How to Start an LLC in 5 Steps: 2023 Guide

Ready to make your entrepreneurial dreams a reality? Decided a limited liability company (LLC) is right for you but not sure what to expect? We’ve got you covered. Learn how to create an LLC in no time with our step-by-step guide.?

To form? an LLC, you will need to:?

• #1: Name your LLC?
• #2: Choose a registered agent?
• #3: File formation paperwork?
• #4: Draft an operating agreement
• #5: Apply for tax identification numbers

LLCs can be created in five straightforward steps. Because LLCs are creations of state law, you’ll want to follow your state’s guidelines when filing your LLC application. Our state-specific articles will walk you through every step.?

If you’re not sure what state to choose or generally want to know what to expect when forming your LLC, read on for everything you need to know about creating this flexible, low-maintenance business structure.

The first step is always choosing a name for your LLC. You’ll want your name to give the public an accurate idea of what kind of service you offer. At the very least, it can’t be misleading. There are a few requirements that apply in almost any state.?

Naming Requirements

LLC names must meet a few general requirements. These requirements may vary from state to state.?

Distinction. Your LLC name must be distinguishable from other active businesses in the state. In other words, your LLC name can’t be identical, or even too similar, to an active business’s name. Most states have an LLC name availability search function on the state website of the government department overseeing business creation. This tool allows you to see if your desired name is already taken before moving forward. It is also a good idea to check if a suitable domain name is available at this time to ensure you can build a strong internet presence.

LLC Indicator. In every state, your LLC name must contain an indicator that your business is an LLC. This means that one of the following must be included in your formal business name (the name on file with the state):?

• Limited liability company
• Limited company
• L.L.C.
• LLC
• L.C.
• LC

You may abbreviate “Limited” to “Ltd.” and “Company” to “Co.” If you have a professional LLC, series LLC or L3C, your indicator will need to reflect what type of LLC you have. However, be sure to check the laws in your state regarding LLC indicators.

Restrictions. There are a few terms your name generally can’t contain, though this varies more state by state than the other naming requirements. Generally, your name can’t contain words that mislead the public about the type of services you offer. Additionally, your name can’t contain words that imply you’re affiliated with the government, such as “Department of Treasury” or “FBI.” An LLC lookup tool may point out these errors in any name you’re searching.?

Name Reservation

Once you decide on an available and accurate business name, what’s next? If you’re not ready to file the rest of your LLC paperwork, you can reserve the use of that name so no one else can take it in the meantime. Name reservation is a matter of filing the appropriate form with the Secretary of State and paying a filing fee, which ranges from $10 to $50. On average, names are reserved for a time period ranging from 90 days to 1 year, and may or may not be renewable depending on the state.?

DBA?

Another thing to consider is that you can use a trade name, often known as a “DBA,” which means “doing business as.” You can register a name for your LLC and then do business under a trade name or DBA. Using a DBA is as easy as registering with the Secretary of State, sometimes for a fee. A DBA often must meet certain requirements, but don’t have to have “LLC” or a similar indicator in the name.?

What is a registered agent? For LLCs in every state, the government must know where to send important tax and legal documents, such as service of process or annual renewal forms, on behalf of your business. All LLCs must have a “registered agent” with a physical address (not a P.O. Box) in the state where the LLC is created. Registered agents can be individuals or other businesses, and can be commercial or non-commercial in nature.?

Commercial registered agents (CRAs) offer registered agent services as part of their business and are often listed in a database with the state. Many companies, including LLC formation companies, offer registered agent services for an annual fee.?

Non-commercial registered agents don’t offer those services as part of their everyday business. Such an agent may be one of your members, your business attorney, or simply someone you know and trust.?

Requirements for a registered agent generally include the following:?

• Either an individual over the age of 18 or an entity authorized to do business in the state
• Physical address in the state
• Available during business hours to receive mail
• Can’t be the LLC itself

Some business owners may serve as their own registered agent. Remember, though, you must be available during all business hours to receive important legal or tax documents. You may choose to have a virtual address for LLC mail instead by hiring a registered agent for more flexibility on leaving the office during the day, taking vacation or simply having more privacy since registered agent addresses are public record.?

