A limited liability company (LLC) is a business entity that can be formed in any state. When you form an LLC, you do not obtain a license, but you do establish a charter for a company that combines the liability protections of a corporation with the flexible structure of a partnership. The only LLCs that may require licenses are professional limited liability companies (PLLCs), but these state licenses are for individual members to practice a certain profession, such as law or architecture—not a license to start the company itself.
1. Choose a state.
In most cases, it makes sense to form the new LLC in the same state where its main office is currently located or planned to be located. Choosing a state where the company has its most important physical presence can reduce the number of required state and local tax filings and may avoid the need to register the LLC in multiple states. But you might consider forming in a different state in certain situations, including:
- If the LLC is acquiring a business or property in another state, it may make sense to form the LLC in that state to simplify operations and state tax issues.
- If the LLC will have investors, they may prefer a well-known business jurisdiction (like Delaware or New York) as the LLC's governing law.
- If the LLC wants certain tax benefits, a tax-friendly state like Delaware or Wyoming is a good place to choose.
2. Choose a name for the new LLC.
You must choose a name for the new LLC and confirm that it's available in the state of formation. Most states have an online entity name database that makes this process relatively easy, but it's a good idea to create a list of three to five possible names just in case some are already in use.
In most states, an LLC must include the following in its name: "LLC", "L.L.C.," or "Limited Liability Company", but "Limited" can appear as "Ltd." and "Company" as "Co."
3. Appoint a registered agent in the state of formation.
The purpose of a registered agent is to give the state government (including its tax authorities) and private citizens and companies a permanent, reliable location to send mail and legal documents to an LLC that operates in a state.
If your LLC will immediately have a physical business location in the formation state with employees working there, the new entity can act as its own registered agent. Most LLCs, however, use the services of reputable, third-party companies that specialize in serving as a registered agent.
4. Draft and file formation documents.
An LLC is formed by filing articles of organization and any other required initial documents with the state agency that regulates businesses—usually the Secretary of State. The complexity of these documents depends on your particular situation.
5. Pay the required filing fees.
LLC members must pay the state's required filing fees when filing the formation documents.
6. Draft an operating agreement.
Similar to the bylaws of a corporation, an LLC's operating agreement documents the rules by which the LLC's members and managers (if the LLC will have managers) govern the company. Not all states require an LLC to have an operating agreement, but it is very beneficial to have one. If the LLC will have only one member (a single-member LLC), the operating agreement is a simple document. If the LLC will have multiple members, it can be much more complicated. A skilled business lawyer can also help in drafting an operating agreement that fits your situation.
7. Obtain an employer identification number (EIN).
The U.S. Internal Revenue Service can issue these online phone, or through fax.
8. Open a bank account for the LLC.
To avoid additional liability, the LLC's members should keep the LLC's finances separate from their personal assets. Opening a separate bank account for the LLC, where it deposits all business income and from which it pays all business expenses, is part of this process.
If you want to form your LLC, remember that you do not necessarily need to obtain a license. Rather, you will need to follow these steps when forming and registering your LLC.
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