Forming an LLC is an important step to minimize taxes, protect assets, legitimize your business, and ensure your privacy. Our competitors love adding unnecessary fees, and needless stress, but every company we form includes an operating agreement, registered agent service, bank account, phone support, and more. We don’t bait and switch.
We file your Articles of Organization the same day we receive them, then we guide you through your next steps - whether that’s obtaining an EIN, setting up a holding company, or filing an annual report. We ensure your personal information is protected, filings are done correctly the first time, and we submit everything quickly without “expedite” fees as other formation services call them. That’s our professional promise.
Our pages are written by attorneys and small business owners who understand. Continue reading for information on annual fees, which state to choose, compliance and filing requirements, amending articles, dissolutions, etc.
Fees/Cost
There are three types of fees limited liability companies incur. The balance for each owner is to find the trade-offs between the monetary cost versus the time required to implement.
- State Fees:
- As named, these are the fees a state levies for various filings.
- Up-Front: Each state has a fee to file the initial paperwork.
- Annual Report: The fee to keep the company open per year.
- Other Filings: This includes name changes, DBAs, changing agents, etc. - these vary greatly and are “unseen” for many when they first file.
- As named, these are the fees a state levies for various filings.
- Registered Agent & Formation Service Fees
- These are the fees companies, like us, charge to handle paperwork and other corporate requirements.
- Compliance & Maintenance
- These fees aren’t related to state filings, but include holding minutes, drafting operating agreements and contracts, etc.
Registered Agent
Most services won’t tell you this, but being the registered agent for a company is relatively straight forward. The primary requirement is to have an office in the state which is open during normal business hours. This is required by law so if a company is sued, then the service of process agent can deliver the paperwork.
You cannot be your own registered agent if you don’t have an address in the state. The address must also have a person there during the day to accept lawsuits and other mail. Even if you live in the state, you may not want to be the agent:
- Do you want to accept lawsuits in front of family or employees?
- Are you always in town to sign for paperwork?
- Whenever you change addresses do you want to file with the Secretary of State
The agent’s value comes in providing an interface between the company, our client, and the Secretary of State. Whether a name change, amendment, annual report, DBA, or other needs filed we can use our years of expertise to understand your needs and complete the documents quickly and correctly. This allows you to spend more time running your company than making sure certain government documents have the right boxes checked.
EIN
An EIN (Employer Identification Number) can be thought of as the Social Security Number (SSN) for a company that is issued by the IRS. It’s required to open a bank account, have employees, file IRS forms, and more.
Clients with an SSN can apply for an EIN online. Those without must fax their application. A mail-in option is available, too, but it’s much slower. Domestic clients who choose our EIN services receive their number the same day. International clients have their application faxed the same day, but won’t be accepted for several weeks after.
Bank Account
This is important because it helps with asset protection and tax minimization. We provide online bank account openings. A majority of clients receive their account details the same day they order the LLC. Why wait longer than you have to?
Should an LLC have its own bank account?
Yes. A new account helps keep personal and business assets separate. This is important not only for a lawsuit, but in case the company is audited by the IRS. Being able to show personal and business funds were not commingled makes it easy to justify the corporate veil and standard business expense deductions.
How to open a bank account for an LLC?
A business account requires the company’s Articles, Operating Agreement, EIN and information about the owners and managers of the business. We have the majority of this information as part of our intake process, and we can promptly handle the application on your behalf.
How should you transfer money between a personal and business account?
Such transfers are allowed and easy to make, so long as you provide proper documentation. For example, transfers in should be considered either contributions towards equity or loans. Each has a separate document which we happily provide.
Transfers out can be for payroll, expense reports, loan repayments or distributions. Again, we provide documents for each to substantiate the transfer.
Benefits
There are as many reasons and benefits to forming an LLC as there are types of businesses and the people who form them. Here we cover the most common advantages, though if there’s any doubt please don’t hesitate to contact us. The benefits are protecting personal assets, lowering your taxes, hiding your personal information and appearing professional for clients.
Asset Protection
We’ve all heard horror stories about lawsuits. The last thing you want is to work hard only to lose everything due to litigation. In the eyes of the law an LLC is a distinct legal entity. This means the assets and debts of a company are different from the owners.
If your company is sued, then your personal assets, such as a home or brokerage account, are protected… in theory. In some states, it also means if you are sued personally, then your company’s assets are protected, too. This is referred to as charging order protection and is one of the defining characteristics for states serious about small business asset protection.
