Starting a business is an exciting experience. You're taking what you know and figuring out a way to use your expertise to earn a living.
But with all the excitement comes the necessary administrative tasks. Making sure all your paperwork is in order is a good way to avoid confusion and complications down the road.
One piece of admin work to get settled is deciding the type of business entity you want for your business.
There are a lot of benefits to starting a Limited Liability Company, also known as an LLC, but one that stands out to business owners is that it helps to separate your personal assets from business assets. Knowing how to start an LLC involves a lot of items to check off a list.
Fortunately, we’re here to help. We'll go over a step-by-step process on how to start an LLC, get LLC insurance, and make sure your business is set up for success.
Ready? Let's go!
There are many benefits of having an LLC. One benefit is in the protection it gives your business name. As a business owner, we put a lot of work into what we do, and our business name represents that.
While it won’t provide complete protection, creating an LLC helps to prevent your business's name from being used by another company, as most states won’t allow a company to use a name that’s already registered by another company or corporation. For even more protection, look into registering your name as a trademark.
Another benefit to starting an LLC is that it may protect your personal accounts at tax season. As the business owner of an LLC, you likely would have more personal liability protection, in the event you get involved in a legal matter.
We'll discuss getting LLC insurance later on, so keep an eye out, because it's an important step.
Beyond how starting an LLC helps your internal business operations, it also can be a big draw for customers. Those three letters at the end of your business name can help to show customers you're serious about your business.
While it may not seem like much now, the extra steps you take to formalize your business can help you build authority and trust with potential customers, so taking those steps are worth the time and effort you put into it.
Finally, when you start an LLC, you're able to include as many members in your business as you'd like. Unlike other business entity types, an LLC leaves room for growth in the future if you decide to bring on a business partner.
It may not be something you're interested in right now, but being able to grow is a huge benefit that you and your business deserve.
When you start doing business, you may already have a name in mind, or maybe you're using your own name.
To start the process of creating an LLC, you'll need to choose a name unique to your business. And creating a unique business name is part of the fun! But if another business in your state has that name, then it's likely you won’t be able to use it for your business and its branding.
Many states have databases associated with their Secretary of State, where you can search business names to see if any others already have the name you want for your business.
While searching for registered business names, you also can search the database for DBAs, or “doing-business-as” names, which we'll discuss in the next section.
Since the paperwork may take a while to complete when you start an LLC, some states give business owners the option of reserving an LLC name. This way, when the paperwork is filed with the state, the name will still be available and not taken by another business owner.
You may not think you need to reserve your business name, assuming it's unique and that no other business would think of it. But consider this: a competitor gets word that you're looking into how to create an LLC and decides to register a few business names they think you may have interest in.
In that case, you could miss out on getting the name you believe truly aligns with how you want people to think of your business. It's not worth the risk.
Say you are traveling, sick and out-of-office, or absent from work for another reason. If your business is sued or served any type of legal documentation, there needs to be someone there who can accept it in your absence.
And yes, we are living in the age of internet and email, but there are instances when someone needs to sign for certified mail delivered by the U.S. Postal Service.
That's the purpose of having a registered agent, or statutory agent, for your business.
A registered agent is a person who agrees to receive communications on your and your business’s behalf if you are unavailable or can’t be reached.
When deciding on whom to name the registered agent of your LLC, you may choose a business partner, friend, lawyer, or anyone else you trust with legal information. The most important thing about your choice of an agent is that you trust them with crucial information that could impact your business.
The next step on how to create an LLC is to prepare an operating agreement for your business. Much like it sounds, this agreement lays out the terms of how you plan to run your business.
An operating agreement is an official contract, binding LLC members to its terms. This step may be optional, depending on where your business is located, as not all states require LLCs to have operating agreements.
That being said, this is a formal contract, so we strongly suggest you work with a licensed attorney in preparing this agreement.
The types of terms detailed in an operating agreement generally include:
While a business plan isn't a binding agreement like an operating agreement, including terms from your operating agreement within your business plan is a choice you may consider.
Don't have a business plan? Here's why you may want one. We have a FREE business plan template for you, so keep your eyes out for the end of this article!
OK, up to this point, you've collected a fair amount of paperwork. The next step: file it with the state.
If you've filed taxes in the past, you know that this is the type of administrative task that takes varying amounts of time. We suggest you carve out at least a few hours to complete the filing.
Each state will have different requirements, so you should consider checking with your Secretary of State to learn the specifics.
In general, you'll need to file your articles of organization (some states may refer to this as a ‘certificate of formation’ or ‘certificate of organization’).
In case you’re curious, articles of organization are different from your operating agreement. Think of your articles of organization as the different documents regarding your business that you need to file.
Articles of organization include details such as:
What is similar between articles of organization and an operating agreement are that they help your company to be legally recognized as an LLC.
Once you've filed your paperwork with the state and they deem you approved, they will issue you a certificate declaring your LLC is registered.
Once you get your certificate, you're ready to register for your Employer Identification Number (EIN) with the IRS, even if you don’t currently have any employees.
We suggest making digital and physical copies of your certificate to keep on file.
Once you have your LLC certification and are preparing paperwork to get things in order for taxes, you'll want to consider checking if you need a business license.
Not all states require a business license for all occupations, but in some states, if you work in a specific occupation or because of your LLC status, you may be required to get a business license in order to operate.
Even if you aren't required to get a business license by your state or local government, having one can come in handy. Being licensed can help win potential customers, bolster your chances of financial assistance, fulfill vendor requirements, and more.
To see whether or not you need a business license in your state, check out our state business license hub here.
