An LLC is a business structure, formed at the state level, that shields its owners from personal liability. An LLC has its own legal existence, separate from the people who formed it. This means that if an LLC can’t pay a debt, its owners aren’t usually required to dip into their personal assets to pay it. This is called limited liability, and it’s the main perk of starting an LLC.
In order for a state to grant you the privilege to form and establish a business (and begin the process of separating your personal identity with your LLC’s separate and distinct identity), the state wants to be sure that your business can be contacted by anyone regarding importance communications, such as legal notices or service of process. To do that, you will need to identify and list your registered agent and office in your formation paperwork. Because of the time sensitive nature of several communications delivered to a registered agent, it is important that you select a registered agent whom you can trust to get you vital communications in a prompt and timely manner.
Your registered agent must be regularly available to accept your LLC’s state and legal mail at a physical location in the state (a registered office). This means that if you opt to be your own registered agent, your name and home or office address will become part of your LLC’s permanent public record. Hiring a registered agent service can help you keep your personal information more private.
Before you can form an LLC, you’ll need to decide on your company name—and make sure it’s not already taken. Fortunately, every state has an online database where you can search for available names. When choosing a name, you’ll also need to avoid restricted words or phrases and include a business entity identifier, such as “L.L.C.,” “LLC,” or “Limited Liability Company.
Now that you’ve made the big decisions, it’s time to file the LLC state form, typically called “Articles of Organization.” In most states, LLC formation documents are processed by the Secretary of State. Requirements vary, but at minimum, you’ll generally need to include your company name, your registered agent, and a signature.
After starting an LLC, you’ll likely need a federal tax ID from the IRS. This Federal Employer Identification Number (known as a FEIN or EIN) is much like a social security number for your LLC. Every LLC that will pay taxes or hire employees needs an EIN. Also, an EIN is another indicator courts will look to when determining whether a distinct LLC identity exists separately from yourself.
Apply for an EIN with the IRS by filing Form SS-4. Applying online on the IRS website typically takes just a few minutes.
Your operating agreement is the governing document of your LLC. How the LLC distributes its profits and losses, who owns what percentage of the company, how management structure is defined, everything—it’s all in the operating agreement. Your operating agreement is an internal document, so you don’t need to file it with any state agency. However, it’s not something you want to be operating an LLC without.
As of January 1, 2024, most LLCs need to file a Beneficial Ownership Information (BOI) Report with the Financial Crimes Enforcement Network (FinCEN). LLCs organized in 2024 need to file within 90 days of company formation, while existing LLCs have until January 1, 2025. LLCs formed in 2025 or later will need to file within 30 days of formation. On this report, you must provide the names, birth dates, addresses and personal ID for all beneficial owners and your company applicant, as well as some information about the company itself. A Beneficial Owner is anyone with at least 25% membership interest or substantial control within your LLC. Your Company Applicant is the person who filed your Articles of Organization. (LLCs formed before 2024 don’t need to include Company Applicant information.)
It’s important to note that the information shared on your BOI Report will not go on the public record and will only be accessible by government agencies, law enforcement, and financial institutions for the purpose of verifying customer identity.
You can file the BOI Report for free online using the Beneficial Ownership Secure System (BOSS), starting in 2024.
To maintain your new LLC’s limited liability, you’ll need to keep your personal assets separate from business assets—so you’ll want to open a business bank account. Again, this is another factor courts will look at to determine whether to respect your LLC’s separate identity, or whether to disregard and allow liability to attach to you (and your assets) personally. The more you can show a separation between yourself and your LLC, the better!
Opening an account typically requires a few key business documents: your Articles of Organization, operating agreement and EIN. Depending on the bank—and how clearly powers are defined in your articles and agreement—you may also need an LLC resolution to open a bank account.
Your business bank account doesn’t do much good empty—your new LLC needs to be funded with capital contributions. Let’s say your business needs $10,000 to start. Each member would pony up a portion of that $10K from their personal money or assets to put into the new business account. In exchange, members receive a proportionate percentage of membership interest. You can change the percentages at any time if people want to contribute more later on.
After you form an LLC, your state may require you to update or confirm your company information with a business renewal or report, such as an annual or biennial report. Occasionally, these renewals or reports are combined with other state requirements. For instance, Arkansas pairs its annual report with an annual franchise tax. Some states, like Washington and Nevada also require LLCs to file an initial report. This is a report due upon or shortly after starting your business. And of course, states have their own LLC tax requirements, from informational filings to franchise taxes.
