7 Steps to Setting Up an LLC


When choosing a structure for their small business, many business owners choose a limited liability company (LLC) due to the additional protection from liabilities that it offers. An LLC is a type of business entity that is quite similar to a corporation in several ways. As is suggested by the name, an LLC provides personal liability protection to the business owner. They also offer a lot of flexibility regarding taxation, management, and how profits and losses are allocated. An LLC can own bank accounts and assets, sign for loans, leases, and other contracts, and file lawsuits or be sued. Legally, it is a separate entity from the owner. Therefore, no one person is liable for the business debts or obligations. If you are considering starting your own business and feel that an LLC is the best option for you, here are the steps you will need to follow.

1.     Select Your State

It is a good idea to open an LLC in the state where you plan to do business. If your company exists overseas, register a foreign LLC in each state where you plan to operate. In some circumstances, it may be beneficial to form your LLC in a state with business-friendly laws. However, before you decide if this is the right step for you, you should first check any additional fees and paperwork you may need to provide. You should get a copy of the LLC articles of organization form, which you can get from your state’s Secretary of State office or website.

2.     Choose a Business Name

You will need to choose a business name that complies with state rules for LLC names. There is usually quite a lot of flexibility around the central part of the business name. Still, you can expect not to be permitted to choose words like ‘incorporated’, ‘corporation’, ‘insurance’, and more. Your legal name must end with ‘LLC’ or ‘Limited Liability Company’. You will also need to ensure that your name is not the same as any other LLCs on file in the state.

3.     Fill Out Forms and Publish a Notice

You will need to fill out the LLC Articles of Organization form, which is usually quite simple. This is to notify the state of certain things regarding your LLC, such as the name, the purpose of the business, the name and address of the registered agent to send documents to, the initial members, and the office address. Depending on the requirements for your state, you may also be required to publish a notice stating your intention to form an LLC in a local newspaper. This step is required in the states of New York, Arizona, and Nebraska. Finally, send the completed Articles of Organization form to the Secretary of State along with the appropriate filing fee and corporate tax if required.

4.     Create an LLC Operating Agreement

An operating agreement should be created to outline the financial and management responsibilities and rights of each member of your LLC. For example, this could outline when and how any profit made by the business will be distributed, who contributes what in the event of the LLC requiring additional capital, and the terms under which a member can leave the LLC. Get this put in writing. Even if you’re only setting up the LLC with one other person, it’s worth having one. You may not need one if you’re setting up the LLC on your own, but it can still be good to have for reference or if you grow in the future.

5.     Get LLC Insurance

Even though you are personally protected from liability claims by setting up an LLC which is a separate entity to yourself as the owner, this doesn’t mean that your business cannot be sued. It is a good idea to get LLC insurance designed to protect your company from any claims that might occur. Without LLC insurance, your business would need to cover the cost of any liability claims by employees, customers, or other members of the general public, which can be very expensive. The Hartford offers more information on getting insurance for your LLC. This insurance policy is good because it provides liability insurance to help protect your business from any financial losses.

You may want to get some legal advice to help you ensure that everything is running smoothly when setting up your LLC. However, suppose you’re starting quite a simple business right now. In that case, the good news is that there is enough information out there for you to use to do this on your own. You may not need to hire an attorney until the business starts to grow later. You may also want to consider using a popular website like LegalZoom to help you make sure that you have completed all the necessary legal steps when setting up your LLC.

7.     Discuss With Your Business Partners

If you have business partners, it’s a good idea to set up a meeting to discuss the details of your operating agreement, LLC insurance, and the legal steps with them. Ideally, it would be best if you did this before filing the LLC articles of organization to ensure that everybody agrees and is on the same page before you form the company. This is because after meeting, you may find that one or more business partners are no longer interested once they are aware of the whole deal, or you might find that bringing in somebody else while setting your company up would benefit you all. Working out these details before you send the Articles of Organization back to the Secretary of State can save future hassle and costs if things need to change.

An LLC is a popular small business model as it removes any liability from the owner or owners. However, before forming your company, it’s a good idea to know all the steps you will need to take.


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