The limited liability protection an LLC offers is attractive to many business owners. After all, members of a limited liability company (LLC) have no personal liability for the company’s debts. Instead, the LLC is a legal entity distinct from the members themselves. So, it can be helpful to create an LLC.
Creating a limited liability company necessitates formal registration with the appropriate state agency. Although the specifics of setting up an company in different states varies, there are five common steps to create an LLC. But before we proceed to those steps, let’s discuss what an LLC is.
What Is an LLC?
A limited liability company (LLC) is a legal business entity intended to shield owners from personal liability. LLCs are flexible business entities ownable by a single person or a larger group of people. They are more complicated than a sole proprietorship but simpler than a corporation from a legal perspective.
How Can It Benefit You to Create an LLC?
Among the advantages of forming a Limited Liability Company, you might find protecting personal assets, tax advantages, and enhanced business credibility. Let’s take a closer look.
- Simplicity – LLCs are typically subject to less paperwork and fewer organizational hurdles than corporations. For instance, corporates must elect corporate officers, establish classes of shares, and form boards of directors that regularly meet to discuss business strategy.
- Protect the personal assets of business owners from business debts or liabilities – Providing liability protection is one of the primary reasons to create an LLC. This separates your assets from those of the business, preventing creditors from taking your assets.
- Tax benefits – When your business is an LLC, the profits distribute directly to owners without being taxed first at the federal level, as they would if the business were a corporation. The profits would then be taxed as part of the owner’s individual income tax. Keep in mind that state taxation regulations vary for LLCs.
Resolving Business Dispute When It Happens
Creating an LLC is an excellent way to safeguard your business from potential legal risks. It can assist you in avoiding costly commercial litigation and protect you from personal liability.
Commercial litigation is the legal practice of representing parties in disputes involving business transactions. It can encompass any type of business dispute. For example, contract dispute, shareholder dispute, and partnership dispute. In addition to intellectual property disputes, commercial lawsuits typically involve business entities instead of individuals.
A commercial litigation attorney with experience in your business area can explain the advantages of forming an LLC and ensuring it satisfies all requirements. Your business’ potential for success can be further optimized with their guidance.
Trust in your commercial litigation attorney whenever a business dispute arises. These disputes typically settle through informal negotiation rather than formal trial proceedings. Lawyers frequently serve as arbitrators and mediators in these situations. After all, conflicts and disagreements among LLC members or owners happen often. And in some ways, they can be healthy.
Successful negotiation based on shared business interests is the quickest way to settle any business dispute. So, having a commercial litigation attorney is a huge advantage for the company. Because they can help your business in times of trouble, and at the same time, they can give you sound advice to create an LLC.
Here’s how you can begin to create an LLC.
Steps to Create an LLC
If you think an LLC is the right choice for your company, you’ll need to know the ins and outs of forming one. Picking a name, selecting a registered agent, submitting formation documents, creating an operating agreement, and applying for an EIN are all part of the process.
Step 1: Choose a Business Name
When registering your limited liability company, you need to think of a memorable company name. The phrase, “Limited Liability Company”, or, “LLC”, must appear in your business’ official name.
In many states, you can search online for existing business names to determine whether your proposed LLC name is available. Before filing LLC paperwork, you should always check the availability of any potential names.
Choosing a distinct name can help avoid confusion and claims of trademark infringement. In addition to the restrictions imposed by state law, you should also consider whether your business name is available as a domain name.
Step 2: Select a Registered Agent
In most states, you must list your registered agent on your LLC registration forms. The registered agent of a limited liability company is responsible for receiving important legal documents. The most significant duty of a registered agent is to accept legal summons on court hearings.
To facilitate this aspect of their business, many LLC owners opt to hire a registered agent service. You can appoint yourself, a friend, a coworker, or a third party. And even though you can serve as your own registered agent, it’s recommended to hire a professional to receive official documents. Hiring a registered agent protects your privacy and gives you piece of mind.
In most states, a registered agent must meet the following qualifications:
- Is at least 18 years old.
- Possesses a physical location in the state where the company conducts business.
- Is (in person) available during regular business hours.
Step 3: Submit Organizational Documentation to the State
Each state keeps its own LLC formation requirements and forms. Generally, you must submit articles of incorporation containing the following:
- The LLC’s name and address
- How long it will last, if not perpetually
- Details about the registered agent’s location and identity
- The reason for forming an LLC
- Signature of the person wanting to create an LLC; and in some states, the signature of the registered agent
In most states, you file LLC formation documents with the secretary of state. But some states have a separate department for business filings. Every state requires a filing fee, but the cost to create an LLC varies from one place to another.
Step 4: Create an LLC Operating Agreement
To legally define your roles and lock down your LLC’s ownership and management structure, you and your members must create an operating agreement. That way, you have something to refer back to in case of a dispute.
The operation agreement remains stored in your company’s records, not with the state. The operating agreement for an LLC should outline the following:
- The responsibilities for every member
- The process for admitting new members
- How current members change or cancel their membership
- Allocation of profits and dividends
Step 5: Get an Employer Identification Number
Obtaining your Employer Identification Number (EIN) stands as the final step. Your Employer Identification Number serves a purpose similar to a Social Security Number for your company. Not only is it specific to your company, but it is also essential for certain aspects of running your business. For example, banking, paying taxes, and even hiring employees.
This article discussed what an LLC is and how it can protect your business. We have also studied what your action should be if you have experienced commercial litigation, such as a contract dispute, shareholder dispute, partnership dispute, etc. But more specifically, how a commercial litigation lawyer can help you in this matter.
However, the most important thing is knowing the five important steps to create an LLC. Choose a name for your business, find a registered agent, file organizational paperwork, create the operating agreement, and get an employer identification number. Invest the time necessary to confirm that an LLC suits your business type, and if so, go for it. Because it might ensure long-term success.
Article written by Dan M. Dan has hand hands-on experience in digital marketing since 2007. He has been building teams and coaching others to foster innovation and solve real-time problems. Dan also enjoys photography and traveling.
Last updated April 5, 2023