Setting up a limited liability company is similar to incorporating a business. Both business structures offer you limited liability, but the LLC is much simpler to form. Because the method of company formation you select has a large impact on the function and growth of your business, ensure that the LLC is the appropriate entity before beginning the process.
The basics of how to start an LLC can be summarized in five steps:
- Choose a Business Name – You must eventually register a business name with the Secretary of State. You may name your LLC almost anything — subject to a few limitations. State laws vary, but the Uniform Limited Liability Company Act — which many states follow — specifies that your LLC business name must end with the words “Limited Liability Company” or “Limited Company” or the abbreviations “LLC” or “LC”. The majority of limitations come from your need to avoid trademark infringement when you choose a business name.
- Select Your State of Formation – You do not have to set up your LLC in your home state; you may select any state in the country to be your LLC’s home. Each state has slightly different laws pertaining to limited liability companies, so it may benefit you to find a friendly state. Delaware is a popular choice due to its relative experience with adjudicating business law matters. If you do not plan for your LLC to grow very large, simply forming your company in your home state is usually the easiest method.
- File your Articles of Organization – Your Articles of Organization may be customized to your LLC or may simply appear on the form template provided by the state’s Secretary of State. Obtaining a standard form and filling it out is the fastest, easiest, and most reliable method to form an LLC, so do not feel as if a lawyer-drafted customized Articles of Organization is superior.
- Select a Registered Agent – An LLC’s registered agent is the person or organization who receives important information on behalf of the LLC. For instance, if an LLC is sued, the registered agent is the person who will receive notice of the lawsuit. The registered agent must reside in the state of formation, but may be anyone regardless of how he or she is affiliated with your organization. You may opt to serve as your LLC’s own registered agent, or you may hire a professional registered agent to represent your LLC.
- Make an Operating Agreement – An operating agreement is a list of rules and regulations you and any partners agree to follow while running the LLC. No state requires you to file your operating agreement, but some do require that your LLC create and maintain one. Even if an operating agreement is not required by your state, it is always a good idea to create one. This agreement is an invaluable legal document that helps to define and shape your business.
This is just a general overview of the process of setting up an LLC. There are nuances to the process that are covered in greater detail in other articles. Though you may complete the process alone without the aid of an attorney, an experienced business lawyer can ensure that you meet all state and federal regulations. Additionally, a business attorney can be a valuable asset to analyze your company’s strategy and structure. Consider hiring a lawyer for his or her insights even if you believe you can handle the LLC formation process alone.