How to Start an LLC

Learn How to Form your LLC in 10 Easy Steps

 

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Excited about starting your own business in the USA?

Great! There are many different types of business entities that you can set up in the USA. Being a US citizen, you have the option to select between an S-Corporation or a Limited Liability Company or LLC. If you are a non-US citizen, you can start a C-Corporation or an LLC. So, an LLC is the common business entity that allows both US citizens and non-US citizens (excluding some countries which are prohibited to do business in the US) to start their business in the country. 

So, if you intend to start an LLC, it will be a good idea to have the right information about setting up the company in the US. Here we will learn about important steps to start an LLC in the United States. But before that let us briefly understand some characteristics of an LLC.

10 Easy Steps to Start an LLC

Different states in the country have different rules and procedures to start an LLC, however, there are some common set of activities that are followed in every state. The following are the ten common steps to form an LLC in any state of the US:

Step 1: Select the State

Selecting a state for your LLC is determined by many personal and commercial factors. Your and your partners’ present working location is one of the major factors in deciding the state. Apart from this, your business segment, target customers, cost of operation, and many other personal considerations will factor in while selecting the region. Many states offer additional facilities or subsidies to start a business in their state. Many states, on the other hand, impose some restrictions on certain types of businesses. You need to weigh all these factors to finally choose the state to set up your Limited Liability Company.

Step 2: Create the Name for Your LLC

The corporate division in every state frames the rules to select the name for any business entity including LLC. Though some of these rules may vary from state to state, there are some common requirements that you need to consider when selecting the name for your LLC in the US.

  • You should select 5-6 names for your LLC. The best way is to brainstorm and identify names that define your core business activity, vision, or main objective of your business.
  • Check the availability of all these names online on the business search portal of the state LLC office.

While selecting the name you must consider the following general rules:

  • Choose a name that is already not registered in the state.
    • Some states do not allow the same name even with different business entities. For instance, you can’t name your company “ABC LLC.” if there is already a corporation with the name “ABC Inc.”
    • Some states do not allow the same names even in different cities.
    • It is also beneficial for you too to choose a different name to avoid any confusion at a later stage.
  • The name of the business should end with a word defining its business entity. For instance, in the case of a corporation, you should use “Corp.” or “Inc.” after the name of your business while “LLC” or “L.L.C.” if your business entity is a Limited Liability Company.
  • The name of the company should not in any way resemble or indicate any links with any government agency. For example, you cannot use the words US Police, Government, Federal, and so on with your LLC name. Besides, you cannot use any name restricted by the State or Federal Government for any reason.
  • In some states you need special approval to use any of the following words with the name of your LLC:
    bank; banker; banking; banc; banco; banque; credit union; deposit; savings association; building association; savings and loan association; building and loan association; savings bank; thrift; trust; or trust company.

As mentioned above, you can check the availability online, however, for offline help, you can contact the relevant officer in the state registration office to find out the availability of the name. There is a provision to pre-book the name of your LLC before registering your business. You need to pay a small fee at the state office for this purpose. 

Step 3: Register the LLC

After picking up the name for your business, the next big step is to make it a legal business entity. Depending on your business structure and the location, you may need to register with the state government and the federal government.

Register with the Federal Government Agencies

Registering with the federal government is not mandatory for many businesses, However, if you wish to get trademark protection you may need to file with the federal government. For trademark purposes, you need to file your business with the United States Patent and Trademark Office after forming the LLC.

Register with the State Government Agencies

You will need to register your business with the state where you are carrying out your business activities. These business activities in the state may include the physical presence of your business in the state and frequent in-person meetings in the region. Apart from this, if a substantial part of your revenue is generated from the state and if any of your employee(s) is working in any of the cities in the state, you are said to conduct business activities in the state.

Some states facilitate online registration while some states request you to file your documents in-person or you can also submit required papers via- e-mail. You can visit the Secretary of State Office to file your business papers. Alternatively, you can also connect with a Business Agency to file your documents.

Appoint a Registered Agent

Either you can take the responsibility of a registered agent or can hire an agent for your business purposes. In any case, a registered agent must have their physical address in the state where your LLC is registered. Furthermore, they should be available in the state during the normal office hours to receive and sign the legal papers on behalf of the company. It is important here to note that the address of the registered agent cannot be the official address of your business. Most of the companies prefer appointing a registered agent as the information of the registered agent is made public in many states.

Filing for Foreign Qualification (Optional)

If you are conducting your business in more than one state, you need to register your LLC in the formation state and file for the foreign qualification in the other state(s) of your business activities. Your business will be considered domestic in your registered state while as a foreign business in all the other states. You will be required to pay taxes in all the states you are conducting your business activities. You may also be required to pay annual report fees in all these states.