Every state has different protections depending on whether you have a limited liability company or a corporation, if there is a single-member or many, and whether there’s charging order protection. For those very concerned about asset protection’s many facets we recommend you contact us to discuss further. There are some complexities, but learning them can make a large difference down the line. Think of this research and asset protection planning as a form of insurance.
Taxes
There is no shame in saving money on taxes. In fact, there is a Supreme Court decision stating you are not obligated to maximize your taxes. Put another way, you may use the rules Congress and the IRS create to your benefit. Engaging in tax minimization strategies is not equivalent to tax evasion, which carries a penalty of up to ten years in prison.
An LLC has the most flexibility of any corporate structure for taxation: it can be taxed as a disregarded entity, partnership, corporation or s-corporation.
It’s important to know the tax and legal status of a company are different. For example, an LLC can be taxed as a Corporation. Beyond this, there are two areas to understand. First, the ways an LLC can save you money, and second the ways the LLC can be taxed. You will choose the form of taxation which allows you to save the most money.
Business Expenses
Money spent toward operating or growing your company is not treated as income. For example, the cost to form the LLC is deductible. If you use your:
- Cell Phone
- Computer
- Car
- Meals
The above can be deducted from your income if you show they were needed to operate your company. For example, if you drive your car to buy a computer or cell phone, then you can deduct both. Visiting a conference? Then the ticket, airfare, hotel and meals can be deducted.
Here it’s important to note there are rules surrounding what can be deducted. It needs to be defensible.
How is an LLC Taxed?
A limited liability company is taxed as a pass-through entity by default. This means the profit and losses flow to the owners of the company’s tax filing. There are no taxes due at the corporate level and double taxation is avoided.
Default Classifications
A single-member LLC is taxed as a disregarded entity and a multi-member as a partnership.
Alternative Tax Elections
A defining characteristic of LLCs is their flexibility. Whether a single or multi-member LLC, you may choose to be taxed as a Corporation or an S-Corporation.
Anonymous LLC
Please note, we don’t think protecting your privacy is a bad thing. Do you want strangers or clients on the internet to know where you or your children live? We know we don’t. That’s normal. We consider privacy and anonymity to be our primary focus. We can create an LLC anonymously in every state.
We admit most clients don’t think of this, but we consider it to be among the most important reasons to create a company. With most states and registered agents, when you file the LLC your personal information will be published online.
This means your name, home address, phone and email are listed on the company’s Articles of Organization on the Secretary of State’s database and thus Google. There are some states known for creating anonymous LLCs, but it’s possible in all states and we’re happy to help.
Operating Agreement
An Operating agreement is the contract all owners and managers sign to acknowledge their rights and responsibilities. After the Articles of Organization, this is the most important piece of business documentation. If you and your partners don’t put your agreement in writing, then what have you really agreed to? Good luck convincing a judge in case something goes wrong.
Short aside, this is why every LLC we form includes an operating agreement. Other providers charge because they see dollar signs, but to us, that’s like selling cars without seatbelts. We want you to be protected.
From this you might ask, does a single-member LLC need an operating agreement? What about states where the law doesn’t require one? In each case, you should still sign as best practice. Drafting and signing an agreement shows corporate formalities have been observed and helps avoid piercing the corporate veil.
Single Member vs. Multi
The owners of an LLC are called members, much like the owners of a Corporation are called shareholders. Accordingly, if a limited liability company has one owner, then it’s a Single-Member LLC, but if it has more than one then it’s a Multi-Member LLC.
The number of members affects the default tax classification, i.e. a Single-Member is taxed as a disregarded entity and a Multi-Member as a partnership. These are both pass-through tax statuses, but change the filings required with the IRS. This is often a difference your accountant should be aware of, but you shouldn’t wring your hands over too much.
Asset protection statutes are crafted differently for single and multi-member LLCs. It affects the ability of a business creditor to pierce the corporate shield, and a personal creditor to seize business assets.
Member vs. Manager Managed
A member is an owner, but this doesn’t mean the owners manage the day-to-day activities of the company. You can think of how some restaurants have a “silent-partner”. This is someone who provided cash, or something else of value, but doesn’t participate in the daily decision making.
If every owner will be involved in daily decisions, then a Member-Managed company makes sense. If not every owner wants to be involved, or there will be managers who aren’t owners, then Member-Managed makes more sense.
LLC Forms
The last thing we want is for the number of forms a company must file to act as a deterrent to a client wanting to start their next best thing. We provide a majority of these as part of our standard formation and renewal bundle, but we include the list here to help inform our readers.
