Are you looking for a place to get complete information on forming an LLC in the USA? You have come to the right place. This article will tell you all the steps you should follow to start a company in the United States of America. Read the article till last to get complete knowledge. We will assure you the moment you reach the end; you’ll be full of confidence.
LLC is short for Limited Liability Company. It is one of the preferred business models here in America. Starting a business can be a long process. You have to follow some formalities, submit the articles, and so on. The first step in forming your business is to decide which business structure you want. Here you have chosen LLC. It is a great choice. The most outstanding benefit it offers is the Liability protection of the members. Also, there are tax benefits too. So, learning about the paperwork and applications can seem like a tiring process, but you will get this information here in one place.
LLC has a flexible structure; it is known as a pass-through entity. The profits and losses of the business are passed through the owner’s income tax returns. The business entity is separated from the private entity. Even if there is only one member, in that case also the entities are separated. So, in times of a lawsuit or a debt, the owner’s assets will not be affected. The owner can choose to be taxed as a Corporation if he/she wants.
We have talked about the benefits of LLC, in brief, now let us take a more comprehensive look at all the services it provides:
- The required paperwork is significantly less. This makes forming and maintaining an LLC much simpler.
- The tax structure is flexible, and the owners can pay tax either as an LLC or as a corporation.
- If the LLC does the actions, then it is the responsibility of the company, not the owners; their assets will not be affected.
We will take a look at all the essential steps to be taken to start an LLC.
Search for your LLC name
The name of the business holds a lot of weightage. One might think, how difficult can it be. You just have to put together some words, and that’s it. But, no, that is not the case. The name of your company doesn’t only represent words. It represents your company, your ideas, your work. At first glance, it will seem easy. I mean, what’s so tricky about coming up with a name? That isn’t right. The name you choose will be well-known in the world.
Consequently, you must be careful about what you present to the customer, as choosing the wrong name will lead to problems. The first thing through which the customer will be introduced to your company will be through its name. You can change it at any time, though. It’s best if you think about the following things:
- It is preferable to have a distinct, well-defined, and easy to understand and pronounce. The title should be specific, but that doesn’t mean it is difficult to pronounce. Particular/different does not mean complex.
- Conduct a thorough internet search to decide if there is an issue. You don’t want the company’s name to be mixed up with someone else’s. It is appropriate for the company’s name to be unique and distinct from others nationally and internationally.
- You should do a trademark search because some companies may have registered certain words or names as trademarks, so it’s best to double-check ahead of time.
- The terms Limited, Limited Liability Company, or the abbreviation LLC, Ltd. must appear in the name of an LLC.
- The words “lottery” and “bank” are not permissible.
- It is forbidden to use terms that refer to veterans’ organizations or educational institutions. Similarly, words referring to government employees or the military are limited.
We mentioned that the company’s name should not be similar to any other out there as it is not allowed for the business with the same name to work. So, to get more details, check out the business names search online. Before mentioning the name on the official papers, always make sure that it is available or not.
This step is the first part, and the next part is to reserve the name. It is optional, conditional. Suppose there is a delay in the launch of your LLC. You have this doubt that someone can name their company with a similar one as yours. In that case, the State provides provisions for reserving that name for some days. Each State has its guidelines for the reservation of the name.
Reserving the name
So, as mentioned above, after spending your hours searching for a name for your company, you finally found something. You look for its availability, and it is available. But now, due to some reason, your LLC cannot be launched soon. Or maybe you want to take some time. A doubt may arrive that someone else also came up with the name and registered it before you. All your hard work will be wasted. In that case, you can reserve the word with your State. The process is straightforward. You have to fill a name reservation form via online mail. The filing fee is different for different states; it is minimal. Some States might not have this facility, so plan accordingly.