An LLC is a business structure much like a hybrid between a partnership and a corporation. Like a partnership, an LLC has the flexibility regarding management, taxes, and certain operations. Like a corporation, an LLC is formed at the state level, has its own separate legal identity, and has liability which is limited to the assets owned or controlled by the LLC. This means that the debts and assets of the business belong to the LLC, not you. So if the business is sued, damages are usually limited to the LLC’s assets (not your house or car).
When it comes to taxes, LLCs are typically taxed like partnerships or sole proprietorships (but can elect to be taxed like a C or S corporation). LLCs can also self-manage, much like a partnership (but can choose to appoint managers to operate more like a corporation).
The major differences between an LLC and a corporation boil down to ownership, management, and taxes. LLCs are owned by members. Members can manage directly or appoint managers, giving LLCs the flexibility of operating like partnerships or corporations. Corporations (except for non-stock corporations like nonprofits) are owned by shareholders. Shareholders elect a board of directors to make business decisions. The board of directors appoints officers to execute those decisions.
When it comes to taxes, LLCs are taxed as partnerships unless they choose to be taxed as S-corps or C-corps. Corporations are taxed as C-corps unless they choose to be taxed as S-corps. Corporations can’t be taxed as partnerships, meaning LLCs have greater tax flexibility.
Typically around $100. Each state sets its own fees to file LLC articles of organization. This tends to be flat filing fee, ranging from $40 (Kentucky) to $500 (Massachusetts). Tennessee, however, bases their LLC formation fee on how many members your business has, so their fee can be anywhere from $300 to $3,000.
At Northwest, we can form your LLC for just $225 plus state fees, a total that includes one year of registered agent service.
No, but a sole proprietor can become an LLC. A sole properietorship and an LLC are two different kinds of business structures. If you’re a solo business owner that has never registered with the state to form a business entity, you have a sole proprietorship.
A sole proprietor can easily become an LLC by filing articles of organization with the state. An LLC typically has increased reporting requirements but receives benefits that are out-of-reach to sole proprietors, such as limited liability and tax flexibility.
Yes, forming an LLC can help you reduce your public footprint. Living publicly—and giving away your data to be sold and resold—has been normalized. It’s possible to take back control of your own information in a number of ways, and in some cases, forming an LLC can help. Note that this will require taking certain steps, like hiring a registered agent service, to keep your personal information off public filings.
There are several different types of LLCs that can vary depending on how you set up your business, and the state and industry in which you operate. Some common types of LLCs include:
Single Member LLC (with only one owner)
Professional LLCs (for state-licensed professions, like doctors and lawyers)
Series LLC (for LLCs needing separate liability protection for different parts of their business)
There are also LLCs taxed as S-corps and C-corps. LLC management is another way to categorize LLCs. There are member-managed LLCs and manager-managed LLCs. It’s even possible to form a nonprofit LLC in a handful of states.
Yes and no. For an LLC with default tax classification, the company itself doesn’t pay federal taxes. Instead, profits are distributed to owners (members) who then report those earnings on their personal filings. This is known as pass-through taxation.
However, LLCs might be required to pay various state taxes, such as franchise taxes. LLCs can also elect to be taxed as corporations—in which case, the LLC itself may owe taxes.
Yes, you can file articles to form your LLC yourself. However, there are a few downsides to doing so.
First, any information you list in your articles becomes a part of the public record—permanently. There’s no going back and erasing your home address or other personal info once it’s out there. When you file yourself, you are the “organizer” of your LLC and usually need to list your name and address. In most states, you can avoid putting your personal address (and in a few states, even your name) on this public doc by hiring a service like Northwest to be your registered agent and organizer.
Second, when filing on your own, it’s easy to make expensive mistakes that can cause your filing to be rejected or that can require pricey amendments down the road. At Northwest, we form LLCs across the nation every day. We know the ins and outs of every state from Alabama to Wyoming.
Maybe you prefer to keep your personal address off your public filings.
Maybe you need a registered agent, operating agreement, business address and mail forwarding—all of which is included with our LLC formation.
Maybe you have a lot of business questions our Corporate Guides® can answer for you.
Maybe you’re tired of companies selling your data.
Or maybe you just don’t want to have to file more paperwork.
Whatever your reasons are, TexasFinserv is here to help you start your LLC the right way.