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How to Set Up a Limited Liability Company (LLC)

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I have been thinking about setting up a Limited Liability Company (LLC) for my web business to limit my personal liability risk.  An LLC is an attractive option for incorporating a small business, because it offers the same personal liability protection as a corporation, but the pass-through taxation of a partnership or an S-corporation. For this reason, LLC has become the business entity of choice for small businesses wishing to incorporate in recent years.

How to Set Up a Limited Liability Company (LLC)

The exact requirements for forming an LLC vary from state to state. Fortunately, LLC formation is a relatively simple process that can be accomplished in a few hours. Here are the general steps on setting up an LLC:

1. Obtain a copy of your state’s LLC Articles of Organization form

Get a copy of the LLC Articles of Organization Form for your state. You can find this at the Secretary of State’s office, here’s a list of Secretary of State’s office for each state. When you contact them, ask them if your state has any rules concerning business names and find out if you’re required to post a notice in the local newspaper. Also find out any specific rules regarding business names.

2. Select an appropriate name for your business

When you select your business name, be sure it complies with your state’s rules regarding LLC business names. The main part of the business name is generally flexible, but each state does have guidelines concerning prohibited words. For example, “Corporation”, “Incorporated”, “Insurance”, and “City” are generally prohibited. Your legal name must end with an LLC designator, such as “Limited Liability Company”, “LLC”, etc. Also, the name cannot be the same as another LLC on file in the state in which you are filing.

3. Complete the LLC Articles of Organization form

This document is relatively easy to complete. Information requested includes:

  • Name of your business
  • Purpose or nature of your business
  • Principal office address
  • Name of the registered agent who will receive legal documents
  • Names of the initial members — you do not have to specify the ownership allocation, or management structure.

4. Publish a notice in your local newspaper

If this is required by your state (don’t waste the money otherwise), publish a notice in your local newspaper.  This notice must detail your intention to form an LLC. Some states require this to be done before filing your Articles of Organization. To be sure, consult with your Secretary of State’s office.

5. Submit your Articles of Organization form

Send your Articles of Organization form to the Secretary of State in addition to the required LLC filing fee. Fees range from $40 to $900, depending on the state.

Caution: Some states may have a corporate tax and/or annual fee, which is separate from the LLC filing fee. For example, California charges an annual limited liability tax of $800, and New York charges annual of $100 per member with a minimum fee of $500 and a maximum of $25,000 (Single Member LLC only pays $100 annually).

Tips Regarding Limited Liability Company (LLC)

LLC Operating Agreement

If you’re not the only member, it’s worthwhile (although not legally required) to have an Operating Agreement that spells out the financial and management rights and responsibilities of the LLC members.  You should also include details such as:

  • What to do if the LLC needs additional capital
  • When and how profits from the business will be distributed
  • How can a member leave the LLC
  • etc.

Here’s a blank Operating Agreement template.

LCC State of Filing

Unless you have a compelling reason, it’s generally best for small businesses to incorporate in the state where it will principally be doing business. Some people register in states like Delaware, Nevada, and Wyoming because they offer some tax and organizational advantages to register there.

Conclusion

The steps to set up a Limited Liability Company is faily simple, but if you are a first-timer like me, you may want to look at MyCorporation.  For a nominal fee, MyCorporation will walk you through the entire process of incorporating your company, and does all the leg work for you.  MyCorporation web site also provides a wealth of information about LCC.

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RonSThompsPinyoher every cent countsJohn Recent comment authors
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Mrs. Accountability
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I’m bookmarking this one – we may need to do this at some point in time in the future. In the meantime, we’re going with sole proprietorship for Mr. A’s businesses. Thanks, Pinyo.

Ryan Guina
Member

Another advantage regarding an LLC is being able to more easily separate your personal finances from your business finances. Many banks won’t permit you to open a business bank account without a formal business structure. After I formed my LLC I opened a business bank account under an EIN, got a business credit card, then later opened a Solo 401(k) plan. Again, many Solo 401(k) plans and other self-employed retirement plans cannot be opened under a sole proprietorship.

Odnal
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Odnal

I’m in the middle a of setting up an LLC also. I looked at services like LegalZoom, but they wanted a couple hundred dollars, and from what I can tell, all they do is fill out a couple forms and mail them off for you.

Your description is accurate from what I know about Georgia law. I found some free sample Articles of Organization at https://www.ilrg.com/forms/llc-articlesorg/us/ga and the Georgia Secretary of State’s website has some pretty simple-to-follow instructions for reserving a name and filing the articles of organization

John
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John

I set up a single member LLC (Illinois) for my personal finance blog when I launched it. Another nice thing is that you can deduct the organization fees as a business expense.

Patrick – Thanks for the info on the Solo 401k plan. I recall reading somewhere (years ago) that you can utlize higher limits for 401k contributions through a company that the typical $16K contribution limit (not sure what it is off the top of my head for 2009). I want to say the number $40,000 sticks in my head.

her every cent counts
Guest

This is a very interesting post. As an independent contractor, I often wonder if I should set up an LLC for my one-woman business. I’m still not sure if it’s the right thing to do – that $800 California tax doesn’t look pretty. In any case, thanks for this post… it helps a lot!

SThomps
Guest
SThomps

Excellent info,

The step-by-step instructions are excellent.
Too bad LLC’s are non-existent in Canada. We have to register within the US if we want one.
Good job!

Ron
Guest

Thanks for the information we are thinking of opening a US corp. I think we will go with Nevada, close to Vegas and reason to get away.

How to Set Up a Limited Liability Company (LLC)

by Pinyo Bhulipongsanon time to read: 3 min
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