We show you how to form an LLC for (practically) free
Previously, starting a business used to come at a considerable financial cost. Fortunately, these days, forming an LLC (Limited Liability Company) is easy and quick. The good news is that for the most part, you can do it yourself and thereby cut down on costs. It requires some work, but it is well worth the effort.
6 Easy steps to form an LLC
1. Choose a state
The laws for forming an LLC vary from state to state. Most LLCs owners choose the state in which they plan to do business – often the state they live in. However, you can choose to form an LLC in any other state. In this instance, you will have to register as a foreign LLC. The downside is that it can increase administrative costs
2. Get a business name
Each state has specific naming rules. You will need to decide on a name that’s not used by other LLCs registered in the state in which you plan on doing business. If you need help naming your business, try online business name generators. They are mostly free, quick, easy to use and you don’t have to register or sign up for anything. A quick Google search will give you a list of business name generators. Another benefit of a naming generator is that you can also check your domain (.com) availability. This is useful as you will want your business name and website name to be the same. Also consider setting up a professional email account. Try Google’s G Suite – it’s free for the first 14 days, and also offers other useful tools like word processing and spreadsheets. Having your name, URL and email address similar gives customers, potential customers and even investors the impression that your business is professional.
Once you have found a suitable name, you will want to trademark it. A trademark protects your name, goods, and services and prevents others in similar industries in the U.S. from using them. You can do a trademark search on Federal trademark Database.
Keep things above board by making sure your name complies with the following as well:
- Includes the phrase “limited liability company,” or one of its abbreviations (LLC or L.L.C.),
- Does not include words that could confuse your LLC with a government agency (FBI, Treasury, State Department, etc.), and making sure
- Restricted words (e.g. Bank, Attorney, University) may require additional paperwork and a licensed individual, such as a doctor or lawyer, to be part of your LLC.
3. Nominate a Registered Agent
A registered agent, also known as an agent for services of process, or statutory agent, is someone who receives legal notices and tax documents on behalf of an LLC. You can serve as the registered agent or appoint a friend or colleague. However, you may want to consider hiring a registered agent service to help with this part of the business. Risking the chance of the registered agent mishandling these often time-sensitive documents is not a chance you should be willing to take. In most states the registered agent must be 18 years or older, have a physical address (not a PO Box) in the state where business is conducted and be available during regular business hours.
4. File Your LLC With the State
Now it’s time to make your LLC official. To do this, you will need to file formation documents, commonly known as Articles of Organization, with the Secretary of State. You can opt to do this on your own, with the assistance of a lawyer, or through a professional LLC filing service. Most states offer online filing fees and registering your LLC will vary from state to state. Generally, the person who formed the LLC must sign the paperwork. Once approved, the state will issue a confirmation document. This important certificate is legal proof of your LLCs status, and allows you to open a business bank account, obtain an EIN (more about this later), and so on.
5. Create an LLC Operating Agreement
Although not all states require an LLC Operating agreement, it is always a good idea to have one in place. Why? This vital document serves as an agreement among the members and LLC as to how the LLC will be operated. It sets out each member’s role and the LLC’s ownership structure, and will ensure that procedures are in place in the event of conflict or disputes. A good idea is to have your operating agreement reviewed by your attorney to confirm that all the bases are covered.
You don’t need to file an operating agreement – this internal document can be stored in your company records. However, it should be updated every time there’s a change in membership or management in your company. The contents of an LLC operating agreement can vary slightly from company to company, but information commonly included are:
- each member’s responsibilities.
- how new members will be admitted.
- how existing members may transfer or terminate their membership.
- how profits and dividends are to be distributed
6. Obtain an EIN
The Employer Identification Number (EIN) or Federal Tax Identification number is basically a social security number for your company. This is the identification number your LLC will use on its bank accounts, income and employment tax filings and when you’re providing information on your employees. You can apply for an EIN online, by fax, mail or phone. We recommended applying online for this free service offered by the Internal Revenue Service.
Congratulations! You now have an official LLC recognized at state and federal level.