Want to Form an LLC? Here are the Steps to Take

Steps in the Process of Starting an LLC

If you are interested in learning how to form an LLC, this article will provide you with details about this business form and the process of forming an LLC. The process of forming the LLC is the same for both the single-member (one person) LLC or multiple-member LLC. The difference is in how the LLC is taxed - a single-member LLC is taxed as a sole proprietor, while a multiple-member LLC is taxed as a partnership.

limited liability company (LLC) (sometimes mistakenly called a "limited liability corporation") is an accepted business form in all U.S. states. An LLC is formed in a state and has "members" (similar to partners). 

The process of forming an LLC with a state is fairly simple, depending on the state. But there are some decisions you and the other owners will need to consider before - and after - you make that application. 

01
Determine the Members of the LLC

The owners of an LLC are called members. The owners of an LLC can be: 

  • Individuals. A single individual can own an LLC or a group of individuals can be owners. 
  • Other Businesses. A corporation or another LLC can own an LLC. 
  • Trusts. A trust can own an LLC. 
  • Foreign ownership. Foreign individuals may own an LLC, but there are tax and legal consequences to foreign ownership that should be considered with an attorney in the state where the LLC is located. 

02
Get an Employer ID for Your LLC

Even if you do not plan on hiring any employees, you should still obtain an Employer ID (Tax ID) for your LLC. You will need this number for many business documents and contracts, as well as your business checking account. 

The process of completing an EIN application on Form SS-4 can be done online, by phone, or through your attorney.​

Filing an EIN application for an LLC is tricky because the LLC legal form is not a taxable entity according to the IRS. Item 8 asks questions about the LLC. Then, you will need read the instructions for Form SS-4 to complete Item 9. 

03
Register Your LLC with Your State

In most states, you will need to register your LLC with your state by filing Articles of Organization with your state's business division (usually in the office of the state Secretary of State. You will need to gather information and make some decisions for this filing

The information needed to complete this registration form varies by state. Go to your state's Secretary of State website and look for the business division to find specifics on how to register your LLC. 

04
In Some States, You Will File a Certificate of Organization

In some states, you must file a certificate of organization (sometimes called a certificate of formation) with your state to register a new LLC. Six states (New Jersey, Texas, Delaware, Pennsylvania, Iowa and Idaho) require a Certificate of Organization to be filed. The information needed is similar to the Articles of Incorporation and it varies by state. 

05
Create an Operating Agreement for Your LLC

An operating agreement sets out all of the decisions about the business, including member responsibilities and duties, how profits and losses are distributed to the members, and the effect on the LLC if a member dies, leaves, or is asked to leave.

Every LLC, including one with only a single member, should have an operating agreement. 

06
Consider Having Your LLC Taxed as a Corporation

If you want to file LLC taxed as a corporation, you will need to complete an election form after your LLC is up and running. Having an LLC structure and corporate taxation may be an advantage to your business, depending on specific tax and legal aspects of your business. Before you consider making this election, discuss the possibility with both your tax and legal advisors. 

07
Register Your LLC in Other States

If your LLC does business in more than one state, you will need to register as a "foreign" LLC in the other states. The process is similar, but the name is different. 

08
Some Frequently Asked Questions about Starting an LLC

Do I need an attorney to form an LLC? How much will the LLC documents cost? What are the recordkeeping requirements for an LLC? Find the answers to these LLC questions in this article. 

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