If you’re wondering how to establish a business, you might be starting to feel a little lost in all the jargon. After all, nobody likes paperwork – but unfortunately, there are a few hoops new business owners have to jump through to get their idea off the ground. From sole proprietorships to corporations, many people who are looking to turn their passion into a career can find themselves facing a lot of language they’ve never come across before. In the face of these challenges, many would-be entrepreneurs are unsure of how to register their business. For instance, many people ask themselves if they should set up an LLC.
An LLC is a limited liability company. There are several important advantages of creating an LLC. The most crucial of these is establishing your business as a separate financial entity from yourself. There are also several tax advantages associated with registering an LLC and it is a useful stepping stone before moving to incorporation. Although some of the documentation may seem intimidating, getting started is surprisingly simple. In this article, we run down how to establish a business and register your LLC in the United States.
1. Know your state rules
Before getting into the key points, there’s one important thing to bear in mind – you need to be aware of the specific rules for your state. For instance, in California, you have to pay a $10 fee to register a business name, but in Texas, the fee is $40. Wherever you’re based, make sure that you do your research about your state’s laws. However, there doesn’t tend to be any massive variation – so once you check out some of the fine print about how to go about starting a business, it is fairly standard.
2. Pick a name
Once you familiarize yourself with your state’s specific process, it’s time to get started. The first step of starting a new small business is picking a name for your company. Every business’s name needs to be unique, so you’ll need to search your chosen name on your state’s Secretary of State website. If the name you want is already taken, you’ll have to go back to the drawing board. Furthermore, your company name will have to end with an allowable designator, which in this case, is LLC.
3. Choose a Registered Agent
Your company’s Registered Agent is a person or business address that receives legal mail on behalf of your LLC. Such documentation could include subpoenas, complaints, or contracts. If you want, this could be your home address. However, be aware that this increases your chances of receiving a lot of spam or unsolicited mail. An alternative is to use an online filing service for a fee, like Incfile or Swyft Filings. However this is a point that varies from state to state. For example, in New York, the Secretary of State is automatically the Registered Agent unless you specify otherwise.
4. Publish a notice in your local newspaper
Currently, publishing a notice in a local newspaper is only necessary in New York, Nebraska and Arizona. However, it is a legal requirement so you can’t skip it if you’re setting up an LLC in these states. This can be expensive, so double check with your Secretary of State and try and get a good deal on the advertising space.
5. File your Articles of Organization
Your Articles of Organization are an important stage of how to establish a business. The Articles of Organization are the document that officially registers your LLC with the state. Although different states use different names – like Certificate of Organization or Certificate of Formation – they are all basically the same thing. These documents are filed with the Secretary of State either online in the mail. It’s important to remember this process comes with a fee, averaging about $135 nationally.
6. Write up your Operating Agreement
Your LLC Operating Agreement is a list of the owners or “members” of the LLC and what percentage of the business they own. You can have one member with exclusive ownership of the company or you can have several members who split ownership. However, the split doesn’t have to be even. For instance, in a small business partnership, one member might own 60% of the company and the other would have 40%.
7. Get your Employer Identification Number
One of the most significant reasons to file for an LLC is to separate your personal and business finances. This makes sure that if anything goes wrong with your company, you’re not personally liable. The key to this process is your Employer Identification Number (EIN) or Federal Tax ID Number. This number identifies your LLC to the IRS. If your company is approved at state level, you can get this number instantly for free.
8. Open a business bank account
The next up in our rundown of how to establish a business is setting up a bank account. To open a business bank account for your newly-formed LLC, you’ll need to present your Articles of Organization, your EIN, and two forms of ID. Opening your bank account is one of the most crucial steps to start a new business, as it completes the process of establishing a separate financial entity. Remember – operating an LLC through a personal bank account basically defeats the object of founding one.
9. File your annual or biannual report
Most states will require you to file an annual report and keep your company’s contact information up-to-date with the Secretary of State. In some states, you’ll need to file reports once every two years. In addition, these reports tend to come with an annual fee. After you’ve filed your first annual report, that’s it – you’ve officially set up an LLC.
Finally, if you’re at all unsure about any aspect of how to establish a business, contact your Secretary of State office for more information.