Here’s what you need to do to set up an LLC...
Forming a Limited Liability Company (LLC) is not as hard as most people think.
Here are the steps you need to take to set up your LLC:
- Choose an available business name that compiles with your state’s LLC rules
- Have a business lawyer draft and file your Articles of Organization
- Have a business lawyer draft an Operating Agreement which sets out the rights and responsibilities of the members
- Apply for an Employer Identification Number (EIN) from the IRS
- Apply for licenses and permits required for your business
Let’s get started on how to set up your LLC…
1. Choose a Name for Your LLC
Choosing an LLC name will depend on whether it’s 1. available, and 2. legal.
The name of your LLC must comply with the rules of your state's LLC rules.
While requirements different from state to state, generally here are the rules you must follow for choosing an LLC name:
- The name cannot be the same as the name of another LLC on file with the Secretary of State
- The name must end with an LLC designator, such as "Limited Liability Company" or "Limited Company," or an abbreviation of one of these phrases, such as "LLC," "L.L.C.," or "Ltd. Liability Co.", and
- The name cannot include certain words prohibited by the state, such as Bank, Insurance, Corporation or City. State rules differ on which words are prohibited.
You can typically check with your state’s Secretary of State to check whether your proposed LLC name is available for use by searching on Google, "[state] llc name search"
Keep in min that besides following your state’s LLC naming rules, you must also make sure you are not violating another’s company’s trademark.
Once you find an available and legal name, you can then have a business lawyer file your Articles of Organization (see below) — which will automatically register your LLC name.
2. Have a Business Lawyer File Your Articles of Organization
After choosing a name that is available and legal for your LLC, you must have a business lawyer prepare and file an Articles of Organization with your state’s Secretary of State.
Some states also call an Articles of Organization by other names including, "Certificate of Formation" or "Certificate of Organization."
All states require that your LLC designate a Registered Agent. A Registered Agent is someone with a physical address in your desired state where legal papers may be mailed in person.
Once you designate yourself or a Registered Agent service for your LLC, you can have a business lawyer prepare and file your Articles of Organization.
Typically, an Articles of Organization requires a filing fee — typically from around $50 to $500 for filing.
3. Have a Business Lawyer Draft an LLC Operating Agreement
An operating agreement is a legal document outlining the ownership and operating procedures of your LLC.
This agreement allows you to form financial and working relationships with co-owners into an established system suitable to your business.
In a single-member LLC, an operating agreement is a declaration of the structure the member has chosen for the company, and sometimes is used to prove in court that the LLC structure is separate from that of the individual owner.
Banks often require an Operating Agreement prior to opening an account in the company name.
Typically, an Operating Agreement includes the following information:
- Full name of all members
- Date you will enter the contract
- LLC name
- Principal place of business
- Each member’s responsibilities and duties
- Any initial contributions each member makes
- Details of distributions (if you want it to be default, leave this blank)
- Details about quorum
- Details of transfer of ownership
The most important reason why every LLC should have an Operating Agreement signed by all the members is to reduce the risk that a court pierces the company veil and holds the members liable for the debts of the LLC.
One of the factors that courts take into consideration when asked to pierce the veil is did the members sign an Operating Agreement.
If your LLC ever ends up in court you want to show that you operated your LLC like a business rather than a hobby.
An Operating Agreement is a requirement when forming an LLC in California.
I strongly recommend getting your LLC Operating Agreement professional drafted by a lawyer, especially if you are starting a multi-member LLC.
4. Apply for an Employer Identification Number (EIN) from the IRS
Employer Identification Number (EIN) is a number for your business assigned by the U.S. Internal Revenue Service (IRS).
You can use your EIN to open up a U.S. bank account, start a business, and apply for permits and licenses.
If you have a U.S. Social Security Number (SSN), you may apply for your EIN here.
➡ However, if you need an EIN but do NOT have a U.S. Social Security Number, feel free to contact me at email@example.com and I can help you get your EIN.
Some people think that because they do not have a Social Security Number, a U.S. address, or an Individual Taxpayer Identification Number (ITIN) that they cannot obtain an EIN.
This is not true.
If you do not have a Social Security number, you can still get an EIN.
5. Apply for Permits and Licenses for Your Business
After you've completed the steps described above, your LLC is official.
But before you open your doors for business, you need to obtain the relevant and necessary licenses and permits so that you can operate your business.
These may include a business license (sometimes also referred to as a Tax Registration Certificate), a Seller’s Permit, or a Zoning Permit.
For more information on business licenses and permits, see License & Permits for Your Business.
How to Set Up an LLC in Texas
Typically, the steps of setting up an LLC in Texas are the same as in any other states.
First, you will need to designate a Registered Agent in Texas who is an individual or corporation authorized to transact business in Texas. You can also elect an individual within the company including yourself.
Texas LLC Certificate of Formation
Then to set up an LLC in Texas, you need to file a Certificate of Formation.
The filing fee is $300 for filing the Certification of Formation in Texas.
