Set Up An LLC

Forming an LLC in 2024 and beyond.

Everything you need to know as a new startup.

What is an LLC?

At its core, an LLC is a type of business structure that combines the flexibility of a partnership with the limited liability protection of a corporation. This means that owners, also known as members, enjoy protection from personal liability for the debts and obligations of the company. In simpler terms, if the LLC runs into financial trouble or faces legal action, the personal assets of the members generally can't be touched to satisfy business debts or liabilities.

Setup an LLC (in 3 steps)

Step 1: Decide on a Business Name

First things first, you'll need to come up with a name for your LLC. Keep in mind that your new startup business name should be unique and not already in use by another company in your state. Avoid using any restricted words like "bank" or "insurance" unless you're in those industries. Once you've settled on a name, you can check its availability with your state's Secretary of State office.

Choose a Generic Name for Your LLC

Choose a generic name for your LLC can enhance your business's credibility and funding prospects. Generic names that describe your business activities, such as "ABC Consulting Group" or "XYZ Marketing Solutions," signal to banks and lenders that your LLC is focused on a specific industry and is less likely to be perceived as high-risk.

Step 2: Have a Registered Agent

Now, you might be wondering, what's a registered agent? Think of them as your LLC's official point of contact with the state. A registered agent can be an individual or a company that agrees to receive legal documents and official correspondence on behalf of your LLC. This could be you, a trusted friend, or a professional registered agent service. Just make sure your registered agent has a physical address in the state where your LLC is formed – no P.O. boxes allowed!

Step 3: Get a Business Address

Every business needs a place to call home, even if it's just a virtual one. Your LLC will need a physical address where it can receive mail and legal notices. Just make sure it's a valid street address in the state where your LLC is registered and not a PO Box or iPostal. You can search around for coworking spaces that allow you to use their address as your business's physical address. You can also check into some of the more popular virtual office spaces such as Regus, Alliance One, or Opus.

Step 4: File Your LLC

1. Complete the Articles of Organization: Fill out the required information on the Articles of Organization form accurately and completely. Double-check everything to avoid any errors or delays in processing.

2. Submit the Form and Fee: Once you've filled out the Articles of Organization form, submit it along with the filing fee to your state's Secretary of State office. You can typically mail the documents or file online, depending on your state's procedures.

3. Draft Your Operating Agreement: While not submitted to the state, it's a good idea to draft your Operating Agreement before or shortly after filing your LLC formation paperwork. You can create one yourself using templates available online or seek assistance from a legal professional if needed.

   While most states don't legally require LLCs to have an operating agreement, having one in place is highly recommended for all LLCs, regardless of where they're formed. Even if your state doesn't mandate it, having an operating agreement can provide clarity and protection for your business and its members.

   Below are the States that require an operating agreement

   • California

   • Delaware

   • Maine

   • Missouri

   • Nebraska

   • New York

   Even if you're not required by law to have an operating agreement in your state, it's still a good idea to create one to establish clear guidelines and protect the interests of all members involved in your LLC.

Next steps after your LLC is registered (Everything From EIN to NAICS Codes)

1. Obtain an EIN (Employer Identification Number)

An EIN is like a social security number for your startup business and is essential for tax purposes, hiring employees, opening a business bank account, and more. You can easily apply for an EIN for free on the IRS website.

2. Open a Business Bank Account

Separating your personal and business finances is crucial for managing your LLC effectively and protecting your personal assets. Look for banks that offer business accounts tailored to the needs of new businesses, such as low fees and online banking options.

3. Obtain Necessary Business Licenses and Permits

Depending on your industry and location, you may need to obtain specific licenses and permits to legally operate your business. Research the requirements in your area and ensure compliance to avoid any legal issues down the line.

4. Create a Professional Website

In today's digital age, having a professional website is essential for establishing credibility and attracting customers. You can use website builders like Wix, Squarespace, WordPress, Shopify, or use a complete marketing system such as GO Highlevel to easily create a professional looking website without any coding experience.

