A typical issue among business owners is how to file for an LLC. Applying for a limited liability company, which is a business form that gives benefits such as pass-through taxes and limited liability, is a cost-effective and simple process.
One of the major advantages of LLCs is that the owners or managers are not required to use their own assets to pay off the LLC’s debts. For their personal investments in the company, managers are only accountable for the debt of the LLC.
Because of the security they provide and the convenience with which they can be formed, many small business owners in the United States are considering founding limited liability corporations.
However, just because limited liability corporations are simpler to set up does not mean they are simpler to administer than other business structures.
When determining whether to incorporate a limited liability corporation, there are several things to consider. If you need finance, for example, many investors prefer to operate with a corporation rather than a limited liability firm.
In addition, the laws governing the creation of an LLC vary by state. As a result, familiarize yourself with the requirements of the state in where your company will operate.
While forming an LLC is easy, there are a few steps you must do to ensure that your company is properly formed.
This article clearly states the right steps to take and procedures on how to apply for an LLC in 2021.
What is a Limited Liability Company (LLC)
A limited liability company (LLC) is a business form in the United States that combines the personal liability protection of a corporation with the tax efficiency of a sole proprietorship or partnership.
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Is LLC Good for Small Business?
The next step in growing your business and protecting your assets is to form an LLC.
When you’re serious about growing your business and making a profit, you should incorporate an LLC.
You can do the following with an LLC for your business:
- Safeguard your money, automobile, and home.
- Boost your sense of calm.
- Allow for more profit while protecting your privacy
- Allow for faster growth.
- Boost your credibility
Here are the benefits:
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Personal Liability Protection
You protect personal liability by forming a limited liability company (LLC).
This means that if your company is sued or fails on a loan, your personal assets (vehicle, house, bank account) are safeguarded.
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Tax Advantages
Limited liability companies (LLCs) can tailor their tax structure.
This enables businesses to employ the most effective tax plan for their specific circumstances.
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Growth Potential
Because they provide personal liability protection and tax benefits, LLCs can increase profit and risk.
Consumer Trust and Credibility
In general, banks and consumers trust LLCs more than informal business arrangements such as sole proprietorships.
This can damage a company’s ability to borrow money and its marketability.
What is the Average Cost to set up an LLC?
The state filing fee, which varies from $40 to $500 depending on your state, is the most expensive part of incorporating an LLC.
We detail the fees for forming an LLC in each of the 50 states in our Cost to Form an LLC guide.
You can form your LLC in one of two ways:
- Set up your LLC with the help of a professional LLC formation provider (for an additional small fee).
- You can also do it yourself using our free Form an LLC tutorial.
Do I Need an LLC for My Small Business?
When determining whether to form an LLC, small business owners should examine the following factors:
- hazard level
- Profit potential
- Consumer trust and credibility
Limited Liability and Risk
Product liability, personal harm, and/or trademark infringement are all possible concerns for small firms.
Any business that poses a risk to its owner must be legally separated from it.
Limited liability protection is the term for this separation.
If a business is sued or fails on a loan, limited liability protects a business owner’s personal assets (vehicle, house, and savings).
Taxes on Profits and LLCs
The varied tax alternatives that an LLC provides can help a small business that produces a consistent profit.
LLC owners have the option of paying taxes as a pass-through entity or as an S corporation (S corp).
S Corporation vs. LLC
The default LLC tax status is excellent for business owners who wish to reinvest profits back into the company, while the S corporation (S corp) tax status is best for companies that want to distribute the majority of profits to shareholders.
For help to decide whether your LLC should be taxed as an LLC or as an S corporation, see our LLC vs S corporation guide below.
Corporation vs. Limited Liability Company
The formation and maintenance of an LLC or corporation provide limited liability protection. However, which business form is best for your food truck?
Only business owners who need to rely on outside investors should form a corporation. This is because of the way businesses are taxed. If outside investors are important, a food truck firm can profit from becoming a corporation.
An LLC is a good choice for any small firm that doesn’t need outside investors and wants to save money on taxes.
Consumer Trust and Credibility
Consumer trust and repeat sales are essential for small firms. For starting and running a business, credibility is crucial.