All this work goes into learning how to start your LLC, but the work doesn't stop there. In the future, you'll put even more work, time, and effort into your business.
What if all of your hard work was put at risk? That's where LLC insurance comes in. There are a couple types of LLC insurance you may consider for your business:
General liability insurance helps protect your business in the event of property damage, bodily injury, or third-party accidents.
If your business has a store front or your work involves being on your customers' property, you may want to consider this type of liability insurance.
Let’s say you own a lawn care business and while mowing a customer's yard, a rock gets into your mower, causing the rock to hit and break one of the homeowner’s windows. They sue for the cost of labor and replacement of the window. Having general liability insurance could help to cover those costs and any associated legal fees.
Or maybe you're a carpenter and while on a project site you inadvertently drop a nail. Your customer accidentally steps on it and has to go to the emergency room. They sue you for their medical bills, which can add up quickly.
Rather than pay out-of-pocket, you could be covered by general liability insurance.
Professional liability insurance helps to protect your business in the event a client sues you for negligence, or for financial loss due to your work.
If your business offers services that include advising clients, this is the type of coverage you may want to consider.
Maybe you own an accounting business. Your client hires you to do their taxes, and everything goes well with the filing. Later, they get audited and owe additional tax and other fees to the IRS. Your client sues you for the amount of fees they owe.
Instead of it coming out of your personal savings, your professional liability insurance could help to cover those fees.
Or say you own a marketing consulting business. You advise your clients for the next quarter and they're happy with the plan you put together. When the quarter ends, however, they don't see the return they hoped for and sue you for the cost of the assumed revenue. After all — you predicted it!
Your professional liability insurance could help cover the cost of fees they're suing for and any legal fees resulting from the legaldefense of your business.
Hearing about general and professional liability insurance may seem a bit ahead of the game to you.
Since you're just getting started, you may assume that you don't need insurance. But a study found that 43% of business owners are involved in or threatened with a civil suit. And legal costs associated with those suits can range anywhere from $3,000-$150,000!
Even at the lower end, costs like that could bury your business before you're able to get your footing. The protection itself is far less in comparison. At Simply Business, general liability quotes start as low as $22.50/month.*
So for the cost of filling up your vehicle’s gas tank or buying a few lattes, you could protect your LLC from risks it may encounter.
Not entirely sure if insurance is right for you? Consider the other ways that it could benefit your business:
And that's just a few ways a COI can help!
If you want to learn more about what LLC insurance may cost , you can compare quotes for free using our quote comparison tool.
We mentioned that you may consider or be required to register your LLC with an EIN. But whether or not you have employees, your business will be subject to tax laws specific to your state, and required when filing specific reports.
We can't list all of the different annual report requirements here, because the requirements are specific to the state your business is in. If you want to learn more about your state's tax and annual reporting requirements, you can start here.
But remember, that's just the starting point. We always recommend speaking with an accountant or tax expert if you have questions.
Do you conduct business with other states? That's great! If so, this step applies to you.
You may also need to register your LLC with those states. The process will likely be similar, but you will need to name a different registered agent who is located within that state.
If you don't know someone in the other state(s) where you operate your business, you may consider choosing a legal representative or business to serve as your registered agent .
If you have any further questions about operating your business in multiple states, we suggest consulting an accountant, tax expert, and/or legal counsel.
For many business owners, when they look into how to create an LLC, it's only natural to also question how much time it will take.
Just as every business owner's experiences differ when starting and operating their business, the same can be said for learning how to start an LLC. Creating an LLC can take various amounts of time, depending on the state you're in, what information you have readily available, and how quickly the state processes your information.
And this is the type of information we can't predict!
Like any type of government-processed documentation, you could receive your LLC certificate quickly, or you could wait two weeks (or even longer) before the state processes your information.
This is why we suggest being prepared, and hopefully this checklist will help!
There were 10 steps above, but like many business owners, you likely realize that learning how to create an LLC is just one step in a list of many that will lead you to becoming a successful business owner.
Having steps laid out for you is a helpful way to stay on track. One way of creating a roadmap for your business is by creating a thorough business plan. We mentioned earlier that we had a FREE business plan template for you — you can download it below.
The template is downloadable, and you can edit it so it's custom to your business and its specific goals. If something changes along the way, you can use the template to adjust your plan. Beyond creating an LLC for your business, your business plan can prepare you for success in the long run.
Taking steps like this helps to send us off in the right direction. So the small steps we take now can help to protect us from big problems in the future, and make way for us to do what we do best — our jobs!
Want some help creating your best business plan? Download our FREE business plan template here!
* Monthly payment calculations (i) do not include initial premium down payment and (ii) may vary by state, insurance provider, and nature of your business. Averages based on January - December 2020 data of 10% of our total policies sold.
I’ve told stories since I learned to talk and written since I could hold a pen. As a small business owner myself - I'm a freelance writer and yoga teacher - I love contributing to the entrepreneurship community in different ways (including writing for Simply Business!). When I’m not drafting articles for SB, I can be found on my yoga mat, perusing an indie bookstore, and writing (with my cat nearby of course).
This content is for general, informational purposes only and is not intended to provide legal, tax, accounting, or financial advice. Please obtain expert advice from industry specific professionals who may better understand your business’s needs. Read our full disclaimer
*Harborway Insurance policies are underwritten by Spinnaker Insurance Company and reinsured by Munich Re, an A+ (Superior) rated insurance carrier by AM Best. Harborway Insurance is a brand name of Harborway Insurance Agency, LLC, a licensed insurance producer in all 50 states and the District of Columbia. California license #6004217.