How to Start an LLC in 5 Simple Steps
Knowing how to start an LLC is essential for all prospective business owners in the US.
An LLC, short for Limited Liability Company, allows you to combine flexibility and relatively light documentation while also limiting your personal liability.
This is a very convenient alternative for many newcomers to the business world.
Yet, it’s completely understandable if you’re feeling confused—after all, starting a new company is never too simple of an ordeal.
Or is it?
We’re going to let you in on a secret—if you know exactly how to form an LLC, and if you pick the right state and right people to help you do it, it can truly be a piece of cake!
It essentially boils down to going through five steps:
- Choosing a name;
- Finding a registered agent;
- Filing articles of organization;
- Forming an operating agreement;
- Getting an EIN.
Still, there’s a bit more to it than just this. We’ll walk you through all aspects of starting an LLC, and you’ll see that it’s a walk in the park!
Why Start an LLC
Before you even begin considering the steps, there’s one principal thing that we need to go over; why even start an LLC in the first place?
LLCs are convenient for many potential business owners, regardless of state, for several reasons. True, the degree of convenience may vary depending on various internal and external factors, but the type of company in itself is made to be quite favorable.
In short, the main benefits of starting an LLC are affordability, lack of bureaucratic complexity, protection of personal liability, and flexibility of tax.
For example, even though it can vary vastly between states, it’s comparatively cheaper than other types of businesses when it comes to the price. You won’t need to find a professional lawyer, and there are much fewer documents involved, meaning that the whole process is simplified—and by extension, cheaper.
This also goes for the simplicity argument; you don’t need to have been in the business for years to know how to evade all possible dangers, nor should you be afraid of getting trapped in some legal loophole. Everything’s simple and basic, perfect for an inexperienced person.
Then there’s the personal liability protection clause. No matter what happens to your LLC as time goes by, so long as you don’t mix your private with your professional finances, breach the law, or commit fraud, your personal finances will remain untouched.
This is a huge benefit, as it serves as a protection from possible professional missteps that could, under different conditions, cost you much more.
On the other hand, LLCs aren’t taxed federally but rather personally, through pass-through, individual taxation.
This means that you’ll avoid paying double taxes, like some other types of companies have to, and you’ll be able to choose a preferred taxation method – S corp or C corp.
Then there’s also the fact that LLCs allow investors to attach themselves to the business and even help out—significantly—if they want to do so, whether by raising capital, contributing financially, property-wise or in other ways.
Finally, don’t forget about the status and reputation of your business. Unlike other corporations, like partnerships, or proprietorships, LLCs are usually considered serious, stable ventures, and potential partners or collaborators won’t hesitate to reach out to you.
How Long Does It Take to Start an LLC
This, like most other aspects, is also quite relative and dependent on a variety of factors. The two most influential ones, however, are:
- The state you’re forming your LLC in;
- The method for transporting documents that you use.
In other words, almost all states do things differently, so while some are pretty quick, with others, you may have to wait for a longer period.
For instance, Delaware is known to process LLC paperwork in less than a single day.
On the other hand, Arizona could take up to 6 weeks to approve your documents and send them back.
Between these extremes, a calculated average time for forming an LLC in the US is between 2 and 3 weeks, that is 14 and 21 days.
Still, that’s only if you consider how fast the state administration is. There’s also your method to consider. By this, we mean whether you opt to submit most of your documents electronically, which would take no time at all, or by mail, through fax, or by other methods.
Logically, the more outdated the technique, the more time it will take for the paperwork to reach the relevant section of the institutions in question. Thus, the process will be much faster if you opt for the quickest alternative.
How Much Does It Cost to Start an LLC
Perhaps you’ll be disappointed to discover that this also varies vastly between states.
In essence, there are usually a few things that you’ll have to spend some money on, but the prices for each of them vary, so there’s almost nothing fixed to bear in mind.
For instance, filing the articles of organization is one of the vital mandatory steps to forming an LLC, but this step costs $40 in some states (Kentucky) and $500 in others (Massachusetts).
Similarly, reserving a name, or a “doing business as” name, can cost anywhere between $10 and $50.