Simply by incorporating an LLC, businesses get a level of consumer confidence and legitimacy.
How Do I Establish an LLC?
The procedure for incorporating an LLC is straightforward. However, there are a few measures that a business owner must do to ensure that the LLC is correctly constituted.
The procedure for forming a limited liability company (LLC) is pretty straightforward. Many states allow entrepreneurs to form a limited liability company (LLC) online.
Traditional means, such as filing the form by mail or in person, are also available to business owners. The filing fee might range anywhere from $100 to $800.
The first step is to choose a company name. It is critical that you devote a significant amount of effort to brainstorm possible LLC names.
The significance of picking a solid name for your company goes beyond marketing and branding. When choosing a name for your new LLC, there are some legal concerns to keep in mind.
Your suggested LLC name should include some kind of indication that your organization is a limited liability company. As a result, you’ll need to add a designation like “Limited Liability Company” or “LLC” in your proposed name.
You also can’t use banned words in the name of your LLC unless you acquire authorization. Here are a few words that are frequently restricted:
Banks/Insurances/Attorney
Check your state’s list of restricted and prohibited phrases to ensure you don’t get into any trouble after submitting your application.
You should also perform research to ensure that the suggested business name does not infringe on any trademarks.
Taking this step now will save you a lot of time and aggravation later. To check for potential trademark infringement, use the Trademark Electronic Search System.
TESS is a database that contains all registered trademarks as well as pending trademark applications. The United States Patent and Trademark Office maintains this database.
While conducting a search is not mandatory, it is a wise decision. You can find out if a trademark has been applied for or registered by conducting a search. Look for names that are too similar to the LLC name you’re considering.
Double Check Names Availability
The next step is to double-check the proposed name’s availability. Make sure the name isn’t already in use in the state by another limited liability corporation.
Your state’s business office should be able to provide you with more information on how to determine if your proposed business name is already in use by another LLC.
If the requested name is available, your state may require you to place a temporary hold on it. This will prevent another business owner from successfully applying with the same name before you can file your LLC formation application.
In most states, you don’t have to register the intended name separately when filing the articles of incorporation.
You can post your legal need for help with how to form an LLC on UpCounsel’s marketplace.
How to Apply for an LLC: Everything You Need to Know
You may not need to follow all the processes mentioned below depending on the state in which you plan to form an LLC.
More information on the specific actions you’ll need to take to properly establish up an LLC can be obtained below. If you’re still confused, you might need to talk to your state’s business office.
Or follow these steps to learn how to apply for LLC easily in 2022:
1. Decide on a Company Name
It’s critical to spend some time considering the name of your new LLC. There are additional essential legal concerns besides choosing a decent name for business and marketing purposes—for example, one that will help you grow and establish brand identification.
To begin, your LLC’s business name must clearly state that it is a limited liability company. As a result, you’ll need to include a designation like “LLC” or “limited liability business” in your name.
You also can’t use any words that your state has banned from being used in an LLC name in your name. Most states, for example, prohibit the use of terminology like “bank” or “insurance.”
Check your state’s list of prohibited words to ensure that your chosen business name does not include any words that are prohibited.
Also, check to see whether your proposed business name violates any existing trademarks. The Trademark Electronic Search System (TESS), a database of registered trademarks and prior pending trademark applications maintained by the United States Patent and Trademark Office, can be used to check for potential infringement.
While a trademark search isn’t essential, it’s a good idea because you’ll be able to check whether a trademark has already been registered or applied for that is too similar to your intended LLC name.
2. Verify that your Company Name is Available
After you’ve decided on a business name, check to see whether it’s already being used by another company in your state.
Your state’s business office should be able to offer you more information on how to find out if your proposed business name is already in use by another company.
If your proposed business name is available, your state may allow you to reserve it temporarily until you can get your paperwork submitted.
In most states, they will register immediately your business name when you file your articles of incorporation, so you won’t have to do so individually.
You’ll want to make sure your business name, or some variation of it, is available for purchase as a domain name, in addition to making sure an existing LLC is not already using it in your state.
For such queries, the WHOIS database is a useful resource. If your chosen name is also available as a domain name, you should purchase it as quickly as possible to avoid losing it to another domain name buyer.