Articles/Certificate of Formation
Starting a company is the same in every state. There is a standard document and state fee to be submitted. Most allow online filings, but processing times still vary. Wyoming, for example, accepts companies immediately upon payment so you can begin doing business. Other states require a manual check.
The first document to file is titled the Articles of Organization. The document contains the company’s name, registered agent, business address, mailing address, and who filed the document. Some states require the names of owners and managers, but we can help you avoid putting your public information online. It’s not unreasonable to avoid this requirement.
Annual Report
Don't let the title fool you. Some reports are due annually, bi-annually, and sometimes… never. Every state has different yearly requirements to keep the company open. At the low end, there is New Mexico which requires no report and only that you maintain a registered agent in New Mexico.
At the other extreme is California which requires $800 per year. They call this a tax, but it’s due regardless of whether there was revenue or profit.
The primary reason to file the report is because the state requires it to keep the company in good standing. While every state varies, our service doesn’t. Every formation service we offer includes filing state reports to ensure your asset protection, tax, and privacy benefits are not affected.
Dissolving
Ending or dissolving a company is relatively easy from a state filing perspective. Each state has an articles of dissolution document which can be filed, or simply failing to file the required annual report or maintain a registered agent will lead to a dissolution.
However, the more complicated questions come down to holding a meeting where a vote to dissolve takes place, how to distribute cash and assets, pay off liabilities, and what about taxes and…
Requirements
The requirements to form a limited liability company are the same across most states. It’s important to note some items below are not strictly required, but they are best practice. Those which not all states mandate are marked with an asterisk. We go into more detail below.
At the minimum, every state requires the company have a name, registered agent, file paperwork with the Secretary and pay a fee:
Initial Requirements
- Choose a Name for the LLC
- Designate a Principal Place of Business
- Designate a Mailing Address
- Choose a Registered Agent
- Choose Who Signs Articles
- File Articles of Organization with Secretary of State
- Draft Operating Agreement*
- Obtain an EIN*
- Open a Bank Account*
- Now the Fun Begins!*
Ongoing Requirements
- Special & Quarterly Meeting Minutes
- Annual Meeting Minutes
- Business License*
- Annual Report w/ Secretary of State
- File State & Federal Taxes*
The requirement list above is meant to be nearly exhaustive and not simply meeting the bare minimum. This is because if you are faced with a lawsuit or audit, the most common question a third party will ask is, “did the owners of the LLC respect the LLC by acting as though it existed” and often the answer is no. Doing the least required also minimizes your chances of winning, whereas doing the maximum maximizes them. There are, to be certain, no guarantees, but it’s a game of percentages and increasing your odds.
Those not in particularly risky industries may decide it’s not worth the extra effort. We understand. Though, those in riskier industries or who have personal assets may desire to do more. Some even go so far as forming an LLC in Wyoming for the asset protection and privacy.
Name the LLC
We always joke this is the hardest decision and the only one we can’t assist with. It’s a largely personal question. Funnily enough, when clients have asked us to help and we propose names they often don’t like them!
That said, there are a few items to keep in mind. Most states have “protected” words such as bank, insurance or trust to avoid companies from misleading clients without obtaining the appropriate business licenses first.
For those interested in privacy we also recommend not using your name or an identifying piece of information. If you’re in real estate we frankly recommend simply naming the LLC after the property it owns. Otherwise, once you have multiple properties, you end up trying to figure out which name goes to which property: Does anyone remember which property “Lilac Ventures, LLC” owns?
Series LLC
Not every state allows Series LLCs, but they were first allowed in Delaware in 1996 and Wyoming updated its statute to allow Series in 2018. There are currently 13 states which allow them.
Why form a Series Limited Liability Company? It is, in many ways, simply an efficient mechanism for forming multiple companies at once. There is less paperwork and often fewer fees than creating the companies independently. A “parent” company and as many “children” as are wanted can be filed with one set of documents. Note, there are some differences between a holding company and series, but they’re largely the same.
Why not form a Series? Asset protection is an important part of any business venture, however given not all states recognize them there are concerns about whether those without such statutes will honor that each series is its own company for liability purposes.
Practically, it can also be difficult for a bank in another state to understand what they are seeing. If it’s their first time seeing a series, then it can look like one big company. This applies when foreign entity filing, purchasing real estate, etc. Simply being new, and we understand nowhere outside of law is something from 1996 considered new, can bring unexpected and frankly silly difficulties to overcome.
Amend Articles
There are often cases where the company’s initial filing needs to be updated, the most common being a name change. Some states require owners and manager be listed, and in those cases an amendment must be filed as well.
