Start a LLC

You’ve done your homework, and have determined that forming a LLC is the right step for your business. You’ve decided to use an online service to start a LLC, but there’s hundreds out there, charging a wide range of fees. So, the question comes down to which one should you choose.

I’m going to go into a bit of detail on what you should look for in using a service to start a LLC online – if you want to see the service I ended up using, click here.

Now, I am not a lawyer or an accountant. However, I do run a fairly successful business, and there are the things that I felt were valuable when starting a LLC online.

• Cost – Always an important factor, often the most important. The service I used does not charge an additional fee on top of the costs to file in your state.
• Name Availability Search – Granted, the name I chose for my business wasn’t common, but it had been used in the past. Thankfully, it turned out to be available, so no wasted time when filing the paperwork.
• Articles of Organization – This document is the structure of your business. You don’t want to get these wrong, so make sure this is included in the service.
• Operating Agreement – This is nice to have, and especially valuable if you’re forming a multi-member LLC. This details what rights and responsibilities each member in the organization has. Good for proactively resolving potential disputes among partners. I was a little bummed that this wasn’t in the free filing service of the company I used. I felt it was necessary, so I ended up paying extra for it. Still much cheaper than a lawyer.
• FEIN Filing – Some services will handle all the IRS paperwork involved in applying for a Federal Employer Identification Number. This is basically a Social Security Number for your business, and you’ll need one if you hire any employees. Some banks require one when you open an account, too. Again, I paid extra to have this done for me, but you can just as easily do it yourself.
• Registered Agent Service – If you file in another state from which you live, or do business in multiple states, you will probably want to use a registered agent service. Since you need a presence in each state you are considered to do business, this can be an invaluable service. A registered agent is someone that will accept legal and official documents on behalf of your business. Even though I had formed my LLC in the state that I live, I used the registered agent service offered to give an extra layer of protection. I only used it for the first year because I didn’t see any additional benefit. Your mileage may vary.

Any other services that a filing company can provide are just icing from there on out. The company that I used to file offered these additional services:

• Annual Report filing – Most states require that you file an Annual Report. With this additional service, they will do it for you. Depending on how detailed your Secretary of State’s office requires this Annual Report to be, you may find this useful.
• Free Software – Be it compliance tips on CD or accounting software, free is good.

Every service that you might use will pass on the state’s filing fees on to you, but the service I used offers rather basic free filing. I ended up using the Deluxe package, but I think I could’ve gotten away with the Standard package, though it really will depend on the needs of your business.

To see the service I used to start a LLC, click here.

Starting a LLC using an online service has many advantages. In the following video, I’ll briefly discuss a few points that using an online service to start a LLC was the right choice for me.

To recap, using a service to start a LLC online can…

• Save you time. Depending on the state, there can be a lot of paperwork to fill out. You’re busy running your business. Let a professional do the work for you.
• Save you money. The main cost to start a LLC usually tied up with attorney fees, when you have one review your paperwork. Some online services won’t charge any additional fees above your state’s filing fee to start a LLC.
• Bring you peace of mind. All of your paperwork has been reviewed by a professional, ensuring no errors or misfiled forms.

To see the service I used to start a LLC online, click here.

The required forms to start a LLC vary from state-to-state. However, there are a few common filing requirements.  There are also some forms or paperwork that, while not strictly required by law, should be created as well.

Regardless of state, all LLCs, or Limited Liability Companies, must file what’s called “articles of organization” with your state’s secretary of state’s office.  This is typically a one-page form that asks for the name of the LLC, its members and their contact information. There is usually a filing fee, so the cost to start a LLC will vary by state. For example, to start a LLC in Nevada, the state will charge a $75 recording fee to file. Another popular state to incorporate or start a LLC, Delaware, charges a $90 fee. Some states will also charge annual fees and taxes on top of the filing fees, so check with your secretary of state’s office before you file.

Although not typically required by lay, you should draft an operating agreement for your LLC. The operating agreement for your LLC should include the percentage of each member’s ownership, plus their roles, rights and responsibilities. Holding and documenting annual meetings is not usually required either, but doing these things can help protect the LLC’s status should it be challenged.

When forming a LLC, you may also consider applying for a Federal Tax ID number, also called a Employer Identification Number, or EIN. Your LLC will need one of these if you are planning on hiring any employees. Some banks require that you have one if you want to open accounts in the LLC’s name. You can apply for an EIN by filing a SS-4 form with the IRS.

We’ve covered how much to start a LLC and the forms to start a LLC. As we’ve said, fees and forms vary by state. Since the main reason that you’ve decided to start a LLC is to protect yourself from liability, we urge that when you file all this paperwork to have it looked over by an attorney so you’re protected all through the process.

Better yet, use an online service to start your LLC. To see the one I used, click here.

Traditional business incorporation and forming a LLC are both good choices from business owners to minimize their personal liability. However, each form of corporation offers different tax and business advantages. Selecting one depends on the specific requirements for your business. However, today many small business owners are choosing to start a LLC for the relative simplicity they provide.

Traditional forms of business incorporation include the C Corporation and the S Corporation. The one thing shared between these traditional forms and that of a LLC is that they all offer protection from personal liability to their owners. They all also require some form of annual reporting to the state in which they’re formed, but these requirements tend to be much less for LLCs. The following it a breakdown in how the three corporation types differ.

C Corporations…

• are allowed to spread profits between the owners and the corporation to lower the effective tax rate
• are required to  have formal meetings and keep corporate minutes
• have no restrictions on membership

S Corporations…

• can pass income or loss directly to shareholders
• are required to  have formal meetings and keep corporate minutes
• are restricted to 100 shareholders

LLCs…

• can pass income or loss directly to members
• can choose to be taxed as a corporation or pass-through tax liability to its members
• have no restrictions on membership

How to start a LLC business tends to be easier than traditional business incorporation. The cost to start a LLC is generally less. There also tend to be less required forms to start a LLC. A savvy business owner can often do all the work themselves, but working with someone who specializes in these things is usually a good idea.

There are businesses that specialize in filing the paperwork for you. Starting a LLC online is the way to go.

You may be asking yourself, why start a LLC? What is a LLC, and how can it benefit my business startup?

First, we’ll define what a LLC is: it is short for Limited Liability Company. In short, a LLC affords you much the same legal protections and benefits of forming a corporation (C-corp or S-corp). It allows for pass-through taxation of its members, similar to that of a partnership. However if a LLC only has one member, it will be taxed as a sole proprietorship.

The legal protections and benefits of forming a LLC is primarily financial. Basically, it limits the liability of owners and operators of the corporation to the amount that they are invested in the LLC. Any debts or financial responsibilities that go above and beyond that amount are the liability of the business incorporation and not that of the owner or owners of the LLC.

Above we mentioned the benefit of pass-through taxation. What this means is that the owners of the corporation are taxed directly based on the percentage that they’re invested in the company. In other forms of incorporation, income is taxed twice: once when the corporation brings it in, and again on personal incomes that are paid to the owners.

Another benefit of forming a LLC is the freedom to develop your own management structure. There are no requirements to form a board of directors of hold annual meetings. There are also typically fewer regulatory bodies, state or otherwise, to report to. This tends to bring down the cost to start a LLC.

The cost to start a LLC varies from state-to-state. You can choose to incorporate and file a LLC in a different state from which you live in order to take advantage of favorable tax incentives or reduced registration fees in another state, tough you will be required to have a registered agent in the state in question. Generally, it is much easier to simply file a LLC corporation in the same state where you live. The required forms to start a LLC are typically available to download from your state’s website and from the IRS.

Click here to see an online service that specializes in starting LLCs.