Questions About Starting a Limited Liability Company (LLC)
If you are ready to start a business, you may be considering starting a limited liability company (LLC). Here are some common questions you may be asking about how to start an LLC.
Can I name my LLC anything I want? Do I have to use "LLC" in the name?
All states require that you include the designation "LLC" or some variation, like spelling out "Limited Liability Company" in your name to distinguish it as an LLC. Otherwise, you can name your LLC anything you want as long as another company is not using that name or a very similar name in your state.
For example, Florida law says,
The name of the limited liability company, which must contain the words “Limited Liability Company, “or the abbreviation “L.L.C.,” or “LLC.”
Do I need to get a tax number for my LLC?
Yes, almost every business needs a tax ID, called an Employer ID (EiN). It's like a Social Security Number for a business. You definitely need an EIN if:
- You have employees,
- You operate your LLC as a partnership (the default tax status for LLCs with more than one member),
- You file any of these tax returns: Employment, Excise, or Alcohol, Tobacco and Firearms,
You may also need an EIN if you want to open a business bank account or get a business loan. You can apply online for an EIN and get the number immediately.
Do I need an attorney to start an LLC?
An LLC needs two documents:
- Articles of Organization to register your LLC with your state (In some states, you file a Certificate of Organization instead.)
- An Operating Agreement describing the operations of the business.
The State of New York says, "Articles of Organization have legal effect and Operating Agreements create legally enforceable rights and responsibilities. Anyone forming an LLC should consider utilizing a lawyer. However, there is no requirement to use a lawyer when forming an LLC."
The State of New York says, "The Operating Agreement is the primary document that establishes the rights, powers, duties, liabilities and obligations of the members between themselves and with respect to the LLC. The Operating Agreement is an internal document of the LLC and is not filed with the Department of State."
Even if you decide to file the Articles of Organization yourself, you should get an attorney to help you write the Operating Agreement, because it's a contract.
Beware of websites that offer free "fill-in-the-blank" legal forms for Articles of Incorporation. The content of these articles is regulated by state laws and there may be specific information needed for your situation that you won't know about until you talk to an attorney.
What's the difference between a "Limited Liability Company" and a "Limited Liability Corporation"?
There is a misunderstanding going around that the term LLC stands for "limited liability corporation." The "limited liability corporation" is actually incorrect; there's no such corporation type. A corporation is a separate business entity from an LLC.
You can elect to have your LLC taxed as a corporation, but that's not the same thing. An LLC taxed as a corporation still has the legal structure of an LLC.
Who manages an LLC? Does an LLC need a board of directors?
An LLC can select one of the members to be the manager, or it can hire an outside manager as an employee.
The LLC structure is considered to be a group of self-employed individuals. It doesn't need a board of directors.
What is the cost to form an LLC?
You will need to pay a fee for filing your Articles of Organization/Certificate of Organization. This fee varies by state, but it is usually between $50 and $200. If you have an attorney do this filing, you will pay attorney fees for this service. If the attorney prepares the Operating Agreement, that will be another cost,
I see that a "registered agent" is required to form the LLC. Can I serve as my own registered agent?
A registered agent is a person or business who represents the business for legal correspondence. Registered agents are regulated under state laws. Most states require that you use a mailing address, not a PO Box, for the registered agent. If you are registering your LLC in another state, you must find someone with an address in that state to serve as the registered agent. While you can serve as your own registered agent, it's better to have a specific registered agent service.
Do I need to register the LLC name with my state?
You must register your LLC with any state in which you do business. If you do business in several states, you must register with each state. The first state registration is called a "domestic" registration. Registrations in additional states are called "foreign" registrations.
For example, if your new LLC is forming in Iowa, you would register is as a domestic LLC in Iowa. If you will have employees working in Illinois, you would register as a foreign LLC in Illinois.
"Doing business" means that you have specific types of business activity in that state. For example, you are "doing business" in a state if:
- Your business has a physical presence in the state
- You often have in-person meetings with clients in the state
- A significant portion of your company’s revenue comes from the state
- Any of your employees work in the state
Should you register your LLC in another state, like Nevada or Delaware? SCORE explains the pitfalls and benefits of registering in a state where your business is not located.
Does an LLC need a partnership agreement?
A multiple-member LLC is taxed as a partnership, but an LLC should manage operations through an Operating Agreement, which functions in similar way as a partnership agreement but is just called by a different name.
Where Can I Get More Information about LLC Laws?
LLC's are regulated by state laws. Go to your state's Secretary of State division and look for the Business section to find out more about starting an LLC.
The information in this article is intended to be general and not to be tax or legal advice. Every business situation is specific, and laws may change. Get help from an attorney when you start your LLC.