An LLC is a legal entity that is easier to set up compared to a corporation. The personal assets of each member are protected by law in case of liability incurred by the LLC.
Now that you know what an LLC is, the next obvious question is, “how to form an LLC?”
The process is quite straightforward. You can complete the whole process of registering with your state in under an hour. It’s recommended that you hire an attorney who specializes in this type of business structure.
Let’s answer the question of how to form an LLC. Below are the steps you need to undertake to register your company.
1. You have to choose your state
Generally, you form your LLC in the state where you intend to do your business. This option is more practical because you avoid incurring more expenses when you hire a registered agent out of state. Also, online businesses can form an LLC. Regardless of the nature of your business, LLC serves as a legal measure to protect your assets. You will also benefit from registering in a business-friendly climate like Austin, Texas, for instance.
2. Select your business name
Your name will be your legal identity. It’s one of the first choices you make when forming an LLC. You can check with the state if your business name is already taken. You can also search for your name online. However, one of the rules states that you always include “limited liability company” or “LLC” in the registration form. The filing fee is reasonable. For instance, you only pay $300 in Texas.
3. Nominate a registered agent
Most states require that you employ a registered agent who will handle all the transactions. The registered agent will also receive official documents, the results of the document filings, and even litigation papers. To become a registered agent, one must be a local resident.
4. Register with the state
The state has a form that you need to fill up. However, you also have to prepare your Articles of Organization. It’s also sometimes called the Certification of Organization or Certification of Formation. The form that you fill-up will describe the structure and nature of your business. The Articles of Organization should also identify the manager or co-managers of the LLC.
5. Write an LLC Operating Agreement
Texas won’t require you to submit the Operating Agreement. However, you need this to avoid confusion later on. The document will identify the members, the business structure, who has voting powers, who are the financial contributors, how the members share the profits, and what happens when there’s a change in membership. The Operating Agreement also outlines the dissolution process.
Those are the main steps of forming an LLC.
Finally, you need to obtain your EIN or employee identification number from the IRS. You can send a representative to your local IRS office or complete this process online. The process is free if you do it on your own. However, some online companies will do it for about $75. Once you have your EIN, congratulations, you can now start to operate your LLC.