Starting a limited liability company (LLC) is different in every state. Requirements vary, as do the documents that you file with the state to officially form your LLC. Additionally, some states are considered more favorable for starting an LLC due to their tax and business laws.
In this article, we’ll cover the basic steps to start an LLC, with some examples from states that are LLC-friendly.
Choose Your LLC Name
Your business name is generally the first impression that people will have of your company, so you need to choose your name wisely. It should be easy to remember and unique and also indicate what your business does.
Each state has LLC name regulations that you must follow. In all states, your LLC name must include the words limited liability company or one of its abbreviations such as L.L.C. or LLC. You generally also cannot use a name that could confuse your LLC with a government agency.
States also have specific rules. For example, in Nevada, which is one of the more favorable states to start an LLC, your LLC name cannot include words like “bank”, “insurance”, “university”, or “accounting” without approval from the state.
Once you’ve chosen a name that meets your state’s guidelines, you’ll need to do a search on your relevant state government agency’s website, usually the Secretary of State, to make sure the name is available. For example, here is the business name search tool for Nevada.
Next, you’ll check the United States Patent and Trademark Office’s website to make sure the name is not trademarked.
Finally, check a site like GoDaddy to see if the domain name is available.
Select a Registered Agent
Most states require that you have a registered agent for your LLC, which is a person or company authorized to accept official correspondence on behalf of your LLC. You can be your own registered agent, but doing so requires that you be available to personally accept correspondence during normal business hours.
Many entrepreneurs choose a registered agent service that operates in all 50 states to be their registered agent. ZenBusiness is an example of a registered agent service.
Select Your Management Structure
You have two management structure choices for your LLC.
You can choose to have a member-managed LLC in which all LLC members are involved in the management of the business.
Alternatively, you can have a manager-managed LLC in which only some members are involved in the management of the business, while others are silent partners. With this structure, you can also hire an outside manager to run the business either in part or fully.
Some states require that you state your management structure on your LLC formation documents.
File Documents with Your State
In most states, the document that you file with the state is called the articles of organization, while in others it’s called a certificate of organization or a certificate of formation. You can usually file the document online on the Secretary of State’s website. Information required on the form varies by state, but will at least include your LLC name and address and your registered agent’s name and address.
In Nevada, for example, you’ll visit their business portal to file articles of organization. You’ll have to register for an account on the site in order to file the form.
Fees for forming an LLC vary by state and range from $40 in Kentucky to $500 in Massachusetts.
Best States to Form an LLC
As mentioned, some states are considered more favorable for LLC formation, whether you live in that state or not.
1. Delaware
The cost to form your LLC in Delaware is only $90 and it has low franchise taxes. Additionally, Delaware does not tax out-of-state income, so if you do business in other states, there’s no Delaware state income tax. Delaware also has the Court of Chancery system, which enables quick business dispute resolution. Delaware has strong personal liability protection for LLC members and favorable business laws in general.
2. Nevada
Nevada has no state income tax, and no corporate or franchise taxes. Nevada’s LLC formation fee is expensive, at $475, but other benefits, such as strong liability protection, outweigh the cost. Nevada also has very favorable business laws.
3. Wyoming
Wyoming has no state income, corporate, or franchise taxes, and the LLC formation cost in Wyoming is only $100. Wyoming also recognizes nonprofit LLCs and Series LLCs, which is rare.
4. Ohio
Ohio’s LLC formation fee is only $99, and there is no annual report requirement for LLCs. The state also has a low cost of doing business and a low cost of living.
Starting an LLC in a State Other than Your Business Home State
Starting an LLC in a state other than where your business is based is generally not a good idea. This is because you will likely still need to register as a foreign LLC in your home state, meaning you’ll be subject to the laws and taxes in both states.
A foreign LLC is simply an LLC doing business in a state other than the one in which it’s registered. For example, if your LLC is registered in Ohio but you also do business in Kentucky, you’ll need to register a foreign LLC in Kentucky.
Generally, you are considered to be doing business in another state if:
- You have a physical presence of any kind there
- You have employees in that work in the state
- You regularly meet for business in that state
- You are licensed to do business in that state
Starting an LLC in Your State
It’s usually easy to find information on how to start your LLC on your Secretary of State’s website. The process in most states is fairly simple and quick, and your LLC should be approved and formed within a few weeks. Visit your Secretary of State’s website to learn more or you can also read this 50-state guide to forming an LLC.
In Closing
LLCs offer many benefits, including personal liability protection and tax and management flexibility. They’re also simple to form, all of which make them a popular choice for entrepreneurs. If you need guidance on whether an LLC is right for your business, consult with your attorney or tax advisor.
