How to apply for an LLC (limited liability company)

updated on March 09, 2024 ⋅ 5 min read

One of the most important early decisions business owners must make is what business entity to register and conduct business under. There are plenty of business entity types to choose from—a sole proprietorship, C corporation, S corporation, limited liability company (LLC), or limited liability partnership (LLP). What business structure you decide on depends on the risk you're willing to assume.

An LLC is an excellent choice if you are looking for more liability protection than a sole proprietorship can give but are not ready to register as a C corp or S corp. Before you apply for LLC formation, read on to determine if it's right for you.

Benefits of forming a limited liability company

The most significant benefit of an LLC is limited liability. According to Fareed Kaisani, a Dallas-based Platt Cheema Richmond PLLC attorney, "This means that the owners (also known as members) are not personally liable for the company's debts or legal liabilities."

In addition to personal liability protection, "LLCs also have the option to choose how they are taxed," Kaisani says. "They can be taxed as a sole proprietorship or partnership (if there is more than one member), or they can elect to be taxed as a corporation," resulting in significant tax benefits.

Another benefit is that an LLC is a relatively simple and flexible structure. "Members can be foreign or U.S. individuals, partnerships, trusts, corporations, or other LLCs," explains Bianca Lindau, a Boston-based Caldwell Intellectual Property Law corporate associate.

Foreign entities and local governments can also be LLC members. Insurance companies and banking institutions usually are not allowed to be LLCs. Check the state you'll be conducting business in for additional or different regulations.

Just choosing to become an LLC, however, is not enough. You'll need to delve further into the LLC types to determine which fits your situation. "Owners of an LLC must pick the sort of LLC they want and if they want to participate in daily decisions and operations actively or prefer to be more hands-off," says Martin Gasparian, an attorney and owner of California-based Maison Law.

Steps to apply for an LLC

  • 1. Choose one of the 5 types of LLCs (Member-managed LLCs, Series LLCs, Restricted LLCs, Anonymous LLCs, or Professional LLCs)
  • 2. Choose a business name
  • 3. Register a DBA name
  • 4. File articles of organization
  • 5. Designate a registered agent
  • 6. Draft your operating agreement
  • 7. Publish a notice of formation
  • 8. Obtain a business license and permit
  • 9. Obtain an EIN
  • 10. Open a business bank account

Other things to consider for your LLC

State and local formation and maintenance costs should be considered when forming an LLC. "There are filing fees, state fees, and ongoing costs such as annual reports, taxes, and legal fees," according to Kaisani.

Using the state of Nevada as an example, LLC formation and business filings cost $75. There is a 24-hour expedited fee of $125. Also included in the setup costs are the annual list ($150) and business license ($200). Additional fees apply to have a business in Las Vegas proper or greater Las Vegas. Once the state filing is completed, a general service business would pay $100 for the local business license and $50 for processing, and if the business is home-based, you can add $50. There is no single price for a business license in Las Vegas.

"Another consideration is the recordkeeping involved," Kaisani says. "LLCs are required to maintain proper records and documentation, including the company's operating agreement, financial statements, and meeting minutes," which can be time-consuming and may require the help of a professional, especially for unique, limited partnership situations. “Often, small business owners do not understand the sophistication of what they are trying to accomplish with their company agreement terms. I always recommend consulting with a licensed attorney in your state when considering forming a new company."

If you plan to do business in other states, consider that you'll have to "foreign qualify" in the new state, which means additional fees. "A business owner who has formed an LLC in one state and wishes to grow into another can do so," says Gasparian. "Foreign qualification is the procedure for acquiring authorization to carry on business in the state where they intend to increase the scope of their current corporation's operations." The qualification is necessary when a firm has a physical presence or economic connection to the additional state, reaching a certain income threshold in the new state.

The IRS also has further information on forming limited liability companies.

Business licenses and permits

The required business licenses and permits for your LLC will vary depending on the type of business and the state in which it operates. To obtain business licenses and determine which licenses and permits are necessary, it's essential to research your local and state government regulations and contact the appropriate agencies for guidance.

The costs of obtaining business licenses and permits can range from $25 to several hundred, depending on the license and business location used. Be sure to budget for these expenses as you set up your LLC and ensure that you comply with all applicable regulations.

Complying with tax and reporting requirements

Lastly, it's essential to ensure that your LLC complies with all relevant tax and reporting requirements to maintain good standing with the state and federal government. This includes filing annual reports, paying state income tax, and potentially paying employer taxes if your LLC has employees.

In conclusion, forming an LLC can be valuable for many business owners looking to benefit from liability protection, tax flexibility, business profits, and increased credibility. By understanding the various aspects of forming an LLC, you can successfully navigate the process and lay a solid foundation for your business.