For foreign qualification, you will need to file a Certificate of Authority with the states other than the state of formation. Some states may also demand a Certificate of Good Standing from your LLC formation state. You may check with the state office to know about the filing fees for the foreign qualification. You may also confirm from them the specific requirements of the state to file for foreign qualification.

File Business Documents and Fees with the State

To register your LLC with your chosen state, you need to file the document and deposit the required registration fees. The cost of registration varies with the state and business structure. 

You need to file the following documents,

Articles of Organization

It is the document that details the basics of the company. It includes the following information related to your LLC,

  • Company’s Name
  • Company’s Location
  • Members Name
  • Registered Agent Information
LLC Operating Agreement

The Operating Agreement details the financial and functional structure of the LLC. It includes procedures for making key business decisions, roles, responsibilities, and authorities of each member.  The operating agreement is not mandatory in all states. However, it is always advisable to prepare the agreement to safeguard you and your business.

Register with Local Agencies

LLC formation generally does not require registration with the city government or the county. However, to get the licenses and permits, you may need to file documents with the local agencies.

Be Registration-ready at All-times

Some states may request you to submit the required reports immediately after the registration. So, keep yourself updated with all the relevant reports including any additional papers related to state and franchise tax boards. You may need to file these Initial Reports within one to three months of registration with the state.

Step 4: Obtain Federal and State Tax ID Numbers

Federal and state tax ID numbers enable you to pay your federal and state taxes and serve many other business purposes. They also act as personal social security numbers for you and your business. 

Federal Tax ID Number

Federal tax ID number is also known as EIN or Employer Identification Number. EIN has many different uses that include,

  • Paying Federal Taxes
  • Hiring Employees
  • Obtaining Licences and Permits
  • Opening Bank Account

EIN is required if you pay salaries to your employees, file tax returns under certain heads like employment, and excise, etc. Besides, you also need to have a Federal Tax ID number if you don’t pay due taxes on income, in addition to the wages, paid to a non-resident alien. 

There is no additional fee chargeable to obtain the EIN. You should apply for it immediately after getting the registration of your LLC.

Those who already have an EIN may need to replace or change the EIN in case of changes in the name, and address of the business. Besides, you will also be required to replace or change EIN in case of a change in the ownership, management, and tax status of the LLC.

State Tax ID Number

State Tax ID number is required if your business has to pay state tax. You may need to consult the state office to know if you need a sales tax ID number to pay sales tax. Different states have different tax structures. Seven states in the US do not impose any income tax while two others levy tax only on the dividend income.

Apart from using the ID number to pay state taxes, you can also use this number in place of a Social Security Number (SSN) to protect from identity theft. Getting a State Tax ID number is also quite simple but varies with the state. So, you need to check with the state office for the exact procedure.

Step 5: Apply for Licenses and Permits

Licenses and permits are required to run your business legitimately. You may need to obtain them from federal as well as state agencies.

Federal Agencies

If the federal agency regulates your business, you need to obtain relevant federal licenses and permits. You need to check with the relevant issuing agency to find out the specific requirements and fee structure for your business activity.

State Agencies

Your business activity and the location determine the requirement and fees of licenses and permits for your state, county, or city. After obtaining the required licenses and permits, you need to keep a track of their renewal date as many licenses and permits are issued only for a specific period.

Step 6: Obtain Certificate of Authentication (optional)

This certificate is needed if your country is not a member of the Hague Convention and wishes to open a business account in your home country. It is proof of the formation of your LLC in the US. For the members of the convention, the Apostille authenticates the formation. You can receive the certificate immediately after the formation of the LLC. For opening an account in the US, you do not require this certificate.

Step 7: Provide US Physical Business Address

You may require a US office address to open the US bank account. Besides, it will also be needed to receive business mails at the US address. You may have your own office or can outsource this service to a mail forwarding agency.

Step 8: Get US Phone Number

You can select your preferred service provider to get the US phone number. You can either choose a toll-free number or can opt for a local phone number with the respective area code. 

Step 9: Design a Website

Get a domain name and design the website for your business. It not only helps you in marketing your business activities but also is necessary to open a merchant account. You can design a business logo for your LLC and make your presence felt in your specific business segment.

Step 10: Open Business Bank Account

You need to open a business bank account to comply with the legal requirements and also to remain protected in case of any unforeseeable adverse business situation. There are three different types of bank accounts that you may need to open.

