How to Set Up a Limited Liability Company

by Lisa Magloff
Setting up an LLC can involve negotiation between the members.

Setting up an LLC can involve negotiation between the members.

Jupiterimages/ Images

A Limited Liability Company (LLC) is a business structure that allows the owners, called members, to avoid personal liability for the debts and actions of the company. In most states, LLCs are straightforward to set up and most of the forms you need will be available online. Although the laws and regulations governing LLCs can vary from state to state, the setup process itself is very similar in most states and there are some steps of the setup process that are the same in every state.

Ready to start your LLC? Start an LLC Online Now

Step 1

Chose a name for your business and check that the name is available. As a general rule, the name of your LLC cannot be the same or too similar to the name of another business registered in the state. All states will conduct a name check as part of the registration process; some states do this for free. In most states, you can also reserve your business name in advance, usually for a fee. Most states require that your business name end with the words “Limited Liability Company” or the abbreviation “LLC” or “L.L.C.” Using words such as “bank” or “corporation” in the name may be prohibited.

Step 2

Negotiate the Operating Agreement. This is a document that sets out the rules you will use in operating your business. There is generally no set form for the Operating Agreement and it may contain any information agreed upon by the members. Operating Agreements commonly include rules for adding new members, buying out members who leave, distribution of profits and losses and how the business will be managed. In some states, such as California, LLCs are required to have an Operating Agreement, but in other states, they are optional.

Step 3

Find a registered agent. If your business is not physically located in the state where you are registering it, you will need to find a person or business that can act as your agent. The agent must be a resident in the state and must be capable of receiving legal documents on your behalf. There are companies in every state that will provide this service for a yearly fee. If your business is physically located in the state where you are registering your LLC, then the LLC can act as its own agent.

Step 4

Prepare your Articles of Organization. This is the formal document that you file with the Secretary of State's office, requesting to be registered as an LLC in that state. In most cases, this is a very short document. It may only ask you to list the name of your business, and the names and addresses of the members and registered agent.

Step 5

File your Articles of Organization. Once you have filled out the form, send it to the Secretary of State's Office. In many states, this can be done online. You will also need to include the filing fee. Filing fees range from $40 in Kentucky to $520 in Massachusetts. Most states allow you to pay via direct deposit or by check.

Step 6

Obtain any necessary local licenses. For some types of business, you will also need to have a local or state business license. This is sometimes called a tax registration certificate. The county or city clerks office where your business is located can give you the information on what licenses will be required for your business.

Step 7

Determine your tax obligations. If you have employees who are not members, you may need to register for state and federal employer identification numbers. To register for your state identification number, contact your state employment office. You can register for your federal identification number online (see Resources). You may also need to carry worker's compensation insurance in your state. Some states will also charge LLCs a yearly tax or franchise fee. If you are a single-member LLC, you will also have to pay self-employment tax.

Step 8

Open a bank account. You can keep your business and personal accounts separate by opening a separate bank account for your LLC. To do this, you may need a state tax identification number and a certified copy of the Articles of Organization.