Not all items on the Articles are amended via an Article Amendment, however. While the registered agent and business address are listed there, most states provide specialized forms for updating those.
An important note is that nearly every time an amendment is filed a company should hold a special meeting authorizing the change. The meeting doesn’t have to be anything complicated, just a note of who attended, what was discussed and how the vote came out. This shows corporate formalities are being followed.
By using a shell corporation, individuals can shield their identities from public disclosure while still conducting business or holding assets through the entity. However, it's important to note that while shell corporations can offer privacy benefits, they have also been associated with illicit activities such as money laundering and tax evasion. Therefore, it's essential to ensure that the use of a shell corporation complies with all relevant laws and regulations.
Compliance / Record Keeping
Corporate compliance and proper record keeping are things all companies should be concerned with. Without it why bother creating the company in the first place? The requirements list above provides an overview of what’s needed, but in short most items are filing with the state when required, for example annually, and holding meetings about large decisions.
Taxes are a separate matter. These require proper documentation in the form of receipts, contracts, invoices, purchase orders, etc., Those are covered in more detail in our taxes section.
Best State to Form an LLC
The best state to form an LLC is an intersection of what industry you’re in, state, if privacy is desired, whether there are outside investors, the company’s willingness to pay fees, if there are employees and more. Some may need to file in the state they live in or operate, but not all and it’s worth exploring whether a different state provides lower fees or better protections.
Taxes
There actually is no best state for taxes. An LLC is taxed as a pass-through entity by default, which means the profits flow to the owner’s personal returns. The tax rate is thus determine by the owner’s state of residency, not where it was formed. This is not true for Corporations or LLCs taxed as Corporations.
Asset Protection
The best state for asset protection is Wyoming. The legislature intentionally crafted the nation’s strongest protections for small business owners. This includes a corporate veil for single-member entities with no minimum contributions. Only in causes such as fraud can personal assets be attacked. Simply failing to maintain corporate records is not enough, though we still advise you do so as best practice.
In this vein, Wyoming has the strongest charging order protection, even for single-member LLCs. This means if an owner is sued personally, then the creditor cannot attack business assets. This is helpful even if there are multiple owners as if one owner has a lawsuit, this does not mean you want their creditor having voting rights and being able to make business decisions.
Nevada has an honorable mention for similar laws, but their fees have increased for the last decade to the point most clients prefer Wyoming.
Low Fees
Our favorite state for low fees is New Mexico. The initial filing is $50 and there is no annual report requirement. The company only needs to maintain a registered agent to remain in good standing. This makes NM the lowest cost state to maintain a company over the long-term. Anonymous companies are also allowed which is an additional bonus.
Privacy
Not everybody wants their ownership of a company published online for the public to see. Does having your neighbors, family, employees, business partners, creditors or the curious public being able to see how wealthy you are or aren’t sound appealing?
For those who answered no, then forming an anonymous LLC is the best option. Your name, address, phone and email will not be published online in a government database for easy searching. This does not mean the IRS, bank, treasury and other entities know who owns the company, just the general public.
The states best known for anonymous companies are Wyoming, New Mexico, Delaware and Nevada. It’s possible to form anonymously in other states, but these are the most sought after.
Other
If you have W2 employees or a storefront in a state, then you need an LLC in that state. This is because you are considered to be doing business in that jurisdiction. This does not mean a holding company cannot be formed, or other strategies employed, but at minimum one entity must be in that state to be in compliance.
Foreign Entity Filing
A foreign entity filing is when a company in one state files to do business in another. This can sometimes be easier than filing a brand new company in the second state. The filing allows you to have employees or engage in other business activities in two states, the initial state of filing and the second. There is no limit to how many states you can file in. In theory, you could file in one state and then foreign file in all the other states.
The reason to do this is if you have growth in your business where there will be employees or a new storefront. California has a requirement whereby if you sell more than a certain amount into that state, then you must register. These are just some reasons to qualify the business in a state other than the one it was formed.
It is important to note that location independent businesses such as holding companies and websites can be formed anywhere.
Holding Company
There are two ways this term is used. The most common is to refer to a company which owns one or more other companies. The second is a company meant to hold a single asset. This section will focus on the first definition.
Owners with multiple businesses, valuable assets or in risky industries can use holding companies to minimize risk and taxes, while providing privacy. These industries often use holding companies:
- Real Estate
- E-Commerce
- Retail Stores
- Trucking
An easy example is for a real estate investor with two or more properties. For liability reasons, each property should be held separately. Rather than filing a separate return for each entity and having to document cash transfers, a holding company can be used to own the LLC for each property.
