Going after a business idea is no easy task. You have to fight the competition, grab hold of market position and solidify your startup as a powerful player in the market.
However, one mistake most entrepreneurs often make is that they go after all this, without incorporating their startup.
In the high-stakes US business environment, no competitor is willing to grant you any place. And, for that reason they are ready to sue you for the slightest legal grey area that you may tread on, a common instance being trademark infringement.
For such reasons, having an incorporated business means that your personal property escapes all and any form of liability in civil suits.
There are several legal business structures that you can go for. But, LLC is a preferred choice due to the ease of formation as well as the tax benefits that it offers to its members.
Before we begin: While this post offers you all you need to know for registering an LLC, if you need state-specific help or guidance for registering your LLC, join our team for a free consultation!
So, here’s how you can incorporate an LLC in US –
Step #1. Decide on the State where you want to incorporate your LLC in.
This is one of the first and most major decisions that you need to take.
This is because while the general requirements with regard to formation and operation of an LLC are similar throughout the US, there are certain more specific rules that are unique to the state where you wish to incorporate your LLC in.
This state need not be the place where you usually do or intend to do business in. Usually, you may need to operate in several states. This can easily be done by registering your LLC in the respective states by filing a notice with the state’s corporate filing office which is usually the Secretary of State and by paying the appropriate filing fees.
As such, you can incorporate your startup into an LLC in a state where the ease of doing business is the highest and the cost of doing business is the lowest.
Also, take into consideration factors like tax rate, labour laws before you make this decision. Different states have different pros and cons when it comes to incorporating an LLC. For example, Delaware offers a very well-developed corporate law whereas states like Wyoming have the most favorable LLC asset protection law which helps protect LLCs from legal liabilities.
Step #2. Decide on a name for your LLC.
Now that you have decided a state for incorporating your LLC in, you need to decide upon a name for your LLC. This can be similar to your startup’s name but has to be in conformity with a few rules –
- Your LLC’s name must end with the term “Limited Liability Company”, or any of its permitted abbreviations, the most common of which is LLC.
- In most cases you will be able to use your start-up’s name. However, if it coincides with the name of any incorporated domestic or international LLC’s name, then you are out of luck. You can easily check it out by doing a business name search. Also, make sure your LLC’s name is not similar to any registered trademark or else you can get sued! There’s a search option for that as well!
- There are also a list of prohibited words that you can’t use for your LLC’s name. For example, Bank, Trust, Corporation. A basic rule is that you can’t use vulgar words as your incorporated startup’s name, nor can you use any word that signifies that you are connected to the Government.
- If you can’t use your startup’s name as your LLC’s name that isn’t that big of a deal. You can easily use a fictitious name by filing a “doing business as statement” in your State office.
Step #3. File the articles of organization for your LLC
Articles of organization are one of the most important document for your LLC. It provides for how your business shall be structured and shall operate. It is basically the charter for your Limited Liability Company. Although articles of organization is the charter, there are slight differences in the document depending on the state where you are incorporating your Limited Liability Company in.
Here are the articles of organization for some of the states –
- Alabama – In Alabama, the articles of organization are called as the certificate of formation. Further you need to file it via mail to the Office of the Judge of Probate in the county where your registered LLC’s office is to be located.
- California – Here the articles of organization is in Form LLC-1. You need to file it with the Secretary of State of California.
- Colorado – Make sure you fill up the LLC’s name and address, the LLC’s registered agent’s as well as the promoter’s (person forming the LLC) name and address, way in which the LLC will be run and a confirmation that the LLC has at least one member in it. Finally you also need to provide the name and address of the person filing the articles.
- Connecticut – Here also, the articles of organization are called as the certificate of organization and it has to be filed with the Connecticut Secretary of State.
- Delaware – Here you need to file the articles, known as the Certificate of Formation with the Delaware Division of Corporations. It’s relatively simpler compared to the others.
- D.C – Here the articles are in Form DLC-1 and needs to be filed with the District of Columbia Corporations Division.