US Bank Account

To receive payments in the US, it is necessary to open a US bank account. Opening a branch in the US also mandates opening the business account in the country. Due to the enforcement of anti-terrorism laws, the task of opening the US account is not simple anymore. So, you may have to wait for a longer time than expected. You may also require more formalities to fulfill to open the account. It is highly advisable to find out the bank that can open the account quickly and with the least formalities and document requirements.

Bank Account in The Home Country

You may need to check with your consultant about the documents required to open up the account in the home country. Certificate of Authentication is one of the documents that is required by most of the country. So, obtaining it before applying for the account opening will save you time.

US Merchant Account

A merchant account is essential to accept credit cards. Accepting e-checks also require a US merchant account. You will need US bank account details, business address, and phone numbers to open a US merchant account.

What is an LLC?

A Limited Liability Company is a business entity where the owners of the company do not hold the company’s liabilities in a personal capacity but at the same time can avail the benefits of pass-through taxation of the company. So, an LLC has benefits of both the corporation and the partnership or sole proprietorship.

US laws permit you to set up an LLC as an individual and also as a company. However, your country of origin may have some specific rules to guide you on the type of business entity that you can start in the US.

Features of a Limited Liability Company

Many features of an LLC are similar to other business entities. However, a few of its features make it a unique business entity. LLC can be best defined as a blend of corporation and partnership.

  • It is as easy to set up an LLC as a partnership or sole proprietorship.
  • LLC has the advantage of pass-through taxation like proprietorship.
  • It is costlier to form an LLC than a partnership.
  • Unlike corporations, an LLC is not subjected to double taxation.
  • Like the corporation, the owner is insulated from the liability of the company.
  • There is no stock and thus no shareholders like a corporation. Instead of Shareholders, the owners of the company are called Members.
  • LLC is less complex from the taxation point of view and has much fewer formalities to form and run it.
  • Unlike corporations that can continue to run despite the death of a shareholder or bankruptcy, an LLC has to be dissolved under these events. However, this rule may be different in different states.
  • LLC is not the right type of business entity if you eventually intend to make your business a public-traded company. 
  • As the corporations are governed through the bylaws, an LLC has an “Operating Agreement” that sets the rules to operate the company. Like the bylaws, the operating agreement can be modified as per the business requirements.
  • Like S-Corporation, LLC can also avail the benefit of flow-through taxation, however, an S-Corporation is bound by many restrictions related to the ownership.
    • LLC has no restrictions either on the number of members, which are restricted to 100 for the S-Corporations or on the inclusion of foreign members, which an S-Corporation cannot include.

 

Final Words

The Limited Liability Company is the most popular form of business in the US today. This business entity is a good blend of proprietary and corporations. Like a partnership or sole proprietor business, it is easy to set up and manage. LLC also offers the benefit of pass-through taxation. Similar to corporations, the owners of the LLC are insulated from the liability of the company. Both US citizens and non-US citizens (barring the prohibited countries) can start an LLC.

Though it is easy to start an LLC in the US, following a systematic method will further help you in the faster and seamless formation of your company. In this article, we have shared ten important and simple to follow steps to start an LLC. We hope that it was helpful for you to understand the requirements to start a company in the US.

Frequently Asked Questions (FAQs)

Q: Do I need an attorney to form an LLC?

A: You need two documents to start an LLC., Articles of Organization and Operating Agreement. The Articles of Organisation have many legal requirements to understand and the Operating Agreement also deals with different legal rights and duties. Therefore, it is highly advisable to use a lawyer for forming an LLC. However, it is not a mandatory requirement to deploy an attorney to start an LLC.

Q: How does LLC protect business assets?

A: The structure of an LLC is such that it gives limited liability asset protection to the owner. It signifies that the company’s assets are not owned by the owner(s). Similarly, the personal assets of the owner(s) are not owned by the company. In case of a lawsuit against the company, the owners cannot be prosecuted or sued. The liability of the owners, therefore, is limited to the investments made by them in the LLC.

Q: Is “Limited Liability Company” the same as “Limited Liability Corporation”?

A: LLC stands for “Limited Liability Company”. There is no business entity like “Limited Liability Corporation”. A corporation is a different business entity and no corporation is called a “Limited Liability Corporation”.

Q: Does an LLC have a board of directors to manage it?

A: No, an LLC does not have a board of directors. The members of the LLC can select one of them as the manager to manage the company. They can also recruit a manager as an employee of the company

Q: How do LLC members receive the payment?

A: LLC members do not receive salaries instead they get a share of the profits as per the ownership percentage. As a member, they receive profits from the LLC. They can opt to receive the profits at the end of the year or choose to take it throughout the year.