3. Assign a DBA Name
Most LLCs operate under their business names, but you’ll need to register a DBA (“doing business as”) name if you want to conduct your firm under a name other than its business name.
A DBA name is a name that differs from your LLC’s officially registered business name. It is also known as an assumed name or a trading name.
If you plan to use a DBA name, check with state officials to learn about the process.
4. File the Articles of Organization for your LLC.
You must file articles of incorporation with your state when forming an LLC. Most states refer to the document as “articles of organization,” although your state may call it something else, such a certificate of formation.
The articles of organization are usually a simple paperwork to fill out that you can get from your state’s business or filing agency.
You may also be able to get a blank copy of the form online in several states. While the information necessary varies by state, you will often simply need to supply your LLC’s name and address, as well as the names of its members.
After you’ve completed your articles of organization, you’ll need to file them with your state, along with the proper filing fee.
Most states require you to register your articles of organization with the Secretary of State, but some states may need you to file it with a distinct entity.
On its website, the Small Business Administration has a list of links to state business offices.
Check this list for a link to your state’s business office, where you may learn more about where to file your articles of incorporation and the filing fee, if any, is required.
5. Choose a Registered Agent
A registered agent is required in most states for an LLC. A registered agent, also known as a process server, is the person who receives service of process notices, government communications, and compliance-related paperwork on your behalf.
Most businesses will appoint one of the LLC members to serve as the registered agent.
6. Make a Business Agreement
While most states do not require an LLC operating agreement, having one is still a smart decision.
An operating agreement is a crucial contract that establishes the framework for significant internal business decisions.
Members’ percentages of ownership, voting rights and obligations, members’ powers and duties, and clauses controlling the transfer of members’ interests are all common topics covered in operating agreements.
It’s also worth noting that, while most states don’t need LLCs to have operating agreements, some do. If they require an operating agreement in your state, check with them.
7. Complete the Publishing Requirement
You may be obliged to issue a notice in your local newspaper announcing the creation of your LLC in some states.
Check with your state’s business filing office for more information on the text of the notice, how many times it must be published, and any other requirements that may apply if your state has such a requirement.
8. Obtaining Permits and Licenses for Your Business
After you’ve registered your LLC, you’ll need to secure the business permissions and licenses to conduct your firm.
The types of permissions or licenses you’ll need will be determined by both state and local government laws, as well as the industry in which your business operates.
You can find a list of state business license offices on the Small Business Administration website.
9. Open a Bank Account for Your Limited Liability Company
It’s critical that your LLC maintain its own bank account to keep your company’s funds separate from its members’ personal funds.
For creating a bank account for an LLC, different institutions will have varying documentation requirements. Check with your bank to discover what documentation you’ll need to open an account for your business.
FAQs
If you’re founding an LLC or corporation, you must have a registered agent and a registered office, regardless of where you start your firm.
To incorporate an LLC, there is no legal obligation to engage an attorney. Most states allow you to incorporate an LLC by registering it on the secretary of state’s website as well as with the Internal Revenue Service (IRS). You can buy or rent a facility and open firm bank accounts after forming an LLC.
Although an LLC is not required to start a business, the benefits of having one greatly exceed the cost and inconvenience of forming one. Forming a corporation or other type of business entity can also help you achieve those things. It’s also absolutely legal to start a firm without a formal structure in place.
The charge to file your LLC’s articles of formation with the Secretary of State is the most expensive part of incorporating an LLC. Depending on the state, this cost might range from $40 to $500. Other expenditures associated with forming an LLC include business license and permit fees.
The LLC processing time really depends on the state in which you form your LLC. However, it usually takes most states 7-10 business days; other states could take 4-6 weeks, i.e. Arizona takes roughly 22-27 business days to process your documents.
Conclusion
Don’t assume that just because you’re forming a limited liability company means it’ll be easier to run than any other type of business.
There are a few things you should bear in mind. Many investors prefer to work with a corporation rather than an LLC when seeking finance.
Also, because the regulations governing an LLC differ from state to state, be sure you’re up to speed on the requirements in each state where you do business.
References
- legalzoom.com – How to get an LLC
- howtostartanllc.com – SHOULD I START AN LLC?
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