Start An LLC in Under 5 Steps
How to Form an LLC in 5 Steps: Your Step-by-Step Guide
Starting a Limited Liability Company (LLC) is an exciting venture that offers flexibility and protection for business owners; however, there are several steps that must be completed to properly structure your company to obtain those protections. There are several common misconceptions about an LLC which I will address prior to starting.
An LLC is a legal entity and not a tax entity. Let me explain. An LLC is essentially its own being as it must obtain its own EIN (Employer Identification Number) like the function of an SSN.
An LLC is a pass-through entity, meaning that the income that is distributed to a single member LLC or a partnership is taxed as self-employment income to the individual. The IRS defaults each LLC as a disregarded entity and is taxed as such. BUT.... You are able change the tax filing status of your LLC to a C-Corp or an S-Corp, which I will discuss another time.
"Starting a business is a huge commitment that I'm just not ready for?"
To that I will say, why? You don't need to have all your ducks in a row to reap the benefits of having a business. I started a Clothing Brand in December of 2022 and didn't launch my website until 2024.
"What was the point of that?" - Well, first I needed the platform, equipment, resources, training, education, etc., to build a successful brand. Did it cost me money? Yes! But, because I operated out of my home and had a home office, I was able to reduce my taxable income due to the business expenses I incurred.
NOTE In 2024, you can expense $50 per square foot up to 300 ft for a home office deduction... You can do the math on that but that is the amount of living expense you are already paying but now you are able to deduct it from your taxable income. You see where I'm going?
If you are an employee, think of an LLC as a tool to reduce your monthly expenses while you work towards making a profit on your side hustle. Most businesses aren't even turning a profit the first two years, so why would you?
I digress. Let me give you what you came for. Here’s a concise guide to help you navigate the initial steps of forming an LLC.
Step 1: Select a Unique Business Name
Choosing the right name is crucial as it represents your brand and makes a first impression. Honestly, it doesn't have to be anything specific because you can always file a DBA "Doing Business As" and operate under that trade name while having your LLC. For example: Ignacio's Services LLC DBA The Delicious Mexican... IDK but you get the point.
Unless you are already in a trade or business, avoid using specific industries in your name because it may limit your ability to access business funding later down the road. Most states have naming requirements which mainly require you to add LLC, limited, ltd, or other variations to your business name.
Go to Google and type in your State and SOS = "STATE SOS" then select your States Secretary of States website. Navigate towards the "Business Entity Search" or "Database" it could be called a bunch of different things, but you want to check the state’s business registry to see if the name you selected is available. If it is, you’re ready for the next step.
Step 2: Create a Business Email (OPEN A GMAIL)
Open a free Gmail: [email protected]. Alternatively, you can purchase a domain (URL) and set up a professional business email using your domain: [email protected]. If you plan on having a website, you can purchase your domain (godaddy.com or wordpress.com) and get that set up. I will cover this later but for the cost effective and quick solution to getting a business email, just use a Gmail.
The reason I recommend doing this is because all the communications in the next steps will be sent directly to that business email and your already in the right direction of keeping your personal and business emails separated.
Step 3: Register Your LLC
The registration process varies by state, but generally, you’ll need to file Articles of Organization with your state's Secretary of State. This is generally an online registration form and once completed, the Articles of Organization is the product and will be submitted. You will need your name/s, address/s, contact information, SSN, your business name, your business address (can be the same as personal), the type of business (Sole Proprietor/Partnership/Multi-Member), and the industry your business is in. There is usually a filing fee, but it doesn't break. The application can take anywhere from a few days to a couple weeks to be accepted by the state.
Step 4: Obtain an Employer Identification Number (EIN)
An EIN is like a Social Security number for your business. It’s necessary for tax purposes, hiring employees, and opening a business bank account. You can obtain an EIN from the IRS through their online application. Make sure you go to IRS.gov. There are many businesses out there that have similar websites to the IRS that will charge you $300-$400 to file the application on your behalf. If you go to the IRS website, the application is free.
Step 5: Draft an Operating Agreement
An operating agreement outlines the management structure and operational procedures of your LLC.
While not always required by law, it’s a critical document that helps prevent misunderstandings among members and provides a clear roadmap for decision-making. I would recommend to anyone that has an LLC to draft an operating agreement especially with multi-member and partnerships. It adds an extra layer of protection by clearly outlining the LLC is its own entity.
I also use an operating agreement for my clients for several reasons: 1. To outline their ownership of the company and 2. To allow me to become an authorized representative of their company to assist them in business operations as needed 3. as well as giving them the ability to remove me as an authorized representative whenever they see fit.
Conclusion:
If you completed up to step 4, congratulations, you are officially a business owner! Struggling with the process? Feel free to send me a message at [email protected] with any questions you might have.
Want me to run this process for you? Just fill out this form: https://api.leadconnectorhq.com/widget/form/JVGuCLgtovFYlVp1BMEu?notrack=true. I don't just leave you once complete. Every registration I complete comes with my advisory services for the life of your company. From marketing, logo creation, website design & development, accounting and payroll services, I can assure you we will figure it out together.
