What Is The Process for Starting an LLC?
Kayla Matthews

You've decided to incorporate your small business or form a new LLC from scratch — possibly in order to give yourself some protection from legal liability, more legitimacy or because you need to hire and pay employees.

In any case, there are steps that you will need to take to register your LLC.

Below, we'll walk you through the process for starting an LLC — as well as common filing pitfalls that you should avoid.

What Are LLCs and How Do They Work?

An LLC is a Limited Liability Company, one of the simplest business structures available. LLCs create some separation between personal and business assets, providing some protection to personal assets if your business is sued.

LLCs can have one or more owners, called members. An LLC with just one owner is called a single-member LLC, and LLCs with multiple owners are called multi-member LLCs.

How to Start an LLC

The process for registering for an LLC will vary somewhat from state to state. However, there are some steps that you can follow no matter where you're registering your LLC.

It's possible to form an LLC in any state, no matter where your business operates — and, in certain situations, there are good reasons to form an LLC in states other than the one you're based in. However, the best plan of action will likely be to incorporate in the state where your business will be operating.

Often, you'll have to file a foreign LLC in states where your LLC does business if it wasn't formed there — meaning that you'll need to spend more on paperwork and filing fees, leading to higher costs and more room for administrative error.

To start, choose a name for your LLC. Naming guidelines vary depending on location, but most state guidelines require that your business's name includes "LLC" or "L.L.C." Certain words — like "Bank" or "Attorney" — may be restricted, and require additional paperwork that, for example, proves you're a licensed attorney. Words that may cause consumers to confuse your business with official government organizations — like "Treasury" or "State Department" — may not be allowed.

Your LLC's name will also probably need to be distinguishable from any other LLC registered in the same state.

Next, you'll need to choose a registered agent for your LLC. Your registered agent is an individual or entity that will be responsible for receiving tax forms, communication from the state, lawsuits and other important documents. Requirements for registered agents vary, but generally, they'll need to be a resident of the state the LLC is registered in. If you meet all requirements, you can be your LLC's own registered agent.

If you don't want to handle mail and communication with the state, professional registered agent services exist that can help you manage your filings with the government.

Next, you'll need to file the Articles of Organization, a legal document which will formally establish your business as an LLC.

The actual name for this form also varies from state to state and is sometimes called the Certificate of Organization or Formation. The form will require basic information about your LLC — including its name — and information about your registered agent. You'll also need to pay a filing fee when you send the form.

Be sure to file the specific version of your form created by the state in which you're filing for LLC status.

At this point, you may want to obtain an Employer Identification Number (EIN) if you plan on hiring employees. If you don't, you won't have the information you need to properly hire employees, file state and federal taxes in certain cases or open a business bank account. Having an EIN also provides other benefits, like allowing you to build up your business's credit rating.

Failing to secure an EIN is one of the most common avoidable mistakes that new LLCs make — while an EIN isn't required to run an LLC, securing one should rarely be treated as an optional step.

Finally, you can create and adopt your LLC's operating resolution. This is a formal document signed by all members of the LLC which lays out member responsibilities and codifies how the LLC will be run.

LLCs vs. Corps and Partnerships

LLCs aren't the only business structure that small businesses have access to — you may also be able to file to form a corporation, general partnership or sole proprietorship. However, LLCs do provide a few advantages over these other business structures.

LLCs are fairly easy to form and maintain. LLC owners won't be subject to double taxation, unlike owners of corporations. A corporation pays taxes on net corporate income, and its owner will also need to pay taxes on dividend income they receive from their business.

Like with other business structures, owners of LLCs will not be held responsible for their company's debts or lawsuits, except in case of fraud or criminal behavior.

LLCs can also elect to be taxed as S-Corps without needing to change business structure.

Forming Your LLC

LLCs can provide a variety of benefits for small businesses, especially liability protection. expand more on these benefits for the conclusion

Specific steps for forming an LLC will vary from state to state, but most parts of the process — selecting a name, choosing a registered agent, filing the Articles of Organization and adopting an operating resolution — will be required no matter where you file.