File the Articles of Organization
This document is known by different names in some states, such as Articles of Organisation, Certificate of Organization, or Certificate of Formation. It is the one paper that legitimizes your LLC; you cannot form your LLC without it. The filing fee is different for different States. There are three ways to submit the form: online, fax, mail. In some states, you can also hand-deliver the documents. The processing time of the online method is the fastest and via postal mail is the slowest. Filing the Articles of Organization is the official start of your company. From here, your journey starts. As there are different states with different rules, but some details in the article of the organization remain the same.
- The name and address of your company
- The name and address of the LLC’s appointed registered agent
- The purpose of your business
- Management structure: member-managed or manager-managed
- The name and signature of the members
After filling the form, you have to submit it to the Secretary of State. However, some of the states have a separate department for this submission of the document.
Select a Registered Agent
Appointing a registered agent is a compulsion in all States. The State mandates this step. Every LLC must have a registered agent; it is also known as a Statutory agent. But why is it so important? A registered agent is a person or the entity that takes care of the important correspondence. The registered agent will make sure that all the mail reaches its rightful owner. The State sends all its legal notices, documents to the registered agent. It is like a point-of-contact between the State and the company. That is why it is so important.
Now, the question arises who can be the registered agent. The registered agent can be any person unless he/she is 18 years old or over and must be a State resident. The registered agent should be present in the working place during business hours. That is why him/she needs to be living in the State. You can appoint your family, friends, and members of the LLC as your agent. You can be the agent of your LLC. But it does come with a drawback as you can’t leave the office during business hours; you have to be present there to collect the mails. So, it will restrict your other work. You can also appoint a business entity to be your registered agent; that entity should be authorized to do business in the State. The third option is to hire registered agent services. It is totally up to you which you feel comfortable with. Appointing a registered agent will take away a load of all the paperwork, emails, notices. This will help you to focus on your business more and work for tremendous success. For the smooth running of the company, the agent is an essential part. Also, it makes sure that your LLC is not without the registered agent, as it can result in a fine and dissolution. However, the situation may arise where you have to change your LLC’s registered agent. You make sure that the transition between the new and the old one is smooth.
Draft an Operating agreement
Although an LLC operating agreement is not needed, it is not mandated by the State, but it is strongly suggested. This document outlines how your LLC will be run and the rights and obligations of the members and managers. The operating agreement protects your limited liability status by demonstrating that your LLC is a distinct legal entity. As a result, signing an operating agreement is a smart move.
Let us paint you a scenario; your LLC is of 3 to 4 members. You started your business, everything is going fine, but then one of them wants to change the share percentage, or he/she wants a more significant portion. This could cause conflict among the members. But if you have the agreement detailing the rules and share, it could be solved quickly. That’s where the operating agreement comes into the picture. What exactly is an operating agreement? It’s a legal document that outlines who owns and runs an LLC. Personal assets are safeguarded, and the integrity of your LLC is established in the eyes of the courts, government agencies, banks, and other companies, among others. It could be considered the company’s founding paper.
Let us take another example. Assume that one of your friends wishes to sell a portion of his business to his partners. The operating agreement will now specify how the assets of the corporation will be allocated. However, if he wants to hold it for himself, this arrangement may be used in court to demonstrate that the company’s assets are not the same as his personal property. That is why it is so important to have an operating agreement. It contains details like:
- What is the role of each member
- How the profit is to be distributed
- How the meetings should be scheduled
- The addition or removal of the member
- The management structure
And many more details you can include at your wish. You can add anything you want. Be inclusive, add any little point you want, and get it signed by all the members to be on the same page. Furthermore, it sets the boundaries between the owner’s personal and business properties, providing a safeguard against any legal conflicts. The details needed for this agreement might seem daunting at first, but you should provide and render the operating agreement more approachable in general. Even if you have a single-member LLC, then also this document is essential. It will ensure that your assets are different from LLC’s assets. There are two ways in which you can formulate the operating agreement for your company. You can write the operating agreement. Yes, you can do that. You know what rules and regulations you want for your company. Right? And also, several online templates can be used to write it. The second option is to take the help of a lawyer or attorney. Since they are well-versed with all the State laws, they can help you draft an operating, entailing all the essential details. Also, remember that if you work with an agreement, then the State will decide for you in the time of conflict. That might work or not work in your favor. So, why take a risk?
