LLC ATTORNEY BLOG

How to Start an LLC On Your Own

June 28, 2024

A limited liability company (LLC) is a popular business structure for a good reason. It combines the benefits of a corporation with those of a partnership or sole proprietorship.

One of the reasons the LLC can be valuable is the limited liability protection it offers. Your personal assets — your house, car, and personal savings — have some protection from business debts and legal trouble. This can provide significant peace of mind for business owners.

Another major benefit of an LLC is flexibility in management and profit distribution. LLCs allow owners to decide how they want to run the business and pay their members. This can be perfect for small businesses that need to adapt quickly to changes.

Tax advantages are also a significant consideration. Members get to decide how their LLC is taxed so that it's most beneficial to them. Options include being a disregarded entity, partnership, or corporation for tax purposes. This can help avoid the double taxation that corporations often face.

Forming an LLC is also relatively straightforward. The process typically involves:

  • Choosing a business name and registered agent.
  • Filing articles of organization with your secretary of state.
  • Creating an operating agreement that outlines how your LLC will be managed.
  • Applying for an employment identification number (EIN).
  • Reviewing tax requirements.
  • Obtaining the right business permits and licenses.

We get it. The process can seem like a lot.

That's why we've broken down the step-by-step process for forming an LLC on your own, so you can take advantage of the LLC's benefits in your business. Let's dig in!

Decide on the LLC’s Name

A unique, compliant business name defines your brand identity and ensures you're on the right side of the law. Here’s what you need to know about deciding on a business name for your LLC.

  1. Why you need a unique name. Your business name is the first impression customers will have of your company. It should be memorable, easy to spell, and reflect what your business does. It will help you stand out from your competition and prevent marketplace confusion. Importantly, to avoid legal issues, you must be sure your business name is not already in use by another business.
  2. Why you need a name that complies with your state’s regulations. Simply, you need a business name that complies with state laws to prevent legal issues. Typically, your business name must include "LLC," "Limited Liability Company" or similar to show its legal structure. States generally prohibit LLCs from having names that imply the business is a different type of entity, like "Inc." or "Corp.” Certain words might be restricted or require approval. For example, using words like "bank" or "insurance" may need additional permissions from state authorities. Every state has its own set of rules. That's why you need to review your state's naming requirements to ensure compliance — the goal is to avoid potential confusion and misleading the public.
  3. How to check name availability. Before you finalize your business name, we recommend that you check if it’s available to avoid legal issues and confusion with other businesses. Many states have an online database, so you can search for existing business names.
  4. How to reserve a business name. What happens if you find a name for your LLC that you love, but you're not quite ready to get official? Many states allow you to reserve the name for a specific period, usually ranging from 30 to 120 days. This process typically involves filing a reservation form and paying a small fee. Reserving your business name ensures it will be available when you’re ready to register your LLC.
  5. Trademarking your business name. To protect your business name, consider trademarking it to prevent other businesses from using a name that’s similar to yours. To trademark your business name, you need to file an application with the United States Patent and Trademark Office (USPTO). You'll need to ensure the name isn’t already trademarked and then submit the required paperwork and fees.

Choose a Registered Agent

LLC rules vary from state to state, but one thing that’s true across the board is that your LLC must have a registered agent.

A registered agent is responsible for receiving and handling legal documents on behalf of your LLC. This includes service of process (lawsuit notices), government correspondence, tax documents, and other official communications.

The registered agent ensures these critical documents are promptly delivered to the appropriate person within your company, allowing you to respond quickly.

Registered agents must meet specific requirements:

  • The registered agent must have a physical street address (not a P.O. Box) in the state where your LLC is registered.
  • The registered agent must be available during normal business hours (typically 9 a.m. to 5 p.m.) to receive legal documents.
  • The registered agent must be at least 18 years old and live in the state where the LLC is registered. This point applies if an individual acts as the registered agent.

You have two options for selecting a registered agent: hire a registered agent service or appoint a person (yourself or another individual).

  1. Hiring a professional registered agent service:
    • Benefits. They ensure consistent availability during business hours, maintain compliance with state requirements, and offer privacy by using their address instead of yours. This can be particularly beneficial if you operate your business from home and prefer not to have your address listed publicly.
    • Drawbacks. These services typically charge an annual fee, which depends on the provider and the level of service they offer.
  2. Appointing a person:
    • Benefits. Acting as your own registered agent or choosing someone else you trust can save money since you won’t need to pay for a professional service. It also gives you direct control over receiving important documents.
    • Drawbacks. The agent must be available during business hours at the registered office address, which can be restrictive if you frequently travel or have a flexible schedule. Additionally, your address will be listed in public records — if you prefer privacy, this is an important point to consider.

