The 5 Basic Steps to Creating an LLC (2023)

The central theses

• A limited liability company, or LLC, is a hybrid corporate structure that combines the limited liability protection of a corporation with the flexibility of a sole proprietorship.
• Although each state has a slightly different incorporation process, in most cases you will need to choose an available company name, appoint a registered agent, and file articles of incorporation to incorporate your LLC.
• You can do all the work yourself, but many entrepreneurs choose to do oneBusiness creation service for othersto save time, ensure accuracy and reduce red tape.

Forming a Limited Liability Company (LLC) allows you to register your business with the state and is a first step in obtaining limited liability protection so that you can reduce or eliminate your personal liability for business liabilities and debts.

An LLC is a corporate structure that combines the protection of a corporation with the flexibility of a corporationsole proprietorshipor a partnership. Although you can form other types of businesses, choosing an LLC can make sense for many entrepreneurs.

Various state laws regulate limited liability companies, and there are general procedures that most business owners must follow to incorporate a business entity. In this article, you'll learn how to form an LLC in five easy steps.

LLC-Definition

LLC is an acronym for limited liability company. It is a corporate structure that can help protect the private wealth of its owners and offers flexible tax and administrative structures. For many small business owners, an LLC is a nice alternative between a sole proprietorship and a corporation.

Your LLC can have multiple owners, referred to as "Members." Almost any type of business can become an LLC, and you can form an LLC whether you are a one-person business or a large group business.

Benefits of the LLC business structure

Limited Liability Protection

An LLC exists separately from its owners andusually protects them from personal liability. When your LLC faces business debt collection, a lawsuit, or bankruptcy, in many cases the court or creditors cannot dispose of your personal assets such as your home, car, or other property.

Likewise, forming an LLC can help protect your corporate assets when facing personal debt, as many states limit the actions creditors can take against LLC owners for their personal debt. Other forms of business, such as sole proprietorships and partnerships, do not offer limited liability protection, so your personal assets may be at greater risk.

pass-through taxation

LLC owners candecide how their company should be treated for tax purposes. Many entrepreneurs choose to take advantage of thispass-through taxation.

Instead of the corporation paying income tax, you can report your LLC's profits and losses as part of your personal tax return. This avoids what's known as "double taxation," where your LLC's profits are taxed as part of a business tax return and then as part of your income tax return. You can also elect to have your LLC taxed as a taxpayerC Corporationor aS Corporation.

Low startup cost

In most states, forming an LLC involves minimal filing fees. You can typically expect to pay anywhere from $35 to $200 to incorporate your limited liability company, although incorporation fees can be as high as $500 in some states.

Management flexibility

You can decide for yourself how your LLC will be structured. Sole proprietorship LLCs are referred to as "single member LLCs." If your LLC has multiple owners, it is a "multi-member LLC."

If you run your own LLC business, your LLC is a "member-managed LLC." Alternatively, you can appoint a manager to take over the operations of your business. In this case, your LLC is a "management LLC."

Low membership restrictions

Almost anyone can form an LLC. Individuals, corporations, trusts, partnerships and noncitizens can own LLCs in the United States.

Easy compliance

Once you've filed all the required formation documents and officially incorporated your LLC, there's usually very little you need to do to maintain your LLC status with the state.

Each state has different requirements, but you'll likely need to file an annual report and keep up to date with any required business licenses. Keeping your LLC in good standing requires minimal paperwork in most cases.

Enhanced authority

Operating as an LLC gives your business legitimacy and increases your credibility in the eyes of the public.

How to Incorporate Your LLC

LLCs are easier to form than corporations, but forming an LLC requires several steps.

LLCs are formed at the state level, usually with the Secretary of State, and each state has its own process to follow. However, there are general steps to starting a business that apply to most states, including:

• Decide on your LLC name
• Appointment of Registered Representative
• LLC Document Filing
• Keep your LLC compliant

In the following sections, we'll break down each general LLC formation step to help you get your LLC up and running successfully and quickly.

1. Select a state to embed

One of the most important decisions you must make during the LLC formation process is where to incorporate your business entity. State laws apply to LLCs, so choosing the right state for your business is critical.

You can form an LLC in any state, whether you live there or not. However, in most cases, the state where you operate your business is the easiest choice.

