What is a Limited Liability Company?

What is a Limited Liability Company?

 A limited liability company is the most popular business structure in the US that entails the features of corporation, partnership, and that of sole proprietorship. It is a kind of hybrid entity that provides its owner limited liability protection unlike other business structures. 

An LLC is a formal partnership agreement that needs to be registered with the state. Also, one needs a seller’s permit before starting off their business off the ground. 

For instance, if you are planning to set up an LLC in California, you would require a California seller’s permit to start your business operations.  Now, the question is how does one form an LLC? What’s the process? 

Read on to know. 

How to Form an LLC?  

Forming an LLC is a bit hectic and time-consuming. Here’s a step-by-step guide: 

Pick a State 

The first and foremost step is to decide the state where you will be organizing the LLC as an LLC is formed in compliance with the rules and requirements of a state law. You should choose a state where the business will be operated as it will help you save money on fees and taxes. 

Name the LLC 

The next step is to give your LLC an available name. The name should end with ‘LLC’ or other permitted abbreviations. The name should not clash with any foreign or local LLC filed with the secretary of state. You can always check naming guidelines on the state’s official website. The name should not include words, such as trustee, bank, insurance company, or anything that is confusing with the name of any state authority. 

File the Articles of Organization

To register as an LLC, the company is required to file the Articles of Organization with the state’s tax department. Articles of Organization consist of a set of formal legal documents which are used to establish a limited liability company. The document includes necessary information about the company, members and guidelines describing the in-house operations of the company. 

How to Form an LLC?  

Operating Agreement

Just like articles of incorporation that governs the operations of a corporation, an LLC operating agreement is a legal document entailing the terms of a limited liability company as per the requirement of its members. Though many states do not require to file an operating agreement, companies maintain an operating agreement to ensure smooth functioning of their operations. 

Get an Employer Identification Number (EIN)

EIN, also known as Federal Tax Identification Number, is issued by the Internal Revenue System (IRS) and is required to have if you decide to hire employees for your LLC. You can get the EIN easily after the online registration with the IRS website. It is free of cost. 

Getting an EIN should be in your priority list as some banks might ask you to get an EIN before opening a business account. 

Set up a Bank Account 

The next step is to set up an LLC bank account if you want to capitalize your company with sufficient funds and want to keep its identity different from the owner. Plan all your works assuming that settip a bank/checking amount will require you to have your articles of organization filed, EIN, and other important information. 

Do All the Required Filings 

As soon as you start an LLC, some states require you to fill annual report filing and other local filings. Make sure you do all the filing work as it may cause you heavy penalties or even suspension or dissolution of your LLC. 

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