Whether you choose to hire a professional service, be your own registered agent or appoint another person, it’s essential to understand the requirements and implications to make the best decision for your business.

File the Articles of Organization for Your LLC

Articles of organization, sometimes called the certificate of formation or certificate of organization, is a legal document that outlines basic information about your LLC.

The specifics of this document can vary by state, but it generally includes details such as your LLC’s name, address, registered agent and the management structure.

To legally create your LLC, you need to file this document with your state’s business filing office (typically the secretary of state).

Steps to file the articles of organization:

  1. Gather the necessary information to complete the form. Commonly required details include:
    • LLC’s name and business address.
    • Registered agent’s name and address.
    • Names and addresses of the LLC’s members or managers.
    • Management structure (member-managed or manager-managed).
    • Duration of the LLC (ongoing or a specific term).
    • Business purpose (sometimes required).
  2. File the articles of organization.This form is usually available on your state’s secretary of state website. You can complete it online in most states, but you can also mail in the form if you prefer. Submit the completed form along with the required filing fee. Filing fees vary by state and can range from $50 to $500. Some states offer expedited processing for an additional fee.
  3. Wait for approval. Once you’ve filed the articles of organization, the state will review your submission. Approval times vary, with some states processing documents instantly online while others may take several weeks. Once the filing is approved, you will receive a certificate confirming the formation of your LLC.

While the basic process of filing the articles of organization is similar across all states, there are some differences to be aware of:

  • Publication requirements. A few states (Nebraska, New York and Arizona) require LLCs to publish a notice of formation in local newspapers.
  • Initial reports. Certain states require newly formed LLCs to file an initial report shortly after formation (usually 90 days), detailing basic information about the business. Currently, the states that request this report are Alaska, California, Connecticut, Georgia, Louisiana, Missouri, Nevada, New Mexico, South Carolina, and Washington.

We recommend familiarizing yourself with your state's specifics ahead of time to ensure you meet all requirements.

Create an LLC Operating Agreement

An LLC operating agreement is a document that outlines your LLC's management structure, operational procedures, and ownership details. While it’s not mandatory in every state, we highly recommend one for every LLC — even single-member LLCs!

Here’s why you should consider creating an operating agreement, even if it’s not a legal requirement in your state:

  1. Clarifies ownership and management structure. An operating agreement clearly defines who owns the LLC and how much each member owns. This is particularly important for multimember LLCs, where ownership percentages might vary. Additionally, it specifies whether the LLC is managed by its members or by appointed managers. This helps prevent misunderstandings and disputes among members about who has decision-making authority.
  2. Establishes roles and responsibilities. The operating agreement details each member's roles and responsibilities. It outlines who is responsible for specific tasks and decisions, ensuring that everyone knows their duties and how the business should be run. This clarity can improve efficiency and cooperation among members.
  3. Defines profit and loss distribution. Unlike corporations, which typically distribute profits based on the number of shares owned, LLCs can be flexible in how they distribute profits and losses. An operating agreement clearly states how profits and losses will be allocated among members. This agreement could be based on ownership percentages, contributions or some other agreed-upon method.
  4. Provides legal protection. One of the greatest benefits to the LLC business structure is that it offers limited liability protection. Having an operating agreement reinforces the limited liability status of your LLC because it demonstrates that your LLC is a separate legal entity with its own rules and procedures, which can be a game changer in legal disputes. Courts are more likely to respect the limited liability status of your LLC if it has an operating agreement in place.
  5. Prevents internal disputes. An operating agreement sets processes for resolving disputes among members. It can include provisions for mediation or arbitration, as well as guidelines for voting and decision-making. By having these procedures in place, you can reduce the likelihood of conflicts escalating and disrupting the business.
  6. Facilitates changes and growth. As your business grows, you may need to add new members, change roles or modify your profit-sharing arrangements. An operating agreement provides a framework for making these changes smoothly. It outlines the process for updating the agreement and adding or removing members, ensuring that changes are agreed upon and made official.
  7. Enhances credibility. A formal operating agreement can enhance your LLC’s credibility with banks, investors, and potential business partners. It shows that your business is well-organized, transparent, and has a clear plan for operation and governance.