Your state may provide a list of commercial registered agents or you can perform a simple online search to find one.?

The third step in every state is to file the formation documents that makes your LLC official. Depending on your state, these may be referred to as “articles of organization,” “articles of incorporation,” “certificate of information,” or “statement of information.” The required filing fee for this varies by state and ranges from $50 to $520, generally on the lower end of that range.?

Your articles of incorporation will include basic information such as your LLC’s name and business address, the names of its owners or members, your registered agent’s name and information, and how the LLC will be structured. Typically, the structure can be either member-managed so that the company’s owners are responsible for day-to-day business operations, or manager-managed where a designated member or a third party is responsible for business affairs while the owners take a more passive role.

You can submit all of this online through the Secretary of State’s office, but to avoid the trouble, many business owners opt to use an online LLC filing service instead. These filing services can take the guesswork out of learning how to start an LLC, from helping you choose a compliant business name to acting as your registered agent and filing your paperwork with the state.

Only a handful of states require an operating agreement for LLC formation, but it’s a good idea for every business to have one. An operating agreement is a document that outlines your business’ rules, regulations and provisions. For example, what are the powers and responsibilities of your LLC’s members and managers? How will profits and losses be shared? How will you manage buyouts or dissolution??

If you don’t have an operating agreement, your state’s LLC laws will apply by default. For example, many state LLC laws require unanimous consent of members for managers to make certain business decisions, like purchasing real estate. If you have a large number of members, you may want your operating agreement to say only two-thirds of the membership has to agree to these sorts of decisions, which can allow business to move more quickly.?

Operating agreements should outline duties and responsibilities of members, so there is no confusion who is responsible for what. This can help you avoid unnecessary delays in doing business.?

Importantly, an operating agreement protects members from personal liability from the activities of the LLC. This is a significant advantage of having an LLC in the first place, so you’ll want these protections solidified in your agreement.?

Many LLC formation companies offer reliable templates for operating agreements. If your business is complex — for example, if you want to do business in several states or an extremely high number of members and employees — you may want to have an attorney review your agreement initially and whenever you make changes to it.?

Now that your LLC is official, you’ll need to set up with the federal and state governments to pay LLC taxes in most circumstances.?

Federal Employer Identification Number (EIN)

You’ll need a federal EIN to pay employment taxes and engage in some other activities like opening a business bank account for an LLC. An EIN is free to obtain from the Internal Revenue Service (IRS) website, but some formation companies will request one for you as part of their formation service. If you have a single-member LLC and don’t plan to hire employees, many states won’t require an EIN. However, you may be asked to use your Social Security number in place of an EIN for business activities, which may raise privacy concerns. It’s a good idea to have an EIN anyway.?

State Tax Identification Numbers

Many states may provide your LLC with a unique identification number when you form your LLC. Others may not provide the number automatically, but instead may instruct you to register with the Department of Revenue or Taxation or a similar department and request the number yourself. Our state-specific articles will walk you through any necessary steps to obtain a tax ID number.?

There are endless considerations for growing your business and staying on top of obligations. There are two important factors to keeping your business legitimate, which a formation company can help with: Getting licenses and permits and filing annual reports. Your requirements aren’t limited to these considerations — you may also need workers compensation or business insurance for an LLC, depending on how you set up your business. Although not required, it is advisable to apply for a business credit card to avoid commingling business assets with personal assets.

Apply for LLC Licenses and Permits

Depending on the type of business you have, whether you have a physical location or operate online and where you’re doing business, you may need a special business license or permit. Some formation companies offer services that research what licenses you need, and some will help you file applications. You can also find this information on your state’s business website.?

File Annual Reports

Most states require LLCs to file reports yearly or every other year, with or without a filing fee. Due dates vary from state to state, but a formation service can notify you in advance of your filing date so you don’t face penalties for forgetting your annual report. Some states may charge a late fee or subject your LLC to automatic dissolution for missing an annual report. The filing fee for an annual report can also be known as a franchise tax.?