5. Set Up a Professional Email Address

A professional email address with your business domain (e.g., yourname @yourbusiness.com) adds credibility to your brand and helps you maintain a professional image when communicating with clients and customers. Many website hosting providers offer email hosting services as part of their packages.

6. Obtain a Business Phone Number

Having a dedicated business phone number separate from your personal line helps you manage incoming calls professionally and ensures privacy. Look for virtual phone service providers like Dialpad or RingCentral for affordable options.

7. Establish a Presence on Social Media

Social media platforms offer powerful tools for reaching and engaging with your target audience. Choose platforms that are relevant to your industry and audience demographics, and regularly share valuable content to build brand awareness and foster relationships with your followers. There are several platforms to choose from. Maximizing visibility is the name of the game. Certainly, you will want to be on platforms such as Facebook, Instagram, LinkedIn, YouTube, and TikTok. There is also Threads and X to consider as well.

8. Claim Your Google My Business Listing

Google My Business is a free tool that allows you to manage your business profile on Google, including your business location, hours, and reviews. Claiming and optimizing your listing can improve your visibility in local search results and attract more customers to your business.

9. List Your New Business in Online Directories

Online business directories like Yelp, Manta, Yellow Pages, Trust Pilot and Angie's List can help potential customers find your business and learn more about the products or services you offer. Ensure your business information is accurate and up-to-date on these platforms to maximize visibility.

Be sure you have the right NAICS code when applying for your EIN

NAICS codes are standardized numerical codes used to classify businesses based on their primary economic activities. These codes help government agencies, researchers, and businesses categorize industries for statistical purposes and regulatory compliance. For example, a marketing agency would likely have a NAICS code related to advertising and marketing services, while an e-commerce platform might fall under retail trade.

Why NAICS Codes Matter for Banks and Lenders

Banks and lenders often use NAICS codes to assess the risk associated with lending to a particular business. Certain industries may be perceived as riskier than others, based on factors such as market volatility, regulatory scrutiny, and historical performance. By choosing NAICS codes associated with industries that are viewed as less risky, you can increase your LLC's credibility and improve your chances of securing financing when needed.

Choose a Favorable NAICS Code

When selecting NAICS codes for your LLC, consider industries that are known for stability, growth potential, and low regulatory risk. Here are a few examples of industries that banks and lenders typically view favorably:

1. Marketing and Advertising Services: NAICS codes related to marketing, advertising, and public relations are often seen as low-risk, as these industries tend to have steady demand and relatively low overhead costs.

2. Consulting Services: Consulting firms that provide professional advice and expertise in areas such as management, finance, or technology are generally perceived as low-risk businesses by lenders.

3. E-commerce and Online Retail: With the rise of online shopping, e-commerce businesses have become increasingly attractive to lenders due to their potential for scalability and global reach.

4. Technology and Software Development: Companies involved in technology and software development often benefit from strong demand, innovation, and high-profit margins, making them appealing to lenders.

Using a DBA (Doing Business As) with Your LLC

If you decide to operate your LLC under a name other than its legal name, you can use a DBA, also known as a fictitious name or trade name. Obtaining a DBA is a straightforward process that typically involves registering the fictitious name with the appropriate state or local government authority. Once approved, you can use the DBA to conduct business under the chosen name while maintaining the legal entity of your LLC.

Why form an LLC

1. Limited Liability Protection

One of the most significant benefits of forming an LLC is the limited liability protection it provides to its owners, also known as members. This means that your personal assets, such as your home, savings, and car, are generally protected from any debts, lawsuits, or legal liabilities incurred by the business. In other words, if your LLC runs into financial trouble or faces legal action, your personal assets are shielded from being used to satisfy business debts or obligations.