We’ve touched on a few of these items, but here is a brief list of key elements that should be in your LLC’s operating agreement:

  • Basic information. The name of the LLC, its principal place of business and the names of its members.
  • Management structure. Whether the LLC is member-managed or manager-managed and the roles and responsibilities of each member or manager.
  • Ownership and voting rights. The ownership percentages of each member and their voting rights.
  • Profit and loss distribution. How profits and losses will be allocated among members.
  • Decision-making processes. Procedures for making important business decisions, including voting requirements and processes.
  • Dispute resolution processes. Methods for resolving disputes among members, such as mediation or arbitration.
  • Amendment procedures.Guidelines for making changes to the operating agreement and the process for adding or removing members.

Creating this document might seem like a lot of work, but it’s an important foundational piece of your business that will get it started off on the right foot.

Apply for an Employer Identification Number (EIN)

An employer identification number (EIN) is a unique, nine-digit number assigned by the IRS to businesses for tax purposes — like a Social Security number (SSN) for your business.

It’s used to identify your business entity and is required for:

  • Filing federal and state taxes. Your EIN is used when filing your business’s federal tax returns and, in many cases, state tax returns.
  • Opening a business bank account or getting a business credit card.Your bank or lender will likely require an EIN to open an account in your LLC’s name.
  • Setting up payroll. If your business plans to hire employees, you need an EIN to report wages and employment taxes.
  • Multimember LLCs. All multimember LLCs need an EIN regardless of their chosen tax structure, and you’ll need it to pay your members’ salaries.
  • Employee benefit plans. Many benefit plan types (such as single-participant Keogh or Solo 401(k) plans, profit-sharing plans, SIMPLE IRAs and SEP IRAs) require you to obtain an EIN.
  • Applying for business licenses and permits. Many licenses and permits require an EIN during the application process.

How to Get an EIN Number

  1. Determine eligibility. To apply for an EIN, you must have a valid Taxpayer Identification Number (such as a Social Security number), and your principal business must be located in the United States or U.S. Territories.
  2. Gather required information.This includes:
    • Legal name of the business.
    • Legal name of the person applying.
    • Trade name (doing business as — DBA — if applicable).
    • Mailing address, street address, country and state where the business is located.
    • Social Security number of the responsible party.
    • The number of LLC members.
    • The date the business was started or acquired.
    • The primary activities of the business.
    • The reason for the EIN application (such as starting a new business, hiring employees and opening a bank account).
    • The maximum number of employees expected in the next twelve months.
    • The first date wages were paid to any employee (if applicable).
    • Any supporting documents such as articles of incorporation, partnership agreements or other relevant legal documents.
  3. Apply online: The easiest and fastest way to get an EIN is to apply online through the IRS website. Follow these steps:
    • Go to the IRS EIN application page.
    • Click "Apply Online Now" and read the instructions.
    • Click "Begin Application" and follow the prompts, entering the required information.
    • Once completed, you'll receive your EIN immediately upon verification.
  4. Apply by mail or fax: If you prefer not to apply online, you can complete Form SS-4 (application for Employer Identification Number) and mail or fax it to the IRS.
    • Mail: Send the completed form to the address listed on the IRS website for your state. It usually takes about four weeks to receive your EIN by mail.
    • Fax: Fax the completed form to the number provided on the IRS website. You should receive your EIN by fax within four business days.
  5. Apply by phone (international applicants): If you are an international applicant without a legal residence in the U.S., you can not apply online. Instead, you can apply for an EIN by calling the IRS at 1-267-941-1099 from Monday to Friday, 6 a.m. to 11 p.m. Eastern Time.

By following the steps outlined above, you can quickly obtain your EIN and move forward with your business operations.

Review LLC Tax Requirements

We love to talk about all the tax advantages of owning an LLC — the flexibility in your tax classification and pass-through taxation, for example. Still, there are requirements you need to know about, and it’s essential to understand them so you can keep your business in good standing and avoid penalties.

Before we go deeper, it’s important to note that this is a very high-level look at some of the possible tax requirements you might face. To get a handle on what applies to your specific LLC (its location, business operations, tax classification and how it pays its members), we recommend that you consult with a tax professional.

At the federal level, taxes include FICA (Social Security and Medicare). The IRS also requires LLCs to file various tax forms depending on their tax classification, whether as a sole proprietorship, partnership, or corporation. Each classification has specific requirements and implications for reporting and taxing income.

