Steps to Forming an LLC

by Carrie Ferland

An LLC, short for limited liability company, is a formal entity classification for organizations formed in the United States. Unlike most other formal classifications, the concept of LLC is relatively new and therefore does not enjoy federal recognition. However, all 50 states and the District of Columbia do acknowledge LLCs, allowing business owners to take advantage of the benefits and protections the classification offers while choosing their own federal tax classification. Because each state individually defines its concept of an LLC, the classification name, form names and the actual steps to forming an LLC may differ from state to state.

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Step 1

Conduct a statewide search of registered organization names and determine if your first choice is available for registration. Many states now maintain an online searchable database you can use to look up your choices. Even if your name is not already in use by someone else, also conduct a search for your second choice in case you later discover a problem with your first choice.

Step 2

Discuss and draft an operating agreement that provides details about your LLC, its members and how it will operate. This document should explicitly define the authorities and responsibilities of each individual member. If your LLC has more than one member, each member should agree to and sign off on the operating agreement. When finalized, have each member sign the bottom in every other member’s presence and provide a signed copy to each signatory.

Step 3

Complete and file the LLC's articles of organization (also referred to as a certificate of organization or an affidavit of formation in some states) using your state’s preprinted form, if available. Attach a signed copy of your operating agreement and file your articles of organization with your state’s Corporation Agency or, if your state does not maintain one, the Office of the Secretary of State. You will need to remit a nominal filing fee -- typically, between $50 and $250 -- at the time of filing.

Step 4

Publish a notice of intention to form an LLC if your state has such as requirement. While each state’s specific rules vary, this step is usually accomplished by taking out an advertisement containing information from your articles of organization (or a duplicate of the filed document) in your local paper. A few states also require you to publish a notice at the local courthouse or, more recently, on an online bulletin board. Check with the office of your secretary of state for your state’s requirements.

Step 5

Apply for an employer identification number (EIN) on behalf of the LLC, even if you do not have any members or employees other than yourself. After receiving an EIN assignment, declare a federal filing status for your LLC. Many states, including California and Massachusetts, require you to elect a federal tax filing status before the state will acknowledge your company as an LLC. The IRS does not recognize the concept of an LLC, however, so you must elect to be taxed as a corporation, a partnership or, if you are the only member of your LLC, a sole proprietorship.