2. Pass-through Taxation

Another advantage of an LLC is its pass-through taxation structure. Unlike corporations, which are subject to double taxation (taxes at both the corporate and individual levels), LLCs pass their profits and losses through to their members, who report them on their personal tax returns. This can result in significant tax savings and simplifies the tax filing process for LLC owners.

3. Flexibility in Management and Ownership

LLCs offer greater flexibility in terms of management structure and ownership compared to other business entities like corporations. You can choose to manage the LLC yourself or appoint managers to handle day-to-day operations. Additionally, ownership interests in an LLC can be easily transferred or sold, allowing for greater flexibility in structuring ownership arrangements.

4. Reduced Administrative Requirements

Compared to corporations, LLCs typically have fewer ongoing administrative requirements and formalities. There's no need for annual shareholder meetings or extensive record keeping, which can save you time and money on administrative tasks. This makes LLCs an attractive option for small business owners who want to focus on running their businesses rather than dealing with excessive paperwork.

5. Enhanced Credibility and Professionalism

Forming an LLC can enhance your business's credibility and professionalism in the eyes of customers, clients, and vendors. It signals to stakeholders that your business is a legitimate entity with limited liability protection and demonstrates your commitment to operating in a professional manner. This can help attract customers, secure contracts, get business funding, and build trust with your target audience.

6. Personal Privacy Protection

Unlike some other business structures, such as sole proprietorships or general partnerships, LLCs offer a greater degree of personal privacy protection. By establishing an LLC as a new startup, you can keep your personal information, such as your home address and phone number, separate from your business records, reducing the risk of identity theft or unwanted solicitations.

7. Ability to Raise Capital

While LLCs cannot issue stock like corporations, they have the flexibility to raise capital through alternative methods, such as bringing in new members or obtaining loans or investments. This can provide additional funding opportunities for your business's growth and expansion without the complexities associated with issuing stock or dealing with shareholders.

8. Estate Planning and Succession

Forming an LLC can facilitate estate planning and succession planning for your business. You can designate specific members or managers to inherit ownership interests in the event of your passing, ensuring a smooth transition of ownership and management responsibilities. This can provide peace of mind knowing that your business will be taken care of according to your wishes.

9. Brand Protection

Registering your business as an LLC can help protect your brand name and prevent others from using it without permission. Once your LLC's name is registered with the state, it becomes legally recognized and protected from unauthorized use by competitors or copycats. This can safeguard your brand's reputation and prevent potential confusion among customers.

10. International Expansion

If you have plans to expand your business internationally, forming an LLC can provide a solid legal framework for conducting business overseas. Many countries recognize and respect the LLC structure, making it easier to establish a presence in foreign markets and navigate international business transactions.

Types of LLC's

When it comes to forming a Limited Liability Company (LLC), one size doesn't fit all. Depending on your business goals, structure, and specific needs, there are several different types of LLCs to consider. Each type offers unique advantages and considerations that can impact your business's operations, taxes, and liability protection. In this guide, we'll explore some of the most common types of LLCs and why they might be the right choice for your business.

1. Single-Member LLC (SMLLC)

A Single-Member LLC is the simplest form of LLC, consisting of just one owner, also known as a member. This type of LLC is ideal for solo entrepreneurs, freelancers, and small business owners who want the liability protection and flexibility of an LLC without the complexity of multiple owners. Forming an SMLLC can provide personal liability protection for the owner's assets and simplify tax filing by allowing business income and expenses to be reported on their personal tax return (Schedule C).

Why Choose an SMLLC: If you're a solo entrepreneur or freelancer looking for liability protection and simplicity in managing your business, forming a Single-Member LLC could be the right choice for you.

2. Multi-Member LLC

A Multi-Member LLC has two or more owners, each of whom is referred to as a member. This type of LLC is suitable for partnerships, joint ventures, family businesses, and collaborations where multiple individuals or entities share ownership and management responsibilities. Multi-Member LLCs offer the same liability protection and pass-through taxation benefits as SMLLCs but require additional considerations for decision-making, governance, and ownership structure.

