How to Set-Up a Limited Liablity Company (LLC)

For a small solo-preneur business, operating as a sole proprietor is acceptable. It’s certainly easier since there is no paperwork and only requires a Schedule C for taxes. However, its also a riskier proposition. If sued, your personal assets (such as your house) are fair game.

In the 1970’s a new form of business structure called the Limited Liability Company (LLC) emerged that provided business owners with the protection and tax advantages not available to sole proprietorships, and yet are less complicated than corporations.

Because it is a legal entity, LLCs should be set up by qualified professionals such as a lawyer or service that specializes in creating business entities. But it is possible to set up your own LLC.

1) Name your LLC making sure that the name is not in use or trademarked by another company. You can visit the US Patent and Trademark Office to do a name search. Contact your Secretary of State to see if the name is taken by another corporation, and check with your local area business office to find out if the name is being used in your area. You can use a non-trademarked name that is taken by another business if your business does not operate in the same area as the company already using the name. But you’re better off to choose something different and unique. Don’t forget to add LLC or limited liability company to your business name. To make it easier, you can use your given name. Unless your name is John Smith, odds are your name isn’t trademarked or in use by someone else.

2) Decide where to register your LLC business. Many people prefer to set up their LLC in Nevada or Delaware because they have liberal laws regarding corporations. If you go this route, you”l be setting up a foreign LLC (unless you live in Nevada or Delaware) and will need an address and an agent in that state. Most LLC services will provide this for you for a yearly fee. Or check with your state’s rules about setting up an LLC in your home state. You may find its just as easy and affordable.

3) File your Articles of Organization, which include the name of your company, its address and the purpose of the business. Some states may want a list of all the members of the business, as well as the registered agent of the company. In New York and Arizona you’ll need to put a notice in the local newspaper about your intention to form an LLC. You can find templates and forms online, in office stores or in books on LLCs. You may want to hire a lawyer to help you to make sure its done correctly.

4) Write and sign an operating agreement. The operating agreement gives the members’ interests in the business (percentage ownership), their rights and responsibilities and voting power, as well as how profits and losses are allocated, and how meetings are held. All of the business members should sign it. Some states may not require this, but it’s recommended to insure proper protection of the LLC.

5) Create a filing system to organize LLC documents and keep meeting notes, business changes and financial information. Even single person LLCs that don’t have meetings should keep accurate accounts of the money and business decisions.

6) Get needed business permits and licenses as required by your city or county. Also apply for an Employer Identification Number (EIN) which you’ll need for taxes. If you’re a single-person LLC you can operate under your Social Security number and file a Schedule C on your taxes, but then you’ll be missing out on some of the tax benefits that come with completely separating the business from you.

7) Open a business account at the bank. This should be in the LLC’s name and any money used from the account should be for business purposes only. Members can draw salaries from the LLC, but aren’t allowed to directly pay personal bills with LLC money.