International Qualification for an LLC
For a business to succeed, it is vital to branch out. Your limited liability company is growing, branching out from one state and into new territories. You’re probably excited to venture out and start this new journey of success. But before proceeding any further, it is better to learn about the requirements in each State. The companies situated out of the State must follow some rules different from domestic companies. Knowing how they vary is critical to staying compliant in each State where the business takes place. If you plan to expand your business around the country, you must internationally qualify your company in each State that it operates in. Extending business is part of growth, but be sure to do that under the rules and regulations.
Now some steps are essential to take after the formation of the LLC. A businessman/businesswoman should be well-informed about the details to reach greater heights.
File Annual/Biennial Reports
In most states, there is a provision to submit the annual report or a biennial report. Suppose you buy a vehicle, you pay for it. Is that it? Does it guarantee a successful run? No, you have to take it for regular servicing only if it runs its maximum potential. The same goes for the company. You have to submit the report of your company yearly or once in two years. The State needs this annual report to keep a record of your company. You have to mention the details like your business name, purpose, any changes in the company, etc., remember that it is essential to submit the report on time. Suppose you failed to deliver the information on or before the due date that could lead to a fine or dissolution of your company. Some State does send a reminder before the due date, which gets received by the registered agent.
Obtain an EIN
Employer Identification Number or EIN is a nine-digit number used to identify your business’s taxes. The Internal revenue service provides EIN free of cost. It is known by other names also such as the Federal Employer identification number. The process of obtaining the employer identification number is also straightforward. Now, the question arises who all need to apply for EIN. Well, every person who owns a business should have an EIN. One important reason is that you have to use your Social security number everywhere for your business purposes in the absence of EIN. This step might cause a risk for your privacy. EIN is also used to open a bank account, hire employees, apply for business loans, etc. There are three ways to obtain an Employer identification number: online, fax, and mail.
The most straightforward and most convenient way is to use the internet. You can apply online between the hours of 7 am to 10 pm from Monday to Friday, and you’ll get your number right away. So, if you want things to be done quickly, then go for the online method.
You can also fax your application. For that, you have to download the form, fill the Form SS-4, sign it, and fax it. It might take a few days for your application to get processed.
For this process, also get Form SS-4, fill it and post it to the IRS. This step takes much time as compared to the other two methods.
Taxes are essential, don’t even think about avoiding them. For the successful functioning of your LLC, be regular in filing your Taxes. It will maintain good standing with the government.
Income Taxes in the United States
LLCs are exempt from paying federal income taxes directly to the government. The owners must report the company’s profits and expenses on their tax returns. Since LLCs and companies are taxed differently, you can choose to tax your LLC as a corporation. If you were to do that, you’d have to file a separate corporate income tax return.
Taxes by the state and local governments
The State’s income taxes operate similarly to federal income taxes. Rather than forming a separate company, the shareholders report their profits and losses on their tax returns. If you want to be taxed as a company, however, the rules change.
What you’ll have to do is pay a few extra taxes. These taxes are based on the type of business you run. You will be able to produce a selling and usage fee if you sell products. When you have employees, you must pay the unemployment compensation bill. You may also be liable for paying local taxes to your municipality, county, or district. It’s best to check the provincial government’s website for more details because it varies by location.
Licenses and permits
Before you open your doors, you might need to get some permits. This article is not the same as the Articles of the organization; it makes your company legal, while these licenses are necessary to run your business. The permits you’ll need, on the other hand, will be determined by the nature of your company. If you sell groceries, for example, you’ll need a business license as well as permits from the agriculture department. Similarly, other types of businesses can require a different license. To learn more about this, go to the State’s licensure portal. Some local government, county, or municipality all have their rules regarding the permit. It is better to contact them also.
