Setting up an LLC is not as confusing or complicated as many may think. The steps to LLC formation are pretty straightforward and don’t really depend on the state you want to operate from. 

In this guide, you will know the exact steps to be taken when opening an LLC and even some necessary ones you need to take, right after you have completed the process. 

We have outlined in detail the 6 steps of pre-LLC formation, as well as 3 steps of post-legally opening an LLC.  

As already mentioned before, setting up an LLC is not a complicated process and requires several certain steps in order to fully, legally open an LLC. 

However, before we get there, let us give you a brief description of what is an LLC? 

An LLC or a limited liability company is a business structure that is allowed by state statute. Regulations of an LLC differ from state to state, so you need to make sure to check the regulations corresponding to your state.  

LLC is also the simplest business organization to create and maintain. Its biggest advantage and distinction is that the owner, or in the case of LLC, a member, is not personally responsible for the company’s liabilities and debts. 

Another biggest advantage of forming an LLC is its taxation, which is a much easier scheme and is called pass-through taxation. What it basically means, is that as an owner or a member, you pay taxes on the profit earned from the business through your personal tax returns and are not subject to double taxation, which basically means that you are being taxed on personal and business levels alike. 

As soon as you register the LLC, it becomes, in all legal aspects, a separate entity from the owner(s) or member(s). 

The reasons listed above make opening an LLC a very attractive idea for business owners that want to avoid extra paperwork, red tape, double taxation, and all personal liabilities associated with the business. 

Now that you know what an LLC is, it’s time to go over the steps and see what exactly you need to do and how to start an LLC. 

As we have mentioned earlier, LLC regulations differ from state to state, so the first thing you want to do is choose the state you want to set up the LLC. 

It would be a great idea to pick the state you are planning to operate your business, which is also usually the state that the owner resides in. Otherwise, if you register your LLC in one state and decide to operate it in another, you will need to foreign qualify or register as a foreign LLC. In turn, that may increase administrative and LLC formation costs. 

Since LLC regulations, i.e., taxation, costs, and laws, differ, there are more and less favorable conditions for setting up an LLC. One of those states and probably the most popular one in Delaware, for example. 

As soon as you have narrowed down the state you want to operate from, it’s time to name your LLC. 

Selecting a name for your LLC should not be difficult, as you are free to name it whatever you wish, following certain guidelines, of course. 

You can start thinking of the name at any point, but before you can register it, it needs to have one. 

You also need to make sure that the name is free for you to be used, meaning that no one else is using it, and it is not registered under another LLC, corporation, or any other business entity in the Secretary of State’s records. 

You also need to be aware of trademarks, which can be either federal or state. As to federal trademarks, you can check the availability in the U.S. Patent and Trademark Office (USPTO) of your state. 

This step officially launches the paperwork of your LLC that needs to be filed with the Secretary of State’s office. In different states, this document can be referred to as either Certificate of Formation, Articles of Organization, or Certificate of Organization. 

Regardless of its name, the purpose stays the same – the paperwork of establishing the state recognition of your LLC and outlining the details of the LLC members. 

The filing procedure, as well as the fees, differ from state to state, so be sure to check with the website of the Secretary of State.  

It would be a great idea to think about the management structure of your LLC at this point as well. Typically, LLC is either manager-managed or member-managed. 

What is an operating agreement for an LLC? Basically, it’s a legally binding document that describes in detail the member roles and the ownership structure of your LLC. 

You can go into as much detail as you want, but most of them have several main sections. You need to outline the organizational structure, rights, roles of management and processes and procedures of voting, the capital contributions of the parties, how capital and profits are distributed, processes and procedures associated with membership changes, and the dissolution of the LLC altogether. 

You should learn about LLC operating agreements in order to craft a great one and protect yourself from disputes and misunderstandings that can come later on during the full operation of the business and disputes that may arise.

Most states have no official requirements to construct an operating agreement. However, it’s definitely a smart move to do so. Once all the parties, if needed agree on the terms outlined in the document, it needs to be signed by all parties and can be used as a reference when needed. 

When you have successfully filed with the Secretary of State’s office all the required documents and mapped out the Operating agreement, you can now turn to the IRS or the Internal Revenue Service to file for an EIN or the employer identification number. 

What is an EIN? 

EIN or FEIN – Federal Employer Identification Number, or FTIN – Federal Tax Identification Number is crucial if you want to open a business or corporate bank account or be legally allowed to employ people. 

The Employer Identification Number (EIN) is free of charge and can be obtained either online, at the IRS website, by mail, or by fax. In case you need the EIN at the movement of the application, then take the online route, as it will be issued immediately. 

Now that you know how to get an LLC, you need to know the maintenance part of it and what other documents you need to be able to operate your business and follow all the procedures to stay within the margins of the law. 

Let’s start with the most obvious one – the bank account. 

The whole point of opening an LLC is the benefit of the limited liability protection that it offers. In order to take advantage of that, you need to separate your business assets from personal ones. 

In case you fail to do so, all your personal belongings, like your car, house, apartment, and other valuables, are at risk if something goes wrong and someone sues your LLC. The court might consider you liable for the LLC debt when your assets are mixed. 

Make sure you do your research on different banks, their business accounts, and the features that each includes. Moreover, different banks might need additional information that they need in order to open an account. 

Don’t postpone this step for too long, and secure a business bank account before your start the operation of your business. 

Depending on the type of business you have in mind, and what kind of goods and services you are going to sell to your clients, you might need some additional licenses and permits. 

A great example of such a business could be a bar or a restaurant. In addition to setting up an LLC, in order to fully operate, you will need liquor (there are 3 types of these) and foodservice licenses, food handlers and building health permits, and many others that are associated with handling, selling, and then disposing of food. 

In general, there are 2 levels of licenses – federal and state/city/town. 

When it comes to state/city/town ones, everything depends on the state and city/town you have registered your LLC and where you will be operating your business. Thus, make sure to check with them in order to be compliant with all the laws and regulations and avoid fines. 

In order to know for sure whether or not your business falls into any of these categories, besides the obvious ones, contact your local Secretary of State’s Office. 

In case you know all the permits and licenses you are required to get, start applying for them right away, as the application process might set you back from operating your business. You can easily apply online at the U.S. Small Business Administration website.  

Also, budget for all the fees that you will need to pay in order to obtain those licenses and permits. 

If you don’t want to be subject to late fees and penalties, and in some cases even administrative dissolution of your LLC, you need to file your LLC Annual Report, as it is a state requirement, and dot it in due course, without missing deadlines. 

Annual Report or Statement of Information, as it’s referred to sometimes, is a legal document, if filed in order for the State to make sure they have the latest information in regards to your LLC. 

As with anything else listed above, the requirements of filing a report, its frequency, and what goes in the composition of such report varies from state to state.