Many small businesses and freelancers can benefit from the liability protection and tax advantages of forming a Limited Liability Company (LLC).
Our guide explains the benefits of LLCs and what documents you’ll need, such as an operating agreement and articles of organization.
What is a Limited Liability Company (LLC)?
An LLC or Limited Liability Company is a type of business structure that protects the personal assets of the business owner. As an LLC, assets such as your home or savings cannot be force-liquidated to pay business debts.
For example, if you own a house cleaning company and a worker causes damage to a client’s home, you would not be forced to use your savings to cover the liability.
How to Start an LLC in 6 Steps
Submitting your LLC application is an easy 6-step process, which most individuals can handle independently. It’s not necessary to hire an attorney.
1. Determine where to form your LLC:
Your home state is likely the best option unless you do business via a brick-and-mortar located in another state.
2. Choose your LLC name:
Check with your Secretary of State to see if your desired LLC name is available. Many will have online tools you can use to check this yourself. Your LLC name must meet the state law requirements. You must avoid choosing the same name as another business. State laws also prohibit using words that suggest your enterprise is in the finance or banking sector. You might need to include a version of LLC at the end of the name.
3. Choose a registered agent:
This is the person designated as the recipient of legal documentation on behalf of the business, including tax forms or lawsuit notifications. Your registered agent must be at least 18 years old with a physical address where they can receive documents in the state where your LLC is filed. In most cases, you do not want to be your own registered agent.
Alternatively, you can opt for a registered agent services company for a fee.
4. File formation documents:
These are state-specific forms that create your LLC. They may also be called your Articles of Organization. You will need basic information like a business name, a physical address for the business, the purpose of the business, the method in which your LLC will be handled, contact information, and your projected time duration of the LLC.
You should check your documents carefully before submitting them. A nominal fee will be charged for it, which varies from state to state.
5. Create an operating agreement:
This is a legal document that outlines the members of the LLC, how the business will make decisions, how profits will be shared, how new members are added, and how the company will be dissolved. This is essential not just for LLCs but also for your benefit.
Some states don’t require an Operating Agreement. However, if you have an LLC with more than one partner, it is advisable to craft an Operating Agreement. You can get started by choosing one of the many free online templates.
6. Get an EIN (Employer Identification Number):
This number identifies your business to the IRS. Fill out the EIN form on the IRS website to obtain yours.
How Much Does it Cost to Form an LLC?
The cost to file an LLC varies by state but generally ranges between $50 and $500 if you file independently.
You can also use an online service like Incfile to handle your filing. They charge $49 plus the state fee.
If you use a lawyer, your attorney fees may range between $200 and $1,000.
What is the State-by-State Guide to Forming an LLC?
The fees, requirements, and paperwork to file an LLC can vary based on the state in which you file. Here are resources for filing an LLC in all 50 states.
- District of Columbia
- New Jersey
- New Hampshire
- New Mexico
- New York
- North Carolina
- North Dakota
- Rhode Island
- South Carolina
- South Dakota
- West Virginia
Frequently Asked Questions (FAQs) About LLCs
You want to do your due diligence before starting a business. If you’ve still got questions, that is understandable! Here are the answers to the most asked questions about LLCs.
How do I establish an LLC for free?
To establish an LLC, you must file the necessary documents with your Secretary of State. You will still have to pay state fees to file documents, and the cost will depend on the state. You cannot file an LLC for free, though handling the process yourself will save you attorney fees.
You can follow the six-step process outlined on this page.
How much does an LLC cost yearly?
The yearly fee for an LLC varies by state but costs anywhere between $50 and $500. To find the exact cost, check your local Secretary of State’s website to find the schedule of fees.
If you use a third-party service to help form your LLC, you’ll have the option to pay them to handle your yearly paperwork requirements and fees.
Do I need a lawyer to start an LLC?
You do not need a lawyer to file an LLC. However, some to-be business owners use online attorney services for convenience. But you can form an LLC on your own using our 6-step process.
You can also use an online service that will handle all the paperwork for you. If you use an online service, know that the fees are tax-deductible.
How quickly can I form an LLC?
The time varies by state and can range from 3 to 35 business days. Consult your state’s Secretary of State website to find out how long it takes.
Note that if you choose to use an online legal service, you may want to check on their shipping time frame as well.
Is an LLC a business license?
No, an LLC is not a business license. An LLC is a business entity, a type of business structure. A business license is a document that gives you the right to operate your business.
In addition to forming your LLC, you will need to determine which (if any) business licenses and permits are required for your business to operate legally.
What are the disadvantages of an LLC?
The downsides to operating an LLC are the extra costs and more administrative responsibility. LLCs are pricier to operate due to factors like corporate banking fees and taxes. LLC owners must also pay additional attention to keeping personal and business records separate, something which isn’t a requirement for sole proprietorships.
LLCs cater to different business needs. However, this doesn’t mean LLCs are disadvantageous compared to other business structures.
Does an LLC protect you from being sued personally?
Owners are protected from personal liability when operating an LLC, so the owner’s personal assets and funds are protected. In special instances of misconduct of company funds or fraud, LLC owners can be sued. However, this is determined by the individual circumstances of the act.
You can see the varying degrees of owners’ liability within different small business structures here.