Maintaining finances is the most critical aspect of a business. You start the company, running, and earning, but now it is equally essential to keep it. The first thing you have to consider is to separate personal accounting from business accounting. And to do that, you have to open a bank account separately for your business. After you have formed your LLC, obtain your EIN, you can open the bank account. One piece of information that we would like to give to you is to call the bank in advance to get details about all the requirements as there are several banks with different norms.
The next step in maintaining the finance structure is to apply for a bank credit card. Now that you have a business-only bank account, it’s time to apply for a credit card. A credit card is required for the same sense of asset separation. If you use a credit card for your company, you’ll be able to keep track of all of your expenses easily. It will be easy to keep track of everything and file the taxes. You can also get a fast loan for your company.
Obtain the State’s Certificate of Good Standing
This certificate is available from the State and serves as evidence that your LLC is in good standing with the State. You’ve been punctual in all of your dealings with the government. It’s also a good practice that will help you attract new customers and vendors. This credential would also be helpful if you want to sell your company, find new suppliers, creditors, or financiers, or extend your business into other nations, among other things. It is not legally necessary, but it will be of great assistance to you, so it is preferable to have one. If you have this certificate, then more vendors will assure you that you are a reliable party.
It is time to look at another essential aspect. We have looked at all the steps for forming an LLC, taking steps after the company’s formation, and maintaining the financial structure. Now, it is time to look at the points that ensure the business’s success- Customers. And how do you attract customers? By promotion. It is equally essential like all the other points mentioned above. There are ways you can attract new customers. The first one we have said is the name of your LLC. You have the name; now it is time to spread it. Marketing is critical to the success of every business venture. Customers are enticed by marketing to go try out the goods and services. This is how you expand your clientele. You can advertise your company in a variety of ways.
Develop a website for your company: The first step toward branding and marketing is creating a website for your business, which are critical components of any company’s development. It doesn’t matter whether an organization is large, medium, or small. Everyone should have a website because it draws customers and offers valuable information. If your LLC is up and running, don’t forget to build a website. You can use several free online resources to assist you. Creating a website is not so difficult right now. With a few clicks, you can get complete details about creating a website. As a result, it isn’t a big problem.
Design a logo for your business: apart from the name, a logo should attract the customer. These might look trivial, but it does play a significant role. If you see or hear something unique, you will need for sure check it out. Right? It is in human nature. Different, extraordinary things attract people; they make them curious. So, try to keep it unique; it will give a great touch to your website.
Business card for your company: As a business owner, you should always be ready to pitch your business. Who knows which conversation can turn into an ample business opportunity? It’s a practical marketing strategy. You could give your business card to a potential client if you see them. The information about how to contact you, the website, and the business address will all Be included.
Arrange for a Press release
Do you want to spread the news of your business? You want more and more people to get this information. The best way is to release a press release. A press release is a great way to get the word out about the company to a broader audience. Since it attracts publicity, it is a cost-effective and effective way to advertise the company. The press release will direct the user to your previously developed website. So, you can see why it is essential. It acts as a gateway to your business.
We hope now you understand how much weightage the market and branding holds for the business’s success. Ultimately the aim is to get the customers.
However, there is one more important point that you should never forget is to get insurance for your company. While insurance is not required by law in the State, it is a must. Some insurances are compulsory such as workers’ compensation insurance, which is needed in all the states. More information about this can be found on the website of your state department. With the insurance, your company’s properties will be well protected. You can also get different types of insurance depending on your needs. It will create a protective barrier around your business. In the time of some calamity, if you have insurance, you will be financially covered. It will be one less thing to be worried about.
After completing all the steps, your LLC will be formed. Congratulations! These steps might differ a bit from State to State, but the general process is the same. And suppose you do feel some confusion, then it is always better to contact your State Department and get all the information. So, in the end, we wish you luck today; you have decided to start your own business and go on in this journey, and we hope that you get tremendous success in it.