How to Create an LLC (Limited Liability Company)

So you've grown your business and decided that you want to incorporate it. You've done your analysis on LLC vs sole proprietorship and decided it's a good idea to start a limited liability company (LLC).

How to create an LLC seems like a complex process that you definitely don't want to mess up. You probably have questions like “what legal documents do I need?”, “do I need an employer identification number?”, and “do I need to file an annual report?”

What is an LLC? Before getting into the nitty-gritty of how to create an LLC, it's important to first understand what exactly an LLC is. Put simply, an LLC is a business structure that gives you limited liability protection as well as pass-through taxation. 

LLCs also allow you the benefit of pass-through taxation. What this means is that income is not taxed at the entity level and any profit or loss is “passed through” to your own income.

Some of the benefits of creating an LLC are: Limited Liability – As soon as you create an LLC, you are shielded from any potential liabilities your business might incur. 

– Management – LLC members can elect a board to manage the business or manage the business themselves. This is different from coroporations which need to have a board to directors.

Some of the disadvantages of creating an LLC are: Costs – Creating an LLC requires upfront costs which come in the form of a formation fee and filing fee.  Ownership – Transferring or altering ownership is much more restrictive in an LLC than in a corporation.

How to Create an LLC: Step Choose a State Depending on which state you choose to incorporate under, the taxation, costs, and LLC laws will differ (because state law differs).

Swipe Up

for more finance, business, and real estate advice