A limited liability company, or LLC, offers an appealing way to start and operate your own business while keeping personal liability at bay. However, many people are unsure of how to form an LLC and whether it’s the right choice for them. To help you decide whether an LLC is the best legal structure for your business, this guide will cover the steps involved in forming one and what to do after you’ve filed your paperwork.
Step 1 - Choose Your Name
The first step in forming your LLC is choosing a name for your company. This name should be reflective of what your business does and be easy for customers to remember. You’ll also want to make sure that the name you choose isn’t already being used by another business. One way to check this is by visiting the Better Business Bureau’s website, which has a database of registered businesses available for review.
Step 2 – File Articles of Organization: Once you’ve chosen your name, it’s time to register with your state government as an LLC. There are different types of entities you can form–S-corporation, C-corporation, partnership, or sole proprietorship–but for this post, we’re focusing on the limited liability company.
Step 2 - Appoint Directors
To form a limited liability company, you’ll need to appoint directors. This step is important because the directors will be responsible for the management of the company. They’ll also be in charge of ensuring that the company complies with all applicable laws and regulations. When deciding who should serve as your director, consider choosing people who have relevant experience or expertise. You can always add new members later on if necessary.
Next, file your articles of organization with the secretary of state’s office. If you want to make changes at any point after forming your LLC, such as adding more members or changing the company name, you’ll need to file an amendment certificate according to a specific procedure. Finally, decide whether or not you want to register for federal tax purposes.
Step 3 - Issue Shares
Once you have registered your company with the state, the next step is to issue shares. This is done by creating a stock certificate, which will list the names of the shareholders and the number of shares they own. The shareholders will then sign the certificate, which will be kept on file with the company. Issuing shares is a key step in the formation of a limited liability company because it determines who owns what percentage of the company. If there are three owners, for example, each one would receive 33% ownership. If there are five owners, each one would receive 20%. The formation of a limited liability company formation can get more complicated if there are unequal percentages among the shareholders or if different classes of shares exist (e.g., Class A, Class B).
Formation of limited liability company formation typically happens before any financial contributions to the company take place or any investments have been made. However, this can vary from situation to situation based on how much money has been raised from outside investors or the amount that an individual shareholder has contributed towards capitalization.
Step 4 - Draft An LLC Operating Agreement
An LLC Operating Agreement is a contract between the members of the LLC that outlines how the business will be run. This agreement should include:
(1) The names of the members and their roles in the LLC
(2) How decisions will be made
(3) How profits and losses will be distributed
(4) What happens if a member leaves the LLC
(5) Any other rules that the members agree upon.
The articles of organization filed with the Secretary of State are not required to include an operating agreement, but you should always have one drafted for your company. The LLC Operating Agreement does not need to be filed with the Secretary of State and can be kept private among the members. A person who wants to see it must file a written request which must state the reason why they want to access it. Members can’t share confidential information about the LLC without permission from all members unless it’s public information or required by law. Once these steps are completed, congratulations! You’re ready to register your new LLC!
Step 5 - Obtain An EIN Number And Federal Tax ID Number
You will need an EIN to open a business bank account and apply for business licenses. You can obtain an EIN by filing Form SS-4 with the IRS. The form is available on the IRS website or by calling the IRS. Once you have obtained your EIN, you will need to obtain a federal tax ID number. This can be done by filing Form W-9 with the IRS. Again, this form is available on the IRS website or by calling the IRS at (361) 748-0711. Remember that all correspondence from banks, credit card companies, and other businesses will use these numbers so it’s important to keep them up to date as your company grows.
