For those considering how to start an LLC, or just interested into finding out the procedures and steps involved, this guide provides a step by step account. LLCs are often the business entity of choice for those looking for certain tax advantages, or who are attracted by the simpler administration and running of LLCs, compared with other entities such as corporations.
The first step in how to start an LLC is to identify who the owners of the limited liability company (LLC) are going to be – known as “members”. A single member is entirely possible, but the average LLC has around 30.
Next you should obtain an Employer ID for the LLC, even if no employees are envisaged. This can be done online.
An important part of how to start an LLC is registering the LLC by filing Articles of Organization with your state. Although there are some variations in procedure, this will usually involve providing the following:
• List of members’ names and addresses.
• A designated Registered Agent, who is responsible for sending and receiving official paperwork. An address for the LLC to receive official correspondence. This is usually the address of the Registered Agent.
• A description of the business activities of the LLC.
The next step in how to start an LLC is to draw up an Operating Agreement. This is similar to the by-laws of a corporation and will usually contain:
• How the LLC has been created.
• A list of members with details of their investment in the LLC, percentage interests, voting rights and how profits and losses are to be distributed.
• Management arrangements for the LLC.
• Members’ rights and duties.
• Provisions for termination or dissolution of the LLC.
• Details of what happens if a member dies or leaves the LLC.
After this, it will be necessary to file an IRS Entity Election if the LLC is to be taxed as a corporation. This includes a consent statement which must be signed by all members, or one on behalf of all members. Also details of the names and identifying numbers of the owners, the relevant number being Social Security number for LLCs with only one member and Employee ID for LLCs with more than one member. The Entity Election should be filed not more than 75 days before and not more than 12 months after the election is to take effect.
If your LLC is to do business in several states, you should register as a “foreign” LLC in the states other than that where it was formed. This is done as follows:
• You should already have registered the LLC with its home state.
• Determine whether you are to be undertaking business in other states, and therefore have to resister there. “Undertaking business” usually includes selling through a distributor, agent or representative, having a bank account, keeping offices, stores or distribution/manufacturing facilities and transacting business or holding meetings.
• Submit the appropriate registration and fee to the state(s) concerned.
This covers all the necessary steps in how to start an LLC.
Related articles:
