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Starting an LLC, or a Limited Liability Corporation, isn’t a difficult or highly expensive thing to do.
Step 1: Establish a Business Name
When you’re starting an LLC, the first thing you need to do is you need to do a search for the name you want to use for your business. Note that this doesn’t need to necessarily be your brand name, this can be a special name for your LLC. The way to do this is to go to the Secretary of State’s website in the state where you are starting the business, and do a search for your name to make sure that name is not already taken.
In most situations, it is recommended to register your LLC in the state where you are going to operate, not in another state. Otherwise, you will end up having to also register the business in your own state as a foreign entity, which can add considerable expense and hassle.
Step 2: Articles of Incorporation
Having performed the search for your business name to find one which is not taken, you then need to file what are called the Articles of Incorporation or Articles of Organization. Typically this is a form filled out on your Secretary of State’s website, where you will specify the business / LLC name, the initial member or members (owner or owners) of the company, and a registered agent with a physical address that can receive mail on your behalf. Some business owners act as their own registered agent, and some hire a company to handle this for them. Harbor Compliance offers a Registered Agent Service in all 50 states for about $99 a year, which is helpful if you’d rather not list your own address for this role.
In some states, it may be required to file the Articles in person at a government office.
There will be a filing fee which varies from state to state.
Once the filing has been processed, the state will send you a document confirming that your LLC has been formed.
Some states require the publication of a notification (i.e. in an approved newspaper’s classifieds) when your business is formed. Check with your state’s requirements to see if you need to do this in your state.
Step 3: Operating Agreement
The next step is to create an Operating Agreement, which is a contract between the LLC and you (as a member of the LLC) which spells out exactly how the LLC is going to operate. This can include member salary and distributions, where the business is going to be located, the process for adding new LLC members in the future, the process for removing members, the frequency of member meetings, and so on.
The reason the Operating Agreement is important, and must be followed diligently in the running of the business, is because it’s the way you can demonstrate that your business is indeed actually being run as an LLC, thus entitling you to the liability protections offered by an LLC business type. If someone who seeks legal action against your business can demonstrate you are NOT running things according to an LLC operating agreement, they can do what is called “pierce the corporate veil” and make members personally liable in lawsuits against the business.
Step 4: Annual Report
LLCs and other state-registered businesses are required to file an Annual Report every year. The Annual Report may involve confirming LLC members and/or Registered Agent information, and in some cases may involve filing annual meeting minutes. This, and the fee associated with the Annual Report, varies from state to state.
Filing the annual report late can result in very expensive late fees. Failing to file the annual report at all can result in your LLC becoming inactive or even being dissolved, which of course causes tremendous problems and opens up huge liability issues for the LLC members. So find out when your state’s annual report is due and make sure you always file it on time.
Looking for help to make sure you stay compliant? Harbor Compliance offers a Managed Annual Report Service where they will handle everything for you in whatever state you reside.
In fact, you can have a company take care of the paperwork for your whole LLC filing if you don’t feel confident pursuing it yourself or just want to save some hassle. BetterLegal files with your State same day so you’ll have your Business within 2 business days.
Special thanks to Jim Hart from Hawthorn Law for inspiration for this article.