- Ilinois – The articles are in Form LLC-5.5 and needs to be filed with the Illinois Secretary of State Department of Business Services. It is suggested that you file your form online as they are treated within 24 hours.
- Kansas – In Kansas, the documents is known as the Kansas Limited Liability Articles of Organization and you can find it in Form DL 51-09.
- Massachusetts – Here, the Limited Liability Company Certificate of Organization needs to be filed with the Commonwealth Corporations Division. The filing fees are somewhat on the higher side and is around $500.
- New York – It is advisable you file the form online. The filing fees are $200.
- Washington – Here you can file the articles with the Secretary of State. The articles are processed in around 2-3 business days.
- Wyoming – In order to file the articles, you need to appoint an agent first and have his written consent included in the form.
Step #4. Appoint a registered agent.
A common requirement that you will find in almost all the states (except the State of New York) is that you need to appoint a registered agent, who is usually a lawyer or a law firm. In some states, individuals can be appointed as registered agents.
The agent needs to sign and accept legal and state papers on behalf of your firm. The agent’s job is to be a point of contact between the State and your LLC.
In New York, the Department of State acts as the agent for service of process for every LLC registered in the State. However you need to provide the Department of State with a name and address so that it can forward the process to the concerned individual.
Step #5. Prepare an Operating Agreement
This step is not a mandatory requirement in every state. However it is highly recommended that you do it. The purpose of the document is very simple.
It is an internal document that provides for how the LLC shall be operated. It also delineates the powers and authorities, voting rights as well as share in the profits and losses that each member of the LLC may take part in.
If you don’t create an operating agreement, then your LLC’s operation will be governed via the State laws, which can be a drag later on.
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Step #6. Get yourself a Federal Employment Identification Number
The Federal Employer Identification Number (FEIN), also referred to as a “EIN” or simply “Tax ID Number,” is a tax identifying number issued by the Internal Revenue Service (IRS). It serves as a number which helps in identifying your Limited Liability Company.
Once your business is incorporated as an LLC, your Registered Agent will assist you in obtaining this number from the IRS. You will need your EIN to open a bank account for your LLC in the United States.
Step #7. Set up bank accounts for your Limited Liability Company
Once the above five steps are complete, it becomes a much easier process.
You need to pass a resolution in your LLC authorizing the opening of a bank account. Thereafter, submit your articles of organization, EIN and the LLC resolution to the bank. Make sure your resolution provides for a signing authority with the bank.
Step #8. Keep a membership ledger for your Limited Liability Company
This helps keep track of the names and addresses of the members of your limited liability company, as well as keeps the information as to the shareholding of the members.
It is a necessary document that needs to be kept updated at all times. Any default in this regard can expose you to exorbitant fines.
Step #9. File annual reports and get the necessary business licenses.
Now that you have incorporated your startup as an LLC, you need to file annual reports. It is considered as a compulsory legal compliance and missing out on it can put you in risk of having to file late filing fees, which can go quite high.
It can also get your LLC suspended and dissolved – something you surely don’t wish for!
Further, there are some business-specific licenses that you may need to get in order to run your business. It has nothing to do with incorporating your LLC but are very important to get if you wish to minimize legal risks to your business.
Some of the common business licenses are –
- Home occupancy permits
- Premises permits for features such as signs, alarm systems, and elevators
- Licenses for regulated activities such as food preparation and day-care
- Professional licenses for services such as engineering and architecture
You may need some other licenses but that will require a detailed analysis of your own business first.
Wrapping it Up
As you can see, registering an LLC is surely an intensive process. Most business owners do not want to have anything to do with such legal intricacies. However, as a start-up consultant and serial entrepreneur myself, I can assure you it is worth it!
In fact, LLC offers the most flexibility when it comes to ease of operation and low legalities involved than any other business legal structure. However, there are exceptions when it comes to professional businesses and special types of businesses. For example, large businesses prefer corporations as a viable business structure to do business in.
The entirety of the steps can be done by you, yourself. However, you can avoid the trouble by hiring a legal consultant to guide you through the process!
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