Finally, there’s the compulsory act of obtaining a proper business license. Assuming the particular LLC is your first business, and you don’t already own one, you’ll have to pay anywhere between $50 and $100 for it, depending on which state you’re starting your LLC in.
And this is all just the act of starting an LLC. There are additional costs that come with maintaining one. Think of annual fees or annual franchise taxes.
Interestingly enough, these aren’t a common thing in all states, so you won’t have to pay anything for them in some. However, in other states, franchise tax could cost you anywhere between $100 and $800 (beware of California), and annual fees could go up to $500.
Lastly, the annual fee for maintaining your business license is fixed, so keep in mind that you’ll have to spend anywhere between $20 and $100 per year for this document only.
Tools to Use to Start an LLC
Now, all of these things considered, different people have different priorities, fears, and strong suits. You may be reluctant to actually try and go through the entire process manually, and you may prefer some professional assistance.
Luckily, we live in an era where technology can do anything for you – even start your LLC. The point is that there are hundreds of available tools online that can significantly help you when it comes to establishing your LLC.
Maybe you’re ready to do the hard lifting yourself, but if you’re the sole owner, you’re not completely sure about how your business website is supposed to look, what the logo design should be like, and things like that.
For that reason, you can simply log onto your computer and browse through online services that can help get your LLC up and running while you’re physically running and doing errands with the documentation.
One of the first tools you should consider to help you start your LLC is a website builder. Because there are already so many of them, most are incredibly perfected. This means that as long as you choose one of the more famous ones – and there are quite a few of those – you’ll be in safe hands.
These tools allow you to choose the degree of input you’ll have. If you want a more hands-on approach, influencing the design and choosing things for yourself, they’re perfectly tailored to accommodate you. Conversely, if you’re too busy and just want something to be quickly constructed, they can offer that as well.
Finding the best website builder for your LLC is paramount to settling an essential aspect of your business.
Online Store Builders
Similar, but not quite the same, are online store builders. Assuming that you’re establishing an LLC to sell products or services, there should be an online portal where your customers can browse through whatever it is that you offer, pick it, and pay the necessary sum.
However, having a clean, comprehensive, user-friendly online store is difficult when you’re doing a hundred other things simultaneously. Hence the need for the best online store builder that you can find.
Not only will it make your online store look welcoming to customers, but it’ll essentially sell your products or services for you while you’re tending to other aspects of your LLC.
Finally, some of us simply have a hard time organizing ourselves, especially when it comes to plucking up the courage and establishing a whole business, simple as it may seem. For us, the perfect online tool to look for is an LLC service.
What LLC services do can vary between services and what you need. They can help guide you through the steps of forming an LLC; they can help you manage and run your LLC, oversee all additional elements, or seek potential partnerships, you name it.
Whatever it might be, find the best online LLC service, and rest assured—all of your troubles will disappear in no time.
Starting an LLC in Different States
As has become already evident to you by now, it makes a lot of difference where you decide to start your LLC. Some states have more favorable rules and laws than others, and many have both advantages and disadvantages compared to their neighbors.
True, most of the time, it’s not up to you to choose the state where you’ll form your LLC – it may happen to be the state you were born in and reside in or a state where, for whatever reason, you’re compelled to settle in and do business at.
Still, there are those of us who actually can afford to choose their preferred state to start an LLC, and for them, we’re going to outline the best and worst states to start an LLC.
The Best States to Start an LLC
The 5 best states to start an LLC are:
- Wyoming—with 0% tax for LLCs and an incredibly low unemployment rate, Wyoming is the absolute best state to start an LLC;
- Florida—good overall state organization + low LLC taxes;
- Alaska—with 0% individual tax and other benefits, Alaska is recommended;
- South Dakota—0% taxes and favorable business climate;
- Montana—no state taxes and almost no unemployment rate.
The Worst States to Start an LLC
The 5 worst states where you should avoid forming an LLC are:
- New Jersey—extremely high prices and taxes make it the worst LLC state, period;
- California—an overall more expensive standard makes starting an LLC a futile attempt;
- New York—high individual taxes only get worse if you start an LLC;
- Minnesota—stay clear if you don’t want to spend too much money;
- Connecticut—a variety of high taxes + unfavorable business laws.