Though setting up an LLC can be done by filing a simple form, so much more goes into planning, creating, and maintaining a successful and legitimate business. There are three ways to start an LLC successfully.

Do-It-Yourself LLC Creation

For a simple single-member LLC without employees, you may be able to DIY the whole process without much trouble. Our comprehensive guides will walk you through the process, no matter where you’re starting your new LLC.

The cost of filing your LLC paperwork yourself can be as low as the filing fee in your state. State filing fees range from $50 to $520.

Use an LLC Formation Service

Many entrepreneurs choose to?use an?online LLC service?that helps with the paperwork at a lower rate than an attorney. Formation companies may offer additional useful services:

• Registered agent services which are required by law, which receive important tax and legal documents and forward them to you virtually. Their mailing address is listed with the state so yours is not on public record, and therefore safer from spam and solicitation
• Operating agreement templates so you don’t have to start from scratch — operating agreements describe how your business runs and how members interact with each other and the business
• An online dashboard that stores your important documents in one place, taking the stress of filing off of you
• Calendar reminders of annual reports and other regular obligations, which help you avoid penalties for forgetting or filing late
• A money-back guarantee that your paperwork will be accepted

Some LLC formation services will help you file for free, but features come with paid packages or subscriptions. Some start as low as $49 plus state filing fees. For example,?ZenBusiness,?Northwest Registered Agent?and?LegalZoom?LLC formation companies can handle this process for you, saving you time — and money if your papers need to be re-filed.

Consult a Business Attorney

A third option is to consult a business attorney when starting your LLC. You may want to do this if you have several members and/or employees, want to operate in several states or will have outside investors or funding sources: For example, venture capital that must be repaid or a grant that must be used in a certain way. A dedicated attorney may be worth the cost if your business is complex to ensure you have sound agreements in place. Consider searching online for an “LLC lawyer near me”.

Attorneys may offer LLC formation help for a flat fee or an hourly fee up to a few hundred dollars per hour. Many offer short, free consultations to determine whether they’re a good fit for you.

There are many benefits to choosing LLC as your business structure:

• Liability Protection:?Limited liability and personal asset protection for activities and debts of the business
• Low Maintenance:?Less paperwork and maintenance than a corporation
• Tax Benefits:?Avoids double taxation advantages similar to a sole proprietorships and partnerships (LLC members only pay federal tax income on their personal tax returns, while the business itself is exempt from income tax on their federal tax returns)
• Management Flexibility:?Your members can manage the LLC, or you can designate managers, unlike a corporation’s fixed structure
• Flexible Profit Sharing:?LLC owners may dictate how profits are shared in the operating agreement, unlike corporations which follow strict rules for distributing profits to shareholders

These advantages make LLCs the preferred entity type whether your new business is a startup or an established business. For more information on the difference between a?partnership?or?sole proprietorship?vs. LLC,?corporation vs. LLC or advantages of starting an LLC, visit the FAQ at the bottom of this page.

The process of forming an LLC can feel overwhelming at times. Between the various decisions, forms, fees and timelines, there’s a lot to manage. Let an online LLC company like Zenbusiness take some of the weight off, and guide you through the steps to starting your LLC today.

Legal Disclaimer: This article contains general legal information, but does not constitute professional legal advice for your particular situation and should not be interpreted as creating an attorney-client relationship. If you have legal questions, you should seek the advice of an attorney licensed in your jurisdiction.

Authored by: Laura Jackson, Esq. Laura graduated from Emory University School of Law with her Juris Doctorate and is an active member of the Georgia Bar Association. After several years of appellate advocacy and regulatory experience, Laura turned to full-time freelance legal writing. She currently writes for law firms, websites, and other publications on a range of issues.

Reviewed by: Miranda Riva, J.D. Miranda earned her Juris Doctorate from William & Mary Law School and holds a Tennessee Bar License. Before transitioning to legal content creation, she taught legal research, writing, and citations to first-year law students at two different law schools. In her spare time, you can find Miranda hiking through the U.S. National Parks or spending time at the beach with her two Australian Shepherds.