive and professional look to your business if you can keep your LLC name, domain name, and social media accounts the same.
Doing business as name
Some LLC owners decide to add a DBA (doing business as name) to their LLC, which is like a professional nickname for your business. You might do it because it makes for better marketing purposes or if you’re operating multiple businesses under one LLC.
You’ll need to file additional paperwork to register a DBA name, but it’s not necessary if you’re doing business under the name of your LLC.
Reserve a name for your LLC
If you aren’t filing your LLC document right away, most states will allow you to reserve a name for a set period of time. This gives you the chance to save your awesome business name while not rushing through your paperwork.
Rules on reserving LLC names varies by state, and that includes reservation fees and length of reservation. For example, where I live in Texas, I can reserve an LLC name for up to 120 days and can renew my reservation as many times as I want. But if I were making an LLC in Missouri, I could reserve a name for 60 days at a time, up to 180 days total.
Step #2: Choose a registered agent
A registered agent is an individual or business entity who has been designated by the LLC to receive official documents regarding the LLC and is responsible for passing them on to the appropriate person. The registered agent must have a physical address in the state where you’ve formed your LLC.
You can be the registered agent for your LLC, have a member of your business listed as your agent, or you can register a third party person or firm to represent you. Most states allow any residents over the age of 18 to act as a registered agent.
Step #3: Create an LLC operating agreement
Having an operating agreement is a key document when you start an LLC because it outlines your business’ financial and functional decisions. It typically includes rules, member rights, how the business will be governed, all the way to what happens if the company goes out of business. The point is to have an operating agreement that is specifically designed for your business.
Not all states require that you file an operating agreement when you start your LLC, but they’re essential to running your business. You can find free online templates to help you put together your operating agreement.
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Step #4: File your LLC paperwork
The next step to start an LLC is to file with the state, and you can send documents by mail or email to the appropriate agency. This generally includes a certificate of formation or certificate of organization. That document is the official document needed to start an LLC.
Each state has its own procedure, but your certificate will require you to list things like:
- Full name and contact information for founding members of the LLC
- Business name
- Address of the LLC
- How long the company has existed
- Purpose for which the LLC was formed
- Name and address of the registered agent
The person forming the LLC will most likely need to sign these documents, and often the registered agent will need to sign everything too.
Most states have you file your paperwork with the secretary of state for your state, and they all charge filing fees, but the cost varies state by state.
Once you’ve filed your LLC paperwork, your state will issue you either a certificate or document confirming that your LLC legally exists.
Step #5: Apply for an EIN
An EIN is an IRS Employer Identification Number, and it’s required if your LLC has more than one member. Your LLC’s EIN is like its Social Security number and is used for tax purposes.
You’ll use your EIN when you hire employees or open a bank account. And you can get an EIN for free from the IRS website.
Step #6: Obtain professional licensing
Not every LLC will need to complete this step, but some types of businesses will need special licenses to be fully operational. Professions that require licenses include doctors, lawyers, dentists, architects, engineers, accountants, nurses, and pharmacists.
You can check with the appropriate state and local agency to see if your specific business needs licenses and how to obtain them.
Step #7: Register to do business in other states
When you register your LLC in your state, that means you can legally do business in your state, but you may need to register if your LLC does business in more than one state. The paperwork is really similar to what you filed for starting an LLC, and you’ll need to designate a registered agent in each state you plan to do business.
What qualifies as “doing business” in a state is selling goods or services, providing services or work, or construction work. But there are exemptions, like for freelancers who work online for an out of state client. Another exemption is if you run a marketing agency and are working on a campaign that targets customers in other states.
It’s never a bad idea to check to see if you should register in another state.
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Benefits of learning how to set up an LLC
Learning how to start an LLC offers a serious benefit to you as the business owner: liability protection. This is the primary reason that most business owners decide to start an LLC, and it’s why the government created LLCs. Being able to separate your personal assets from your business assets if you were ever sued can be a tremendous help.
Starting a business is an incredibly exciting thing, but there’s risk. Starting an LLC protects you if you if something unfortunate ever happens to your business.
But another benefit to start an LLC is how simple they are. You can quickly learn how to create an LLC online and get your business up and running shortly after. There’s very little paperwork to maintain your LLC, no annual meetings, and there’s no complicated record keeping.
How to start an LLC: The final word
Starting an LLC lends credibly, professionalism, and liability protection for you and your business. The steps are easy, and you can probably get everything together to create your LLC in a matter of days.
Once you’re up and running, don’t forget to keep good financial records so you can file taxes.
And congrats! Starting a business is an exciting time and there’s not much better than being your own boss.
About Millennial Money Man
Bobby Hoyt is a former band director who paid off $40,000 of student loan debt in 18 months on his teaching salary and then left his job to run Millennial Money Man full-time. He helps other Millennials earn more through side hustles, save more through budgeting tools and apps, and pay off debt. He is a personal finance expert who has been seen on Forbes, Reuters, MarketWatch, CNBC, International Business Times, Business Insider, US News, Yahoo Finance, and many other personal finance and entrepreneurship media outlets.
