How to Start an LLC: A 5 Step Guide for Entrepreneurs

Setting up a new Limited Liability Company (LLC) is an exciting undertaking. However, as a small business owner, understanding how to start an LLC properly is an essential topic for your business venture. In this guide, we’ll walk you through details so you can feel confident as you create an LLC.

What is a Limited Liability Company (LLC)?

A Limited Liability Company, or LLC, is one of the most common business entities. As the name suggests, LLCs offer liability protection to its owners, or “members,” and can offer more flexibility when it comes to taxes. An LLC is not recognized by the Internal Revenue Service (IRS) for federal tax purposes; instead, it’s a state designation. This means that LLC owners can choose how they pay federal taxes. Depending on the number of members and other factors, you can elect the tax classification that best fits your needs – whether as a sole proprietorship, partnership, C Corporation, or S Corporation. Learn how LLC taxes work to see which classification is best for your business.

If you’re a new small business owner or are just considering forming an LLC, it’s wise to seek direction from an attorney and a tax professional. Block Advisors’ information and tools will help you prepare to make these important decisions for your business.

How to start an LLC step-by-step

Wondering how to form a Limited Liability Company? LLCs are generally simpler to form than corporations. However, starting an LLC still requires several steps. Each state has different rules and processes to forming an LLC, but these are the general steps you may need to follow to create an LLC.

Step 1: Choose a name and state to register in

The first step to create an LLC is to choose a name and the state you want to register in. Your LLC name may seem like a small detail, but each state has its own naming requirements you should adhere to. Generally, your LLC name must:

• Be distinguishable from other businesses already registered with the state. You can search to see if your proposed name is available on your state secretary of state’s website.
• Indicate that your business is an LLC, typically by including an abbreviation at the end of your name like, LLC.

Choosing the state you’re registering in as you create an LLC is another crucial decision. State laws govern LLCs, so it’s important to choose where you form your business entity carefully. You can create an LLC in any state, regardless of if you live there or not, but forming your business in the state where you live is common.

Step 2: Choose a registered agent

The next step to create an LLC is to select a registered agent. Every state requires LLCs to designate a registered agent. A registered agent is someone who receives documents on behalf of the LLC. You can be your own registered agent, but many business owners choose to hire a registered agent service. It’s important to note that your registered agent must have a physical address in the state you choose to form the LLC in.

If you create your LLC with Block Advisors, you can appoint a third-party registered agent during the process.

Step 3: File your LLC Articles of Organization

After choosing your LLC name and appointing a registered agent, you can start to complete the paperwork. Articles of Organization are the main LLC formation document that officially establishes your LLC with the Secretary of State.

You have to pay a filing fee for this document, but once approved, the state will issue you a certificate indicating that your LLC is officially registered. This certificate will help you accomplish other tasks like setting up a business bank account and getting a tax ID number.

Step 4: Prepare your LLC operating agreement

Not every state requires an operating agreement for your LLC, but it’s a good idea to have one in place regardless of whether it’s required.

An operating agreement outlines your LLC’s financial, legal, and management responsibilities and rights of all LLC members. This document can include how profits will be divided and distributed, how members can leave the LLC, and who contributes capital. Creating an operating agreement ensures all members agree on their rights and responsibilities.

Step 5: Maintain your LLC over time

Setting up your LLC is just the start. Once you’ve taken the steps to create an LLC and the business is officially registered with the state, you must ensure that it remains in good standing. Specific requirements vary by state, such as obtaining  an employer identification number (EIN) from the IRS, filing state taxes, obtaining business licenses, and filing an annual report.

All Block Advisors business formation packages include EIN application preparation to help you easily check another thing off your list. You can also easily file annual reports online through our account management portal.

How to start an LLC: Types to consider

When starting an LLC, there are several types of LLCs to choose from. The most common types to consider when you create an LLC are:

1. Single-member LLC: This LLC is owned and operated by one person.
2. Multi-member LLC: This is a standard LLC owned and operated by more than one member.
3. L3C: This LLC is also known as a “low-profit liability company.” Think of it as a bridge between nonprofit LLCs and for-profit LLCs where the primary business focus is the cause rather than earnings.
4. Series LLC: A Series LLC is a tiered business structure where the topmost LLC owns a series of lower-tiered LLCs. Each LLC in the series will operate mostly independently and the assets are separated.
5. Professional LLC: This type of LLC is a specialized LLC only available for certain licensed professionals.

Each structure has its own benefits and considerations based on your business’s goals and needs. You’ll want to choose the structure that best aligns with your goals, revenue and hiring projections, and how you wish for it to operate.

Advantages of forming a Limited Liability Company (LLC)

Forming an LLC has several advantages and is often a desirable choice for small business owners. Limited liability protection is the primary advantage of forming an LLC as it protects your business assets from business debts or potential lawsuits.

Other advantages of creating an LLC include:

• Pass-through taxation: LLCs can choose how they are treated for tax purposes, and many owners choose to take advantage of pass-through taxation. This means you report your profits and losses on your personal income tax return to avoid double taxation. (This only applies to certain business entity designations.)
• Minimal compliance: Once you’ve registered your LLC, keeping your business in good standing with your state requires minimal paperwork. Again, each state has its own requirements, but you likely will have to file an annual report and keep up with business license obligations.
• Flexibility: With an LLC, you can choose how the business is taxed. For example, you could choose to be taxed as a sole proprietorship, partnership, or S or C Corporation.

What is the cost to create an LLC?

The cost to create an LLC will vary depending on your registering state. Filing fees typically range from $35 to $500, and you may need to cover additional fees if you wish to reserve your LLC’s name or apply for business licenses.

Get help to start an LLC

Forming your Limited Liability Company doesn’t have to be a headache. If you’re overwhelmed by the steps to start an LLC, don’t worry. Block Advisors has the tools to help you start an LLC quickly and confidently. Get back to doing what you love while we work with the state to file your LLC paperwork with 100% satisfaction guaranteed.

Our taxes, bookkeeping, payroll, and incorporation services are designed with small business owners like you in mind. Speak with a small business professional today to get answers to your questions.

This article is for informational purposes only. The content may not constitute the most up-to-date information and should not be construed as legal advice. 

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