to Launch an LLC in 7 Easy Steps
Congratulations on your first steps towards starting a new business! You’re at the right place if you want to know how to create an LLC (limited-liability company).
It’s normal to feel overwhelmed by the requirements and details. It’s normal. This guide will help you understand the basics.
You’ll learn the pros and cons about an LLC, as well as a step-bystep process to get started.
Please keep in mind this is not legal advice. You’ll need to conduct your own research, and possibly consult an expert.
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What is an LLC ?
Limited liability company is the abbreviation for LLC. This business structure is chosen by LLC owners because it is a hybrid of sorts, combining elements of a corporation with a partnership or sole-proprietorship.
An LLC’s purpose is to protect its members from liability. If something bad happens to the business, like a lawsuit, or if it goes bankrupt, their assets and personal debts are separated.
Benefits to forming an LLC
Limited liability protection and tax pass-through are the two major benefits LLC owners receive. Limited liability protection protects LLC owners against legal issues, as we have already mentioned.
Pass-through taxation is a taxation system where the profits and income of a business are not taxed on a corporate basis. Profits and losses are “passed through” from the corporation to each individual member, allowing them to avoid double taxation.
The management of LLCs is also flexible. They allow the owners to run the business themselves or to select managers to do so. Owners of LLCs also have the option to transfer ownership or assign ownership to other members.
The disadvantages of forming an LLC
Self-employment tax is one of the disadvantages. Because owners are taxed as individuals and not businesses, they will likely have to pay higher self-employment taxes than those paid by employees.
It can also be confusing to start a limited-liability company. It’s because the laws differ from one state to another, and there is no right way to do it. Your LLC’s lifespan may be limited depending on the jurisdiction in which you are. The LLC can dissolve if one member withdraws, dies or declares bankruptcy.
LLC owners also face a reduced level of credibility with other stakeholders, such as investors and lenders. This is in comparison to corporations like C or S corporations.
7 steps to starting an LLC
1. Name your LLC
The name of your limited liability business is the foundation for the brand and the entity. Think of a name that’s an accurate reflection of your identity as a brand.
The tough part is making sure that your idea is unique. While you can technically choose a duplicate name, it’s not unlikely that you’ll run into issues in the future if you run into other businesses with the same name. You’ll also want to be sure that it complies with state regulations.
Consider using a domain name checker to see if the name is available as a domain. This can help you narrow down your choices.
2. Get an EIN and check for taxes
The next step is to register your business with the government to obtain an employer identification number (EIN). You can think of this as a Social Security number for your business: it’s the unique number that the government uses to identify your company from the others, as well as for federal tax purposes.
To apply for an EIN, visit the IRS website here. Submitting an application is free and should only take about 15 minutes. You’ll receive your EIN number instantly.
Once you’ve completed this step, it’s time to look into your potential tax obligations. This will depend on the type of business you’re running, and from where you’re running it. For example, an ecommerce business may be liable for multiple types of tax, like sales tax, income tax, use tax, and value-added tax (VAT) if you operate in the EU.
3. Make an LLC operating agreement
The next step is to make an LLC operating agreement. While this isn’t required in every state, it can be a helpful document for you internally. This is especially true if there are multiple LLC owners.
An LLC operating agreement is something like an outline for your business structure. You can clearly assign certain roles and responsibilities, where business income goes (including how each owner is compensated), equity between owners, and more.
You can do this yourself or hire an attorney or your own registered agent to handle it for you.
4. Open a business bank account
If you don’t create a separate business bank account, your finances will become a mess. This is the best way to ensure that your business income is separate from your personal assets and finances, which will make life easier for everyone when tax time rolls around.
Opening a business bank account isn’t much different than opening a personal bank account. You’ll need basic details like your physical address and EIN number. Your bank of choice can help determine if you need any legal documents.
5. File the necessary paperwork
Depending on the location and nature of your business, you may need to submit additional paperwork as part of your articles of organisation. These LLC formation documents may include:
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Business licences and permits
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Insurance policies required for legal operation
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LLC operating agreement
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Workers’ compensation if you hire employees
6. Create a website for your LLC
Once you receive permission to start an LLC, you can build and launch a website. Use a website builder to create your design and publish your webpages. And make sure to include important information like whether it’s a single-member or member-managed LLC.
You can also use the site builder’s marketing tools to drive traffic to your site. Optimize your webpages to improve search engine ranking and run social media campaigns to build awareness for your LLC.
7. File an annual report
Most states mandate that LLCs must file an annual report and pay a filing fee. The fees can vary from state to state, so it is advisable to consult the secretary of state for accurate information.
You can also inquire whether additional regulatory requirements apply to your LLC. For example, those in the CBD or food and beverage industry need to obtain a business licence if they want to operate legally.
All that’s left is to get started
It may seem intimidating, but learning how to start an LLC might be more simple than you think. Just be sure to do your research, as everyone’s situation can be different. This is especially true state to state–each has its own set of rules for liability protection.
If you’re feeling confused, consider reaching out to a business consultant or registered agent service to help you handle all the legal documents and create your business entity the right way. It’s an upfront investment, but it’ll be worth the peace of mind down the road!
How to start an LLC FAQ
How much does it cost to start an LLC?
The cost to start an LLC can range from $50 to $500, which includes the state’s filing fee. Additional expenses may arise if you hire legal or business incorporation services, ranging from $100 to several thousand dollars based on complexity and location.
What’s the difference between a single-member and member-managed LLC?
A single-member LLC is owned by a single person who is solely responsible for the company’s day-to-day operations and decisions. A member-managed LLC, on the other hand, has multiple owners who mutually decide how to run the business.
What are the steps to getting an LLC?
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Select a name for your LLC.
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Get your EIN.
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Draft an LLC operating agreement.
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Open a business bank account.
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File the necessary paperwork.
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Create a website for your LLC.
What are the tax benefits for an LLC?
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LLC members avoid double taxation by paying personal income tax and receiving a share of profits.
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LLCs have the flexibility to choose their preferred tax classification.
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LLCs can avoid the 21% federal corporate tax by opting for pass-through taxation.
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