Why Choose a Multi-Member LLC: If you're starting a business with one or more partners or collaborators and want to share ownership and management responsibilities while still enjoying the benefits of an LLC, forming a Multi-Member LLC is the way to go.

3. Series LLC

A Series LLC is a unique type of LLC that allows for the creation of separate "series" or divisions within a single legal entity. Each series operates independently with its own assets, liabilities, and members, providing a level of asset protection and operational flexibility similar to that of separate legal entities. Series LLCs are often used by real estate investors, property managers, and businesses with multiple divisions or subsidiaries.

States that allow Series LLC:

1. Delaware

2. Illinois

3. Iowa

4. Kansas

5. Missouri

6. Nevada

7. Oklahoma

8. Tennessee

9. Texas

10. Utah

11. Wisconsin

Why Choose a Series LLC: If you have multiple businesses, properties, or investment ventures and want to protect each one separately while maintaining centralized management and administration, forming a Series LLC can offer significant advantages in terms of asset protection and organizational efficiency.

4. Professional LLC (PLLC)

A Professional LLC is specifically designed for licensed professionals, such as doctors, lawyers, accountants, architects, and consultants, who provide professional services in regulated industries. In many states, professionals are required to form a Professional LLC instead of a standard LLC to comply with state licensing laws and regulations. PLLCs offer the same liability protection as regular LLCs but may have additional requirements related to professional licensure and oversight.

Why Choose a Professional LLC: If you're a licensed professional operating in a regulated industry and want to protect your personal assets while complying with state licensing requirements, forming a Professional LLC is a must.

LLC's vs. Other Business Types

The choice between a Limited Liability Company (LLC) and other entity types can significantly impact your business's legal and financial aspects. Let's explore the key differences between LLCs and other common business entities to help you make an informed decision.

1. Sole Proprietorship: This is the simplest form of business where an individual runs and owns the entire business. While easy to set up, the owner has unlimited liability, meaning they are personally responsible for all the business's debts and obligations.

2. Partnership: A partnership involves two or more individuals sharing ownership of the business. Like sole proprietorships, partnerships have unlimited liability, exposing partners to personal financial risks.

3. Corporation: A corporation is a separate legal entity from its owners (shareholders), providing limited liability protection. Corporations are complex to set up and maintain, with strict regulations and formalities to follow.

4. S Corporation: An S Corporation is a special type of corporation that allows profits and losses to pass through to shareholders without being subject to corporate tax. However, S Corporations have restrictions on the number and type of shareholders.

Key Differences

1. Liability Protection: LLCs and corporations offer limited liability protection, shielding owners' personal assets from business debts and lawsuits. In contrast, sole proprietorships and partnerships expose owners to unlimited personal liability.

2. Taxation: LLCs offer flexibility in taxation. By default, they are taxed as pass-through entities, where profits and losses flow through to the members' individual tax returns. However, LLCs can elect to be taxed as corporations if desired. Corporations, on the other hand, are subject to double taxation—once at the corporate level and again on dividends distributed to shareholders.

3. Ownership and Management: LLCs offer flexibility in ownership and management structures. Members can manage the LLC themselves or appoint managers. Corporations have a more rigid structure with shareholders, directors, and officers.

4. Formalities and Regulations: Corporations have strict formalities and regulations to follow, such as holding annual meetings, keeping minutes, and filing separate tax returns. LLCs have fewer formalities, making them more suitable for small businesses and startups.

Which Structure is Right for You?

Choosing the right business structure depends on various factors, including your business goals, industry, size, and risk tolerance.

• Sole Proprietorship or Partnership: Suitable for small businesses with low risk and one or more owners seeking simplicity and full control.

• LLC: Ideal for small to medium-sized businesses seeking flexibility, limited liability, and pass-through taxation.

• Corporation: Best for larger businesses planning to raise capital, go public, or establish a formal management structure.

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