How To: Form an LLC |

Launch: Step 6

How To: Form an LLC

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When you register your business, you are creating a legal entity and, as such, will be afforded significant benefits under the law.

Creating a business entity offers many benefits to business owners and entrepreneurs, such as specific tax benefits and some protection against liability. Also, you’ll need to have registered your business before you can do any of the following important steps to forming your business:

What is a Limited Liability Company?

A Limited Liability Company (LLC) is a very popular type of business structure that blends the benefits of limited liability of a corporation with the favorable tax treatment of a partnership. The company's income "passes through" the corporation and is treated as the personal income of the owners. This allows you to avoid having the earnings taxed at both the corporate and individual level. Once you form an LLC for your business, that LLC will be legally recognized as an independent entity that has its own unique Employer Identification Number (EIN), which is the equivalent of a Social Security number for a person.  Once you have an EIN for your business, the company can have its own bank account, purchase insurance, take out a loan, and take advantage of all kinds of other corporate services.

If I'm operating by myself, can I form a sole proprietorship instead of an LLC?

If you're operating your business by yourself, we still recommend that you incorporate as an LLC instead of as a sole proprietorship. For more information, read our STARTicle: Sole Proprietorships vs. Single-Member LLCs: Which is better? If you do create one of these business entities, you should also consider filing for a DBA (doing business as) registration.

Before you register your LLC, you should:

Use an Online Legal Services Provider

Many potential small business owners think incorporating a business is an expensive and daunting task that can’t be done without a lawyer. While consulting a lawyer is always recommended, it’s not something everyone can afford to do. Online legal service providers offer you with an inexpensive alternative. We recommend two main providers:

  • LegalZoom: (Cheapest LLC filing option is the "Economy LLC" Package with total costs of $158.95+ state filing fees- includes customized operating agreement) LegalZoom has packages available for you to create an LLC, ranging from $149 (plus $9.95 for shipping and handling) for the Economy Package, which does include a customized Operating Agreement. It should be noted that the price quoted does not include state filing feels, which can run the gamut from $40 to $520 depending on where your business is located. If you're operating your business from your home and don't want to use that address for your Registered Agent address, you can also purchase their Registered Agent services, which cost $159/ year. You can also pay them $79 to setup your Employee ID Number, if you don't want to do this yourself (read more here: Get an EIN)

  • MyCorporation: (Cheapest LLC filing option is the "Basic" Package with total costs of $103+ state filing fees- doesn't include customized operating agreement- but you can add one for $29) MyCorporation charges $69 (plus $34 for shipping and handling) for the Basic LLC filing package (which does not include a customized Operating Agreement) in addition to the state filing fees (which range from $40 to $520 depending on the state). MyCorporation offers Registered Agent and Employee ID Number registration services for $120/year and $69 respectively.

  • Nolo: (Cheapest LLC filing option is the "Basic" Package with total costs of $99+ state filing fees- include customized operating agreement) Nolo charges $99 (no additional charge for shipping and handling) for the Basic LLC filing package, which does include a customized Operating Agreement in addition to the state filing fees (which range from $40 to $520 depending on the state). Nolo doesn't directly offer Registered Agent services, but contracts with to offer that service for $235/ year. Employee ID Number registration is not offered as an add on, but is included in the higher level "Premier" plan that costs $299 plus state fees and also includes personalized binders and a seal as well as expedited filing and shipping.

Hire a Corporate Attorney

If you can afford it, this is the best way to go. However, be prepared to spend several hundred dollars. The exact cost will depend on your attorney’s hourly rate and how complicated your situation is.

The key is to decide which types of services you’ll need, and then conduct your attorney search based primarily on your wish list. You should definitely pay less for generic Federal and State filings than you should pay if you need an operating agreement or anything that requires lots of meeting time with the attorney.

It’s not hard to conduct an attorney search, but plan to spend some time to make sure that you interview the attorneys on your short list to find a lawyer with whom you can work effectively. Your search can  start at your local Bar Association’s website, or go online to search for lawyer search services. If you can get a referral from someone you know and trust, so much the better.

Do It Yourself (Not Recommended) 

This is the cheapest way to go but it carries the most risk. You can go directly to your Secretary of State and, in most states, file your application online. However, if you don’t know what you’re doing you could very easily mess up your paperwork, which would cause your application to be denied. At the very least, this would slow you down and at worst, could create more complicated issues for you to deal with.

Other Types of Business Entities

Many business owners find it favorable to register their business as an LLC. However, you should familiarize yourself with other types of business entities and the advantages and disadvantages of each particular structure. For more information on these options, visit our STARTicle: Incorporating Your Business - What Are The Options?

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  • An LLC can file taxes as an S Corp to minimize self-employment tax.  As a business owner, you will probably be subject to self-employment tax. However, LLCs can elect to file taxes as an S Corporation, which can, with proper planning, reduce self-employment taxes. Consult with your accountant for more advice on this subject.

Fair Warnings

  • Disclaimer on Legal Advice:  We are not attorneys and are unqualified to give legal advice. We strongly recommend consulting with an attorney if you can afford it. In addition, the information on this guide is limited to standard practices and the best of our knowledge. A good attorney will be able to help you come up with a creative solution if standard practices don’t fit your particular situation. However, this guide should give you a basic understanding about business entities and the tools to get started if you choose to do so.
  • Disclaimer on Tax Advice:  We are not accountants. Do not rely solely on this information to file your taxes. Each state has its own tax code, which you will need to consider in addition to the tax information in this guide. We recommend consulting with an accountant about your particular situation in the location where you choose to do business.