How To Form An LLC in 2022
Updated · Apr 06, 2022
Are you starting a business?
An LLC is one of the most popular legal entities among entrepreneurs. In this article, I’ll show you exactly how to form an LLC, step-by-step, in a beginner-friendly manner.
While you can hire a company or an attorney to do this for you, this is not necessary.
Whether this is your first business venture or a new project in your portfolio, here is everything you need to know about creating an LLC and staying compliant while you run it.
What Is an LLC?
LLC stands for “limited liability company.” It’s one of the most popular legal entities available to businessmen.
When you register an LLC, your personal assets are protected, hence, the limited liability. There are additional benefits of forming an LLC, such as simple administration, pass-through taxation, and significant ownership and management flexibility.
Check out our detailed guide to learn more about LLCs and how they work.
Benefits of an LLC
There are numerous reasons why LLCs are a popular choice among entrepreneurs. Some of the perks of forming an LLC include:
- Owners aren’t personally liable. No company debts or liabilities can affect your personal finances. Even if your company goes bankrupt, your assets can’t be seized to cover the losses.
- Pass-through taxation to avoid double taxes. Unlike corporations, allocated LLC profits are only taxed once on the members’ tax returns. LLC owners can also get a 20% deduction under the Tax Cuts and Jobs Act.
- Simple filing and administration. To file for an LLC, you just need articles of organization and a paid state office fee.
Corporations, on the other hand, also have to hold an organizational meeting, elect corporate officers, and create bylaws to describe the internal management. On top of that, they’re required to hold an annual shareholders meeting and publish annual reports. LLCs don’t go through any of these administrative hassles.
- Profit allocation flexibility. The LLC’s operating agreement can determine any way of profit allocation, not just one that depends on ownership proportion. For instance, if you have a member who contributed significantly to your earnings, you can compensate them accordingly, even if they have a small share.
Compared to corporations, the LLC setup is relatively simple. So, if these LLC benefits convinced you, let me show you how to start your own company.
Steps to Form an LLC
LLC registration can seem overwhelming to first-time entrepreneurs. You can always hire an LLC formation company to do it for you, but it’s surprisingly simple if you take it one step at a time.
Here is what you have to do to create an LLC:
Where to Set Up an LLC?
Before I show you how to get an LLC, let’s talk about where you need to create it.
You form it in the state where you’re conducting your business activities. This includes:
- Having a physical location in the state, like a store or an office
- Receiving a significant part of your revenue from a business in the state
- Employing workers in the state
- Having frequent in-person meetings with clients in the state
If you have business operations in multiple states, you have to establish an LLC in each of them.
You can file an LLC online, in-person, or through the mail, depending on the particular state. In most places, you have to go to the Secretary of State’s office, the Business Bureau, or the Business Agency.
Step 1: Get a Registered Agent
Since you’re a legal entity, the state should be able to reach you at all times.
If someone filed a lawsuit against you, you should be appropriately notified before the proceedings begin. The state should be able to send you documents—and this is where registered agents come in.
A registered agent has a physical location in the state and receives documents on your behalf.
You can hire a company or do it yourself—the latter is the only way to get a 100% free registered agent.
If you hire a company to apply for LLC for you, it might also include a registered agent. Many of these solutions, such as IncFile and NorthWest, include one year of free registered agent in their LLC formation packages.
Step 2: Create and File Your Articles of Organization
The Articles of Organization is a document that contains the essential information about your business, such as:
- Company name
- Business activity
- Registered agent
Some states refer to this form as a “certificate of organization” or a “certificate of formation.” In some places, you might need to get the document notarized.
This document is the main prerequisite for starting a business LLC. Once it’s filed and accepted, your LLC is officially formed.
That said, your work isn’t entirely done yet:
Step 3: Set Up Your Operating Agreement
In this step of the LLC creation process, you’re outlining how your business will make decisions. The Operating Agreement describes the LLC’s ownership structure and member roles.
Some states allow setting up an LLC without an Operating Agreement—for instance, the Florida LLC filing process ends with the Articles of Organization.
