How To Form An LLC [Step-by-Step]
You’ve decided to form a limited liability company (LLC). LLCs are a popular choice of entity because they offer the liability protection of a corporation, but with more flexibility when it comes to management structure and tax treatment, among other things.
So far so good. But what steps do you need to take to form the LLC?
Pick A State. But Not Just Any State.
First, you need to pick a state where the company will be formed. For a number of reasons (some good, others not), Delaware is often chosen. But if your business is in Washington or Oregon or really anywhere other than Delaware, it’s worth considering whether it would be easier just to form the company in your home state.
Then again, if you’re in Washington but have potential investors in New York, they’ll almost certainly want you to form in Delaware, as their attorneys will be most familiar with that state’s body of corporate law.
The takeaway here is that what seemed like a simple choice may actually require a fair bit of planning and strategy.
Pick a Name. But Not Just Any Name.
Next, you’ll want to choose a name for your company. But before you rush to order custom letterhead, you’ll want to determine whether the name is available in your state of formation and in any other states where your LLC may qualify to do business.
In Washington, you can see if your chosen name is available on the secretary of state’s website. You’ll also want to decide whether the name will be used as a separate domain name, trademark, or service mark. If so, you should consider running a separate search see if there are similar names already in the marketplace.
You should also always make sure the name meets any statutory requirements in the state you’ve chosen, which may involve consulting with an attorney.
Draft the Certificate of Formation.
Next, you’ll need to prepare the certificate of formation in your state. Washington has a form certificate that helps explain what content must be included. Depending on what state you’re in, you’ll need to make several decisions at this point, including who will sign the certificate of formation as the authorized person(s), who will act as the registered agent for the LLC, and where the LLC’s principal office street address will be.
File the Certificate of Formation.
Washington makes filing the certificate of formation easy: you can file online with the secretary of state and pay the $200 filing fee. Alternatively, you can mail a paper certificate to the secretary of state and pay a lower fee of $180.
Other states may handle the filing process differently, so make sure to do your own research or consult an attorney if you’re filing elsewhere.
Draft the LLC Operating Agreement.
At long last, the LLC operating agreement. This is a crucial document. It allows the members of the LLC to memorialize private agreements among themselves on key issues like management, capital contributions, allocation of profits, dissolution, and much more.
While this can be done without the help of an attorney, it can be risky and time-consuming to go it alone, particularly if the LLC has more than a few members or a complicated structure. Getting an attorney involved can also help the members to confront difficult questions, like how to handle management disputes, that they might otherwise avoid discussing in an effort to avoid ruffling any feathers in the early stages.
Tie Up Loose Ends.
Once the LLC has been formed, there may still be a number of other details to attend to, like preparing a minute book, applying for an employer identification number with the IRS, obtaining any required state or county business licenses, filing the LLC’s initial report, and more.
For a more visually engaging summary of this post, take a look at the infographic below.