Forming an LLC - Step-by-Step

Please Note: I am not an attorney, and I am not providing legal advice. I am only providing information I have learned from experience and my own research.

You should be able to establish your LLC without the assistance of an attorney. But I would urge you to have a legal expert review your filings and provide assistance in those filings.

Online legal services such as NOLO.com or LegalZoom.com are excellent, low cost places to get solid legal advice and assistance.

If you are ready to establish your LLC, keep in mind that the rules and regulations for the formation of a Limited Liability Company vary state-by-state. The steps below are common to most, if not all states.

The first step in forming an LLC is to choose a name… which has to be unique within the state you live in… not just the county… the state. You can usually do a name search on the state comptroller’s website. Just like the sole proprietorship, you may want to write down a few options before you make your final decision, and make sure that the website and social media links are available.

The second step is to file the articles of organization for your LLC with the Secretary of State. These filing documents may be called a “certificate of formation” or a “certificate of organization” depending on the state you are filing in. Your state’s corporate filing office, usually the Secretary of State, can provide the appropriate forms for filing. Again, you can do this yourself, just be careful and get legal advice if you have questions.

At this point, you’ll need to make a decision as to whether your LLC will be member managed or manager managed. With the member managed option, all members manage the business functioning like a board of directors.

Alternatively, you can designate one of the members as the manager of the LLC or even have someone who is not a member be designated as the manager. Obviously, if a single individual is designated the manager, then that individual will make the day-to-day decisions for the company.

There is a filing fee associated with this second step, so be prepared for that… this can cost you anywhere from $40 to $500 depending on the state you live in. The filing process is usually available on the Secretary of State’s website for your state.

The next step is to choose a registered agent and create a statement of consent. A registered agent is an individual or business entity responsible for receiving important tax forms, legal documents, notice of lawsuits, and official government correspondence on behalf of your business. Think of your registered agent as your business' point of contact with the state. This could be your attorney or your accountant or bookkeeper..but also the registered agent for your LLC can be you!

In the fourth step, you’ll need to create an LLC operating agreement. There are a lot of free operating agreements online and many are basic agreements that you can use as the basis for your operating agreement. An operating agreement should be pretty straight forward for a single member LLC. But if you are a multiple member LLC, remember that your operating agreement lays the foundation for how the business will be run. I urge you to sit down with all members and create your operating agreement together with all items reviewed and discussed amongst all members. Make sure you have clarity and transparency with all members on how the business will be run.

Something you should keep in mind is that the members can also create secondary agreements between the members. For example, a member with a minority ownership may want to create an agreement that requires approval from all members before the business is sold or before new members can be added.

Secondary member or shareholder agreements are important tools to protect members. If you are creating a multi-member LLC, be sure to consider all possible and potential issues that may arise in the future between members and put the appropriate safeguards in place. Any agreement between partners in a business must define what happens when conflicts arise. Plan for the divorce before the marriage.

Once you have all of your documents together, and you have filed with the Secretary of State, you can get an EIN number, which allows you to employ employees and file taxes. It is your business version of a social security number. This is something you do free of charge on the IRS website. It only takes a few minutes, and the EIN is sent to your email immediately after you apply for it.

Once you have formed your LLC, you will need to file all required reports and filings required by the state and report your earnings and pay your state and federal taxes.

If you decide to do business in another state other than your home state, you can register your LLC in both states, as long as you comply with the laws and regulations of both states, which you can find on the Secretary of State website.

As I said at the top, if you get to a point where this sounds too complicated, go to legalzoom.com or another legal assistance resource that can do it for you for a small fee… or you can hire a lawyer to do it all for you. I have done all of the above.