Even if the Operating Agreement isn’t a must, it’s still a very good idea to have one. If this is the case, you don’t have to show this document to the state. Instead, you keep it with your private business records.
Most LLC setup companies have an Operating Agreement generator to help you create that document without hiring a lawyer.
Step 4: Get an EIN
The EIN or “Employer Identification Number” allows you to hire employees and create a business bank account. This is essentially a social security number for your business—so it’s completely free. To get your EIN, you can go to the IRS website or send the documents via fax or mail.
Step 5: Get Your Licenses and Permits
An LLC and a business license are two different things.
If you already had a business before the LLC procedure, chances are you have a business license.
This document simply allows you to operate in a specific location. You can do business without an LLC as a sole proprietor, though your personal assets will be liable and you’ll miss out on the rest of the LLC benefits.
If you’re forming a new company, you’ll have to set up your licenses and permits before starting your operations.
What documents do you need?
This depends on your local jurisdiction and the nature of your business.
After establishing an LLC, most business owners will need at least:
- Basic Business License just to operate in your area
- Payroll Tax Registration if you have employees
- Sales Tax Registration, since you’ll be selling tangible goods
There are also industry-specific licenses and permits, both on a federal and state level.
Federal regulations apply to a narrow range of strategic business activities, like selling alcoholic beverages or firearms and ammunition.
State regulations have a broader scope, so most new businesses do end up needing them.
To find out what documents you need, you have to research your own state, country, and city—the state's website is an excellent place to start.
If you open an LLC through an assisting company, it might have some valuable resources for you.
Step 6: Prepare Your Business Operations Documents
There are multiple documents you’ll need to run your business on a day-to-day basis. From contractor agreements to COVID-19 screening forms, the administrative side of entrepreneurship can get overwhelming for new business owners.
Here, once again, using a professional service to get an LLC can help you out. Most of these companies have libraries of ready-made documents you can customize with your company name.
This way, you can stay compliant and legally protect yourself without paying thousands of dollars in lawyer fees.
We love the Rocket Lawyer resources, as they cover an extensive range of legal document needs and are straightforward to use.
Step 7: Stay Compliant
Now that you know how to create an LLC, let’s talk about what comes next—staying up-to-date and compliant with legal requirements.
While the foundational LLC documents won’t change, you might need additional permits and licenses as your business grows.
Of course, you also have to be educated on the legal requirements for running your business in the first place, including the appropriate contracts, forms, and waivers (the ones we talked about in step 6).
Setting up a limited company is a great way to protect your personal assets. Some creditors, however, might still ask you to make yourself liable.
For example, it might be difficult for a new company to get approved for a business loan. Pledging your personal property, such as your house, as collateral is one way to secure the loan.
This can be tempting when you’re first starting out, but be extremely cautious when you use it—the LLC advantages won’t protect you if you can’t pay back the money.
Keep track of any changes to your business license requirements too. Hiring a new employee, opening or closing a new location, beginning operations in another city or county might mean you need a new license.
Creating an LLC in each state where you operate is also a must—so, do it in due time.
LLCs are a popular business entity, as they provide personal asset protection, tax, and profit allocation flexibility—and they’re relatively simple to create and run. Now that you know how to form an LLC, you have two choices:
- Do it yourself, setting up the documents and filing them with your Secretary of State’s office (or the relevant institution).
- Use business formation services from a company like Incfile, ZenBusiness, or Rocket Lawyer, or from a local attorney.
While you can register an LLC by yourself, it’s usually a good idea to get a professional involved. If you can’t afford to hire a lawyer, ‘self-service’ companies like Rocket Lawyer are an excellent alternative.
Whichever option you choose, use the resources at your disposal. There is plenty of free information on how to get an LLC online, this article included. Your state’s website, the country and city institutions, as well as entrepreneurship-promoting non-profits, will all have valuable information to help you navigate the process.
How much does LegalZoom charge to set up an LLC?
- Economy for $79 + state filing fees with a 30-day processing time
- Standard for $329 + state filing fees, which takes up to 15 days
- Express Gold for $349 + state filing fees to finalize in ten days