What Do You Need to Start an LLC?

Forming an LLC is a great choice for entrepreneurs who want a flexible business structure that offers personal liability protection and favorable tax advantages. An LLC combines the best features of partnerships and corporations, offering simplicity in management while allowing you to avoid double taxation.

If you're thinking about starting your own LLC in the U.S., this blog will guide you through the steps and requirements needed to successfully set up your business.

1. Choosing the Name of the LLC

The first essential step in starting an LLC is choosing a business name. It’s crucial that the name is unique and complies with state regulations. States typically have specific rules about what names are allowed for LLCs, so your business name must meet certain criteria:

• It must be unique: Conduct a search in the state’s business database to ensure no other LLC has the same name.
• Include “LLC” or its equivalent: The name must include terms like “LLC,” “Limited Liability Company,” or “Limited Company” to indicate the legal structure of the business.
• Avoid restricted words: Some words like "bank," "university," or "insurance" may require special permissions or are prohibited.

How to Check Name Availability?

‍Most states allow you to perform an online name search through their business databases. This search is important to avoid legal issues and delays in forming your LLC.

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2. Designate a Registered Agent

An LLC must appoint a registered agent to receive legal documents, state notices, and lawsuits on behalf of the business. This agent can be an individual or an authorized entity, and must meet certain criteria:

• Have a physical address in the state where the LLC is being formed (P.O. boxes are not accepted).
• Be available during business hours to receive important notifications.

The registered agent ensures that your LLC stays informed about any legal obligations or proceedings.

3. File the Articles of Organization

The next formal step in starting an LLC is filing the Articles of Organization with the Secretary of State in the state where the LLC is being formed. This document is crucial as it officially creates the business.

What Information Is Included in the Articles of Organization?

• Name of the LLC
• Physical address of the LLC
• Name and address of the registered agent
• Purpose of the business (some states require this, others only specify "for any lawful purpose")
• Duration of the LLC (optional; most LLCs are formed for an indefinite period)

4. Create an Operating Agreement

Although not required in all states, it’s highly recommended that LLCs have an Operating Agreement. This internal document outlines the management structure and decision-making rules within the LLC. It’s especially important if the LLC has more than one member.

What Does the Operating Agreement Include?

• Roles and responsibilities of members
• Distribution of profits and losses
• Voting and decision-making procedures
• Process for adding or removing members
• What happens if a member wants to leave the LLC

This document is not filed with the state, but it is essential for avoiding internal conflicts and providing clear guidelines for managing the company.

5. Obtain an Employer Identification Number (EIN)

An Employer Identification Number (EIN) is issued by the IRS (Internal Revenue Service) and is used to identify the LLC for tax purposes. While single-member LLCs without employees are not always required to obtain an EIN, it is recommended to have one to simplify tax management and open business bank accounts.

When Is an EIN Required?

• If the LLC has more than one member
• If you plan to hire employees
• If the LLC chooses to be taxed as a corporation^‍

6. Open a Business Bank Account

Once your LLC is registered and you have your EIN, it’s time to open a business bank account. Keeping your personal and business finances separate is essential for maintaining the limited liability protection that an LLC offers.

Requirements to Open a Business Bank Account

• LLC’s EIN
• Articles of Organization
• Operating Agreement (in some cases)
• Business licenses or permits (if applicable)

Having a separate business bank account allows you to manage the company’s finances clearly and professionally, making accounting and tax payments easier.

7. Comply with Licenses and Permits

Depending on the type of business and where your LLC operates, you may need to obtain specific licenses or permits. Common examples include:

• General business licenses (issued by the city or county)
• Health permits (for food or healthcare businesses)
• Professional licenses (for lawyers, doctors, accountants, etc.)

Research local, state, and federal requirements to ensure your LLC complies with all applicable regulations.

8. Understand the LLC’s Tax Obligations

Finally, it’s important to be aware of the tax obligations your LLC will have. Although LLCs offer flexibility in taxation, the taxes you need to pay will depend on how your company chooses to be taxed:

• Personal income tax: By default, LLCs are “pass-through entities,” meaning profits are reported on the personal tax returns of the owners.
• State taxes: Depending on the state, the LLC may be subject to state income tax or sales tax.

Conclusion

Starting an LLC is a relatively straightforward process, but it requires attention to legal and administrative steps to ensure that your business is properly registered and compliant with all regulations. From choosing an appropriate name to obtaining an EIN and fulfilling business license requirements, each step is important to protect your personal liability and ensure smooth business operations.

If you have any questions about how to start your LLC in the United States, contact us for a free consultation with our experts.