Most small and medium-sized businesses choose to incorporate in their home state because they are already familiar with the state's laws and regulations, and government offices are usually easy to contact. If you choose to incorporate your LLC in another state but conduct business in your home state, you may need to register a foreign LLC, which typically carries a higher filing fee.

2. Choose your LLC name

Once you've figured out which state you want to incorporate your LLC in, it's time to make another important decision and choose your company name.

Each state has specific naming requirements that your LLC must comply with. Most states require the following:

1. Your LLC name must contain "limited liability company," "limited liability company," "l.l.c.", "l.c.", "LLC," or "lc." You can usually abbreviate the word "limited" to "ltd". and the word "company" as "Co."
2. Your LLC name must be distinguishable from other company names registered with the state. In most cases, you can do a name search on the Secretary of State's website to check availability. Once you find a business name you like, you may be able to reserve it for a small fee.
3. Your company name should be appropriate and not contain misleading or offensive words. Many states specifically state that your LLC name cannot contain words that could suggest your company is connected to the government, such as: B. "Department of State" or "Department of the Treasury."

The Secretary of State's website should include any country-specific naming conventions and requirements. If you work withThe block criticizesWhen you incorporate your LLC, we'll help you make sure the company name you choose meets state requirements.

You can also use a different name for your business if you apply to become a DBA (Doing Business As).

3. Select a registered agent

Your LLC must have oneregistered agentto receive important communications and documents on behalf of your company. For example, your registered agent may need to receive a letter from the IRS or a process request.

You can be your own registered agent, but many business owners choose to hire a registered agent for a variety of reasons.

For example, registered agents must be present at a physical office address during business hours. Hiring a registered third party increases the freedom of a business owner as you don't have to worry about losing time-sensitive communications.

Hiring a registered agent also helps you protect your privacy. In many states, the name and address of a registered agent must be publicly disclosed. And if a lawsuit, such as a lawsuit, is served on your LLC, your registered agent will handle it on your behalf, relieving you of the stress of being served before your employees or clients.

If you choose to start your business withThe block criticizesyou have the option to name a registered third party provider during the ordering process.

4. File your LLC documents

Forming an LLC requires filing documents with the Secretary of State. Each state has specific filing requirements, and all states require business owners to file bylaws.

Some states also require an operating agreement, but most states do not. However, a written operating agreement can be a good idea as it regulates the members of the LLC, including the management and financial responsibilities of the LLC.

When you start your business withThe block criticizesWe prepare all the required documents based on the information you provide and file them according to the regulations of your chosen state. All our packages include Articles of Association and Operating Agreement with standard provisions.

Articles of Association of E.P.E

The Articles of Incorporation is a basic LLC formation document that formally incorporates your LLC with the Secretary of State. This document is sometimes referred to as an "Organizational Certificate" or "Educational Certificate".

You must pay the filing fee when submitting the Articles of Incorporation. Application fees vary by state and typically range from $35 to $500.

LLC Operating Agreement

Not all states require you to create an LLC operating agreement. Even if your state doesn't require a written operating agreement, it's a good idea to get one.

An operating agreement establishes standard procedures and regulations for your LLC so you can effectively manage it and resolve disputes between members. If you don't have an operating agreement, standard state rules apply, which may not always benefit your business.

LLC Operating Agreements are usually customizable and you can include various clauses ranging from rules for admitting new LLC members to voting rights.

5. Maintain your LLC over time

Additionally, once you have incorporated your LLC, it is important to ensure that your LLC has a good record with the state and meets current requirements. While these requirements vary from state to state, most require small businesses to apply for an employer identification number, pay state taxes, stay current on business licenses, and file annual reports.

employee ID number

You can think of your ownemployee ID number, or EIN, as the social security number for your business. This is a tax identification number used by the Internal Revenue Serviceto identify your company for tax purposes. Not all companies arerequired to have an EIN. Generally, businesses that sell goods, have employees, are taxed as a corporation or partnership, are likely to pay excise taxes, and/or have a corporate pension plan must have an EIN.

Not all states require LLCs to have an EIN, and some require it only for multi-member LLCs. Typically, you need an EIN to prepare payroll and payroll taxes. Additionally, some banks prefer businesses to have an EIN to open a merchant bank account.

Some states also require a separate tax identification number if you plan to hire employees, sell goods, or pay excise taxes. Be sure to check your state's requirements to make sure you can get a state ID, if available.

in theCompany formation at Block AdvisorsPackages include EIN application preparation so you can easily cross something else off your list.

