Forming an LLC — a limited liability company — isn’t as hard as you think. Here are five quick steps to get you started.
Step One: Select a state
Before getting into the nitty-gritty details, you’ll need to choose a state. Usually, business owners choose the state in which they live, but if you’re planning on having one or more storefronts, sales reps, offices, etc. in different states, you’ll need to register a foreign LLC in every state in which you plan to do business.
Step Two: Choose a name for your LLC
Deciding on a business name is one of the first official steps in forming an LLC. Although each state has its own criteria for what names are “allowed,” there are a few general guidelines you should follow:
- Your business name cannot include words that could confuse your LLC with a government agency (like the Treasury, FBI, or State Department).
- Your business name should include the phrase “limited liability company,” or one of its abbreviations (LLC or L.L.C.).
- Business names that include words like “University,” “Bank,” and “Attorney,” may need additional paperwork and a licensed individual, like a lawyer or a doctor, to be a part of the LLC.
If you’re worried about your business's name, do a quick name search to ensure it’s available in your state.
Step Three: Choose a registered agent
A registered agent is a business or a person who sends and receives legal papers on your behalf. Even if your state doesn’t require you to have a registered agent, you should strongly consider getting one. Businesses that do not select a registered agent may risk falling out of “good standing” with the state in which it is registered. Penalties include everything from license revocation to hefty fines.
Step Four: File your LLC with the state
Once you’ve chosen a state, a business name, and a registered agent, you’ll need to file your documents with the state. This is usually referred to as the “Articles of Organization” or “Certificate of Formation.” These documents basically outline the organizational structure of your business.
Step Five: Create an LLC operating agreement
An LLC operating agreement is a legal document that outlines the ownership, structure, and member roles of your new LLC. While most states don’t require an operating agreement, it’s still a good idea to have one. An operating agreement comprises of six main sections:
- Management and voting
- Capital contributions
- Membership changes
This article was written by Tabitha Britt for Small Business Pulse