Nowadays, it’s necessary to own a business that safeguards yourself from legal liabilities that could come your way. And if you’re a small business owner, registering your business as a limited liability company (LLC) would be great since it offers personal asset protection and enables you to run your enterprise as you deem fit.
When forming an LLC, many people often wonder how long it may take. Fortunately, it’s a simple process if you follow the proper channels. The timeline depends on the state you want to run your business in. On average, it takes five to seven working days, but some states can approve your application on the same day, especially if you get LLC online. Others may have many applications causing delays that could last more than three weeks.
You have to know that the state needs to scrutinize your paperwork before giving you a license. Therefore, don’t feel aggrieved if it takes longer than you expected since they need time to process everything. But to avoid unnecessary delays, you must know the steps you need to take to form an LLC. The following are six steps to start one:
1. Choose A Business Name
First and foremost, you must select a name for your LLC. It can be a fictitious name, a personal name, or a specially designed acronym. It must not be similar to other active business names. Therefore, you should come up with at least three names listed according to your priority. Then, confirm from your state’s Secretary of State Office or on their online site if any of the names are available for use. This process will help you rule out any trademark issues that could arise.
Once your business name is available, most states will allow you to reserve it for 120 days for a small fee. Booking the name guarantees that it’ll be available as you undertake the process of creating an LLC. You can reserve by submitting a name reservation form via email or filing it online.
2. Choose A Registered Agent
When creating an LLC, you must select a registered agent to accept legal correspondence on your behalf. The agent will be your company’s primary point of contact with the state. And in case your business receives an official mail or is sued, your registered agent is obligated to notify you and begin the process of filing a response.
A registered agent can be a company or any person above 18 years. They must have a physical address (not a P.O. BOX) and must always be available during working hours from Monday to Friday. In short, you need to hire a registered agent who can promptly relay critical information about your LLC, remain confidential about your legal issues, and handle the service of process without delay.
Remember, you can choose to be your own agent, but it’s highly discouraged due to the disadvantages involved. For example, if you travel a lot, you may not meet the availability requirement.
3. File Articles Of Organization
After reserving your business name, you need to file the certificate of organization of your LLC with your Secretary of State. In most states, a certificate of organization contains the following:
- Your LLC’s name and the primary location of the business
- Your registered agent’s name, address, and signature
- Your business objectives
- Your LLC’s member names, addresses, and dates of birth
- The effective date of your LLC’s formation
Almost all states allow online filing, which is faster. However, others prefer walk-ins or mailed-in applications. Irrespective of the application method, ensure you fill out the forms appropriately by providing all required information, or else it’ll be rejected without a refund of the fees you paid.
4. Create An Operating Agreement
An operating agreement is a report that describes how various financial and administrative decisions are made in your limited liability company. It states the liabilities, obligations, duties, rights, and powers of all the members of the LLC. For example, in a multi-member LLC, an operating agreement outlines whether they’re member-managed or manager-managed. In member-managed, the members of an LLC run all activities in the company, but in manager-managed, members act passively and hire an experienced person to manage the company.
Not all states require you to have an operating agreement, but having it can save your company from experiencing unnecessary disagreements. If you don’t know how to create one, you can use an online template or get an attorney to make a customized one for you.
5. Obtain A Business License
Different businesses require different types of licenses for operation. For example, you may need a sales tax permit, regulatory license (for liquor), environmental license, zoning permit, or a local license from your county or city.
The state controls some business activities, meaning that some professionals must get special occupational licenses to prove that their LLC complies with the profession’s standards. Moreover, you must meet particular requirements like educational training, examination, and practical experience. Such occupations include cosmetology, construction, nursing, and accounting.
If you intend to sell products (retail or wholesale) or provide services (like lawyers and e-commerce), you should obtain a sales license or a sales tax I.D. This enables the state to collect taxes on your transactions. Moreover, some states may need you to get insurance for your LLC, depending on the nature of your business.
6. Get A Business Bank Account
It’s important to note that LLC regulations can’t allow you to mix business finances with yours. Combining the two can lead to serious legal repercussions, such as loss of personal asset protection and involuntary LLC dissolution. A business account will help you distinguish between your business and individual members’ finances. It also verifies your LLC’s financial existence by leaving a transaction trail, allowing you to acquire financing.
Each bank has its criteria for opening an account. The requirements are mainly based on the state’s regulations and the type of LLC. The bank may request you to provide a copy of your operating agreement, business license, articles of organization, and identification documents for all LLC members. Confirm the bank’s rates for opening an account and the maintenance cost before taking any steps.
Forming an LLC takes time. You must first understand the steps you need to take and then make an elaborate plan on how you’ll navigate the whole process. A detailed plan will help you choose a marketable name, organize your paperwork in advance, and get an experienced registered agent. Moreover, it’ll help you have a rough idea of the type of licenses you may need for your LLC, tax implications, and the bank that suits your nature of business.