Then you need an Operating Agreement and obtain an Employer Identification Number (EIN).
Texas LLC Annual Franchise Tax Report
Unlike most states, Texas does not require LLCs to file annual reports with the Secretary of State.
However, LLCs must file annual franchise tax reports. The details for computing the tax can be complicated. Check the Comptroller of Public Accounts for more information.
Also, to do business in Texas, all LLCs organized outside of the state must register with the Texas Secretary of State. Foreign LLCs must appoint a registered agent for service of process. The agent may be a Texas resident or a business entity authorized to do business in Texas.
Here is a great guide that will show you how to set up an LLC in Texas.
How to Set Up an LLC in California
To setup an LLC in California, you must first following the naming guidelines.
Your entity name must contain the words Limited Liability Company or the abbreviation L.L.C. or LLC.
Restricted words require additional paperwork (e.g. Bank, etc) and/or licensed individuals (e.g. Doctor, Engineer, etc). to be part of the LLC. Prohibited words are those that would confuse the name of your LLC with a federal or state agency e.g. FBI, Secret Service, Treasury etc.
You can do a California LLC name search to make sure you California LLC name is available.
California LLC Registered Agent
Then you must get a Registered Agent. California requires that your LLC designate a Registered Agent. A Registered Agent is someone with a physical address in California where legal papers may be mailed in person.
You can purchase a California Registered Agent for $50/year here.
California LLC Articles of Organization
The Filing fee for a California Articles of Organization is $70.
Then you will need to draft an Operating Agreement which a business lawyer can draft for you.
Then apply for an Employer Identification Number (EIN) with the IRS as noted above.
California LLC Statement of Information
Also, keep in mind that in California, California requires LLCs to file a biennial report, also known as a Statement of Information, with the Secretary of State.
The filing fee is $20 for the initial statement and $20 for each statement you file every 2 years.
An initial report (initial statement) is due within 90 days of forming your LLC. Thereafter, a new report (biennial statement) must be submitted every second year by the end of the month in which an LLC is formed.
If you do not file your Statement of Information in time in California, California charges a $250 penalty for failure to file on time.
California LLC Annual Franchise Tax
California LLCs are also required to pay an annual Franchise Tax. The minimum Franchise Tax is $800 for LLCs with annual revenues less than $250,000. LLCs with revenues exceeding $250,000 pay an additional, graduated fee that ranges from $900 to $11,790.
The due date for California Annual Franchise Tax is due on the 15th day of the fourth month after the beginning of an LLC’s tax year.
Late filing of the Franchise Tax is $18 per month per member plus 5% per month late filing penalty plus 5% per month non-payment penalty. Then the non-payment penalty increases by 0.5% every month.
For those who have an existing LLC and want to register to do business in California, you will need to form a foreign LLC.
The best benefit of becoming a foreign LLC is that it allows your company to operate as one entity in many jurisdictions. For example, if you originally incorporate your LLC the State of Delaware, you can file your existing domestic LLC as a foreign corporation in California.
How to Set Up an LLC in Florida
Setting up an LLC in Florida is the same as in California, Delaware, New York, and Texas.
You must first follow the naming guidelines to make sure it is not illegal and that is available. You can do a name search on the State of Florida website.
Then you will need a Registered Agent who will accept legal papers on your behalf. The Registered Agent must be a resident of Florida or an organization authorized to transaction business in Florida.
Florida LLC Articles of Organization
Then you will need to have a business lawyer file your Articles of Organization for a Domestic LLC. Make sure to have a business lawyer draft and file this for you.
The filing fee for filing the Florida Articles of Organization is $125.
Then you can have a contract lawyer draft your Operating Agreement.
Then you can apply for an Employer Identification Number (EIN) with the IRS once you have your LLC registered. Having an EIN will allow you to open a bank account, hire employees, and start your business.
Florida LLC Annual Report
Florida requires LLCs to file an annual report with the Department of State. The fee is $138.75 which is due each year by May 1 if the entity was formed int he year prior to the current year. You can find more information about the Annual Report here.
Benefits of an LLC
An LLC has the protection of limited liability, which prohibits an LLC owner from being held personally responsible for an LLC’s debts in most circumstances.
LLCs also receive the benefit of pass-through taxation, where the LLC does not pay taxes on profits until the profits are “passed on” to individual owners of the LLC.
For more information about the [benefits of an LLC, see here].
Conclusion: How to Set Up an LLC
Unless you have a compelling reason otherwise, it's generally best for small businesses to incorporate in the state in which it will principally be doing business.
There are some tax and organizational advantages to registering in certain states, however.
Delaware, Nevada, and recently Wyoming are the most popular for out-of-state corporate registration.
Mollaei Law is a law firm specializing in business law serving businesses and entrepreneurs. We provide legal expertise in all stages of business development by drafting and reviewing contracts and agreements, assisting transactions and negotiating, forming LLC's and Corporations, registering trademarks and copyrights, business planning, and answering any legal questions you may have about your business.