State tax requirements

Depending on your location, you may be subject to certain state tax obligations. Most states follow the classification your LLC chose for federal tax purposes. If your LLC is federally taxed as a sole proprietorship, your state will likely treat your LLC as a sole proprietorship as well.

Regardless of how your LLC is taxed, you may still be responsible for withholding and paying any taxes you owe to your state and local authorities.

commercial licenses

Depending on the nature of your business, some states, counties and/or localities require LLCs to obtain a business license. After forming an LLC, make sure you meet all business license requirements.

annual reports

Most states require LLCs to file annual reports with the Secretary of State and pay a filing fee to ensure compliance and maintain a good reputation. Annual report due dates vary by state. So make sure you know when your annual report is due.

When you start your business withCompany formation at Block Advisorsyou can easily submit annual reports online through our account management portal.

Foreign degree

If you wish to do business in another state, you may need to register your LLC as a foreign LLC. Whether you need a foreign degree depends on several factors, such as whether you have a physical office or employees in the state.

Generally, obtaining your qualification abroad requires you to register for a Certificate of Authority, apply for a Certificate of Good Standing and pay the applicable registration fees. However, requirements and procedures vary by state.

Forming an LLC is one of the most important events in any entrepreneur's journey. There are many steps involved, and busy business owners may not have the time or expertise to safely and successfully complete all the necessary paperwork themselves.

For this reason, many entrepreneurs choose to establish an LLC. WithCompany formation at Block AdvisorsGetting started takes only 10 minutes.

Browse your options

Whichever route you choose—whether you form an LLC, remain a sole proprietorship, or choose another form of business—it's important to consider your business needs and your personal situation. Laws vary from state to state. This article is intended to provide information but is not legal advice and is not a substitute for legal advice. A business attorney can look at your specific circumstances and guide your decisions to ensure they are the right thing for you. Similarly, in most states, the Secretary of State's office offers resources for small business owners, including information online, that can help owners determine the best options -- and possible needs -- for their specific circumstances.

At H&R Block and Block Advisors we look forward to continuing to support you throughout your career journey. We strive to help your business and ours succeedCertified tax professionals for small businessesthey're available virtually and in person year-round to help you keep more in your pocket.

Frequent questions

What are the advantages and disadvantages of an LLC?

An LLC offers limited liability protection, tax pass-through and a flexible management structure. However, an LLC has annual fees and more paperwork than a sole proprietorship. In addition, the limited liability protections of an LLC are limited and may not apply if, for example, you do not clearly separate business transactions from personal transactions or if you commit fraud that harms others. These are just a few of the pros and cons of an LLC. Read the full article for more information.

What are the differences between an LLC and a corporation?

An LLC is a more flexible business structure than a corporation, however it is a limited liability company that can, in many cases, protect your personal assets from certain business debts and liabilities. Significantly tighter restrictions apply to companies in terms of ownership structure, management and taxes. These are just some of themDifferences between an LLC and a corporation.

How much does it cost to form an LLC?

LLC formation costs vary by state. State filing fees typically range from $35 to $500. You may also need to incur additional costs if you want to keep your LLC name or if you need to apply for a business license. When you start your business withThe block criticizes, our packages start at $149 plus government filing fees.

What are the steps to forming an LLC?

The steps for forming an LLC vary depending on the state of incorporation. In most states, you must choose an available company name, appoint a registered agent, and file articles of incorporation.

How is an LLC taxed?

As an LLC owner, your LLC will be taxed as a sole proprietorship (for single entity LLCs) or as a partnership (for multiple entity LLCs). You can also choose to be taxed as an S corporation or a C corporation.Learn more about LLC taxation and your options.

How do I elect to have my LLC taxed as a C Corp?

In order for your LLC to be taxed as a C Corp, you must complete and submit the formIRS-Formular 8832. After you file the form, make sure you're running your business as a C Corp and following all federal, state, and local requirements.

How do I elect to have my LLC taxed as an S Corp?

To have your LLC taxed as an S Corp, you must complete and submit the formIRS-Formular 2553. After you file the form, be sure to conduct your business as an S Corp and follow all federal, state, and local requirements. Also, make sure you pay a decent salary and keep regular payroll records to take advantage of potential tax savings.