This separates the liability between properties as the person suing you cannot go after your other properties. The cash each property generates can also be moved to the parent company for reinvestment.
This structure also works for e-commerce companies that have multiple websites. Either for risk reasons, or to help keep the books separate for each website. Having separate books and bank accounts for each site makes determining a valuation and selling the entity easier.
Licenses & Permits
Some states have a general business license in addition to the Articles of Organization, such as Nevada. This is really just an excuse to add extra fees through drip pricing.
Most states do not require a license except for protected industries. These include banking, insurance and trustees. Professions such as electricians, plumbers, doctors and lawyers also have licensing requirements to protect the general public.
Non-Residents
You do not need to live in or be a resident of the United States to form an LLC here. The U.S. is a popular jurisdiction worldwide for non-residents, expats and digital nomads because of the ease of doing business, coupled with relatively low fees and taxes.
An LLC can do business worldwide. For example, a Wyoming company can own real estate in Europe, open a bank account in Singapore and sell to clients anywhere. The overall state for non-residents is Wyoming due to the relatively low fees, privacy and asset protection. Those looking to raise capital or who want a well known state often choose Delaware, but should beware of the higher state fees which are a minimum of $300 for limited liability companies.
Some choose California or New York because of the name, but we don’t feel they fit most clients' needs beyond providing a “well known” address that is internationally recognized. Ultimately, though, non-residents can form in any state they want.
Business Structures
The focus of this article has been how to start an LLC. There are additional business entities available for other circumstances, such as corporations, DBAs, business trusts and partnerships.
Corporations
Before LLCs existed, the primary structure for doing business was the Corporation. Fun fact, Wyoming was the first state to allow LLCs in 1977. Corps provide limited liability, but have more complex initial and ongoing compliance. This can serve well when raising money from a large number of people, or when additional oversight is needed.
The owners are called shareholders. The shareholders elect a board of directors who provide advice and appoint officers. The officers are in charge of running the company’s daily operations with the board providing strategic advice as needed, but generally on a quarterly and annual basis.
This structure is not ideal if the owner is also operating the company. There is little reason to vote yourself onto the board, and then vote yourself as the CEO along with all the accompanying paperwork.
A corporation is taxed as a corporation by default, but can also be taxed as an S-Corp which is a form of pass-through taxation. The S-Corp avoids double taxation, and allows the minimization of FICA taxes. However, an LLC can elect to be taxed as an S-Corporation or Corporation as well, so this entity should not be chosen simply for the tax status.
Some countries do not recognize pass-through taxation or LLCs, and in those cases a Corporation is a necessity when choosing a US entity. However, for non-residents we must advise you check with a local accountant to ensure the complexity of a corporation is required. In most cases we recommend simply forming a limited liability company.
Limited Liability Partnerships
These still have a role for some investors, but were more common before LLC statutes became advanced. They were a nice alternative when a Corporation was the only other option, but investors and managers wanted to avoid the formalities of electing a board, while maintaining limited liability and the corporate veil.
While limited partners have no liability, the general partner does have liability. Outside real estate and a few exceptions, such as Master Limited Partnerships, we don’t advise clients to draft a partnership agreement.
DBA or Trade Name
A DBA means Doing Business As, and in some states is called a Trade Name. Both individuals and companies are allowed to file for them. Essentially, they allow the applicant to do business under a different name.
For a person, this means they don’t have to use their personal name on contracts, checks or when advertising. This can make them seem more professional.
For a company, this can be used when opening a new line of business. For example, if your company’s name is “Sally’s Cupcakes”, but you want to start selling shoes, then your original name is a bit awkward for marketing and sales, but you may not want to file a name change.
For individuals we always recommend forming an LLC. This is because a DBA does not have any liability protection and you cannot bring on any partners. This means you cannot raise money from a partner or split the profits.
For companies, it generally makes sense to form a new LLC. This creates a separation between the two entities so that if one has creditor or other problems it doesn’t affect the other entity. With a DBA the two names are really one entity, so there is no separation.
Sole-Proprietorship
A Sole-Proprietorship is when you run a company under your personal name or using a DBA. This shouldn’t be confused with the sole-prop tax status which all single-member LLCs have by default. Having a SMLLC with sole-proprietorship tax status still provides asset protection and privacy benefits you cannot obtain operating without a business structure.
Only for those engaging in a small amount of business such as a hobby business in a non-risky industry do we consider this to be a good option.
