How to start an LLC

What are the steps to form an LLC?

1. Choose your state

   Forming where you actually operate is usually simplest. If you form in one state and do business in another, you may also have to register there as a foreign LLC and pay fees in both.

2. Pick a name the state will accept

   Search your state's business name database. Most states refuse a name someone else has already registered, and each sets rules for endings such as LLC. Check the federal trademark database too.

3. Appoint a registered agent

   The registered agent receives legal papers for the LLC and must be located in the state. You can name yourself, someone you trust, or a registered agent service.

4. File articles of organization and pay the fee

   The form typically asks for the name, address, members or managers and registered agent. Some states accept it online; others take it by mail or in person.

5. Write an operating agreement

   It sets out how decisions are made and each member's duties, powers and share. The SBA recommends one even where the state does not require it.

6. Get an EIN from the IRS

   Apply after the state approves the LLC, because the IRS warns that applying before the entity exists may delay the application. The EIN is free.

7. Handle state follow-up filings

   Some states require an initial report or tax board registration, often within 30 to 90 days, plus annual reports or taxes after that.

8. Open a bank account and get licenses

   Use the approved formation papers and EIN to open a business account, then apply for the licenses and permits your activity and city require.

How much does it cost to form an LLC?

State fees differ, so look up your own state's fee schedule before you file. Three official examples show the range of what to expect; each state has its own guide (Texas, Florida, California). Texas lists a $300 filing fee on its certificate of formation for an LLC. Florida charges $100 for articles of organization and $25 to designate the registered agent. California's Franchise Tax Board collects an $800 annual tax from every LLC organized or doing business there.

Beyond the state, budget for a registered agent service if you do not act as your own, local licenses, and any annual report fees. Filing services add their own fees on top of the state's; you can also file directly with the state.

What goes in an operating agreement?

The SBA describes the operating agreement as the document that sets out how the company's financial and functional decisions are made. Even with one member, it records who owns the company and how it is run. Typical contents:

• Who the members are and what each contributed
• How profits and losses are shared
• Who manages the LLC and how votes work
• What happens when a member joins, leaves, dies or wants to sell
• How the LLC can be dissolved

The SBA also notes that in some states, when a member joins or leaves, the LLC may have to be dissolved and re-formed unless the operating agreement already covers buying, selling and transferring ownership.

What do I have to do after the LLC is approved?

• Taxes: a single-member LLC is a disregarded entity by default, so its profit goes on your personal return; a multi-member LLC files as a partnership. See self-employment and estimated taxes.
• State tax accounts: register for sales tax if you sell taxable goods (seller's permits and sales tax) and for payroll taxes if you hire.
• Licenses: apply for the city, county and state licenses your activity needs (business licenses and permits).
• Annual filings: calendar your state's annual report or tax due date. California, for example, sets the first $800 payment for the 15th day of the fourth month after you file.
• Beneficial ownership: FinCEN now exempts companies created in the United States from beneficial ownership reporting, so a U.S. LLC does not file that report.