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How to Form an LLC

Step-by-step guide to starting a limited liability company (LLC).

A limited liability company (LLC for short) is a way to legally structure a business. It combines the limited liability of a corporation with the flexibility and lack of formalities provided by a partnership or sole proprietorship. Any business owner who seeks to limit his or her personal liability for business debts and lawsuits should consider forming an LLC.

Here are the steps you need to take to start a limited liability company (LLC) in any state. For information on how to form an LLC in your state, see 50-State Guide to Forming an LLC.

Steps to Form an LLC

  1. Choose a name for your LLC.
  2. File Articles of Organization.
  3. Choose a registered agent.
  4. Decide on member vs. manager management.
  5. Create an LLC operating agreement.
  6. Comply with other tax and regulatory requirements.
  7. File annual reports.
  8. Out of state LLC registration.

1. Choose a Name for Your LLC

The name of your LLC must comply with your state's rules. While these rules differ, most states require 1) that your LLC's name end with an LLC designator, such as Limited Liability Company or Limited Company, or an abbreviation of one of these phrases; and 2) that the name not be the same as the name of another LLC or business entity already registered with your state.

Often, for a small fee, you can reserve your LLC name for a short period of time until you file your articles of organization.

2. File Articles of Organization

To create your LLC, you must file articles of organization with your state's corporate filing office, often the Secretary of State. Some states (including Delaware, Mississippi, New Hampshire, New Jersey, and Washington) use the term "certificate of formation" instead. Two other states (Massachusetts and Pennsylvania) call the document a "certificate of organization." To learn about the specific requirements of forming an LLC in your state, choose your state from the list below:

Articles of organization can usually be completed online or by using a form available on your Secretary of State's website. You'll need your LLC's name, the name and address of its registered agent, and other basic information, like how it will be managed or the names of the LLC owners. You'll have to pay a filing fee when you submit the articles. In most states, the fees are modest - typically around $100.

Steps to form an LLC

3. Choose a Registered Agent

LLCs are required to have a registered agent. This is an individual or company that agrees to accept legal papers on behalf of the LLC if it is sued. The registered agent must have a physical street address in the state where the LLC is registered. Most states maintain a list of private service companies (commercial registered agents) that will act as agent for service of process for a fee. An LLC member can act as registered agent for the LLC.

4. Decide on Member vs. Manager Management

Most small LLCs choose to be managed directly by their members, but LLCs can appoint one or more people (outsiders) to manage the LLC – somewhat like a board of directors oversees a corporation. Managers vote on key issues such as taking out a loan, purchasing real estate, or changing strategic plans.

5. Create an LLC Operating Agreement

Even though most states don't require it, you should have an operating agreement for your LLC. This is an internal document that establishes how your LLC will be run, including how the LLC will be managed. In the absence of an operating agreement, state law will govern how your LLC operates.

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All of the paperwork and procedural steps to start a limited liability company can be done online using Nolo's Online LLC Formation service.

6. Comply With Tax and Regulatory Requirements

Additional tax and regulatory requirements may apply to your LLC. These include:

EIN: If your LLC has more than one member, it must obtain its own IRS Employer Identification Number (EIN), even if it has no employees. If you form a one-member LLC, you must obtain an EIN only if the LLC will have employees or you elect to have it taxed as a corporation instead of a sole proprietorship (disregarded entity). You may obtain an EIN by completing an online EIN application on the IRS website.

Business Licenses: Depending on its type of business and where it is located, your LLC may need to obtain other local and state business licenses. Check with the appropriate state agencies to ensure you are properly registered, licensed, and permitted to do business in your state.

Sales and Employer Taxes: In some cases (for example if you will be selling goods and collecting sales tax or if you have employees), you'll need to register with the appropriate state taxing authority. For more information on LLC tax registration rules, see LLC Tax and Annual Filings Requirements: 50 State Guide.

7. File Annual Reports

Many states require LLCs to file an annual report with a filing fee. In some states these fees can be significant – as high as $800 per year in California. See LLC Tax and Annual Filings Requirements: 50 State Guide to find out the rules in your state.

8. Out of State LLC Registration

To do business in a state other than the state where your LLC was formed, you will need to register your LLC in that state and appoint a registered agent for service of process. For more information on out of state or foreign LLC registration requirements, see 50-State Guide to Qualifying Your LLC to Do Business in Another State.

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Appointing a registered agent is a simple - but essential - step for every business. Learn more about what a registered agent does.

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