State tax obligations vary widely and can include income, franchise, and sales taxes. Some states impose a franchise tax or annual fee on LLCs that operate in that state. Check with your state to understand these obligations and ensure timely filing and payment.

Depending on the municipality, local taxes may include property taxes, business licenses, and permits. You must meet these requirements to avoid fines and potential closure.

How Tax Classifications for LLCs Can Affect Tax Requirements

  • If your LLC has one member, it's treated as adisregarded entity for tax purposes by default. Your business income is reported on your personal income tax return, making it easy to pay yourself from the profits.
  • If your LLC has multiple members, the default is to treat it as apartnership. Profits are divided among members, who report their share on their personal income tax returns. The LLC can also opt to be taxed as an S-Corp or C-Corp by applying for this classification.
  • You can choose to have your LLC taxed as a corporation. The LLC pays corporate taxes and then pays members as employees (salary) or shareholders (dividends).

Common Ways to Pay Yourself and Tax Requirements

  • Owner Draw. If you choose to take owner draws, you’re responsible for self-employment taxes to cover FICA (Social Security and Medicare) and paying quarterly tax installments.
  • Salary. Once you determine a reasonable salary and set up a payroll system, you need to withhold payroll taxes (federal income, FICA, Social Security, Medicare, and sometimes state and local taxes). You also need to remit quarterly reports and payments to the IRS.

Obtain Necessary Licenses and Permits

Licenses and permits are meant to protect the public, and you may need to obtain some to ensure your business meets with regulations and industry standards. Like taxes, these licenses can come from all levels of government — federal, state, and local.

At the federal level, businesses involved in activities like selling alcohol, broadcasting, or transportation may need specific licenses.

State licenses often cover professional services such as healthcare, legal services, and real estate.

Local permits can include zoning permits, health permits, and signage permits, depending on the city or county regulations.

Failing to obtain the necessary licenses and permits can result in fines, legal issues, and even the shutdown of your business. Research and understand the licensing requirements for your specific business and location before you open your doors.

Don’t want to do it on your own? Consult with a business advisor or legal professional to ensure you get the licenses you need.

Start Your LLC on the Right Path Today

Starting an LLC involves several key steps: choosing a business name, appointing a registered agent, filing your articles of organization, creating an operating agreement and obtaining an EIN. Additionally, you need to meet all your tax requirements and get any necessary business licenses and permits that apply to your business.

Taking these steps will help make sure you get all the benefits an LLC can bring.

As you move forward, consider consulting with a legal or business professional to get personalized advice tailored to your business.

This can help you get your LLC set up the right way, so you begin your business adventure with confidence.

How to Start an LLC on Your Own FAQs

How do LLC owners make money?

LLC owners can get paid in several ways:

  • Owner draw. This method allows the LLC’s owner to draw from their business account when needed (with a single member LLC) or based on the operating agreement (with a multimember LLC). These draws aren’t subject to payroll taxes, but if you choose this method, you must pay self-employment taxes to the IRS.
  • Salary. This method involves setting up a payroll system and determining a reasonable salary for your role. You will also need to calculate and withhold federal income, Social Security, and Medicare taxes.
  • Profit distributions. This method is typically used by LLCs taxed as partnerships or S-corporations. In both cases, distributions are not subject to self-employment taxes — they are reported as income on the members’ personal tax returns.
    • Partnerships: Profits are distributed to members based on their ownership percentage or as specified in the operating agreement.
    • S-Corporations: LLC owners can receive profit distributions in addition to their salary.
  • Dividends. This option is for members of LLCs taxed as C-Corporations. Dividends are distributions of the corporation's profits to its shareholders (owners). The LLC pays corporate income taxes on its profits. After taxes are paid, the remaining profits can be distributed to owners as dividends. These dividends are then taxed again on the owners' personal income tax returns, resulting in double taxation.

The method you choose should be based on your LLC’s tax classification (sole proprietorship, partnership, or corporation) and the details of your operating agreement.

Should I start an LLC for my side hustle?

Starting an LLC for your side hustle can be a smart move. If you want personal liability protection, tax benefits, and operational flexibility, forming an LLC is worth considering. However, you need to weigh the pros and cons and understand your obligations before deciding. Consulting with a legal or financial advisor can help you make the best choice.

What if your LLC makes no money?

If your LLC makes no money, you generally won't owe taxes on business income. However, you still need to file annual reports and maintain compliance with your state’s regulations. Additionally, you may be able to deduct business expenses on your personal tax return. Always keep accurate records and consult a tax professional for specific advice.

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