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How to Start an LLC Online in 2021

Are you ready to start and form an LLC for your new business? We have provided the simple steps that you will need to take below in order to help you get your LLC set up online with ease.

Before you start a company, you need to decide which entity to use. Each entity type is taxed differently. Depending on your company size and structure, those tax differences could be a benefit or a hindrance. Additionally, different entities offer different levels of protection from liability. 

A limited liability company (LLC) offers the best of both worlds in that it does not face double taxation like a corporation, and it offers more liability protection than a sole proprietorship. 

1. Selecting the State Where Your LLC Will Be Formed

Each state has its own rules for forming an LLC. You should take the following factors into consideration when choosing the state in which you will form the LLC:

  • Filing fees vary for each state. Currently, Massachusetts has the highest filing fee of $520. Several states, including Kentucky and Colorado, have filing fees that range between $40 and $50.
  • Annual fees also vary. Fees may range from $0 (because a state does not require an annual report) up to over $300.
  • Some states impose franchise fees. A state may require this fee over and above the normal filing fees or may impose it in lieu of the normal filing fees.

Some states have other benefits. For example, forming an LLC in Delaware is more attractive to investors due to its long-established corporate legal system. Delaware has a separate court that deals exclusively with business disputes, where a judge decides cases instead of a jury, and those cases are often completed faster than business disputes that go to court in other states.

Forming an LLC in Your Home State

Even though the costs may be higher than in other states, forming an LLC in your home state has its benefits. For example, you do not have to pay extra fees for filing a foreign entity registration and you may only need to maintain one registered agent.

2. Selecting Your Business Name

When you choose a business name, you need to ensure that the name is available and not being used by another business. The majority of Secretary of State offices offer the ability to search an online database to ensure that the name is not in use.

Generally, all states require an LLC’s name to include an entity designator. An entity designator identifies the company as an LLC and is usually some form of “Limited Liability Company.” Most states allow this to be abbreviated to “LLC” or “L.L.C.” Each state maintains a list of permitted entity designators, so it is important that only approved designators are used.

3. Completing a Questionnaire

LegalNature uses the responses in its questionnaire to complete the articles of organization and other documents that are required for setting up your limited liability company. Information that you need to provide depends upon the state of formation, but may include the following:

  • Your full legal name
  • Your current residential address
  • The address for the business (principal place of business)
  • Your phone number
  • Whether you are using a fiscal year or calendar year
  • A list of the members and/or managing members
  • The registered agent’s name, address, and phone number, if not using LegalNature’s registered agent service
  • The activity of the business (e.g. retail, some type of service, etc.)
  • The term, which is usually perpetual

4. LLC Operating Agreement

An LLC operating agreement dictates how the company is managed and includes information on voting rights, management, dissolution of the company, and more.

This document also outlines salaries, allocations, and distributions. This section dictates what a member’s salary is, when he or she gets a raise, what bonuses may be, and, if the company decides to distribute excess profit, how much of that profit each member will receive.

Management

An LLC may have members, managing members, or a combination of both. In member-managed limited liability companies, all members run the business. Some members may have more responsibility than others, and this usually depends on what percentage of capital or services they contributed to the company when it was first set up.

A manager-managed structure is usually used for a larger businesses where company management is not shared by all of the members. The other reason a company may use a manager-managed structure is when some of the members do not have the appropriate skills to manage a company. Then, only the managing members actually run the day-to-day operations of the company.

A manager-managed LLC is also used when some members choose to remain silent. Often, these are investors who have invested in your company that do not want or need to be part of the management.

The operating agreement outlines the duties of each type of member. In addition to that, the operating agreement may state the percentage of distributions from the company. For example, if you and five others start an LLC together and you put in 51 percent, a second member puts in 30 percent, and the other three members put in a combined total of 19 percent, then the distributions may follow the same percentage structure. Distributions are the profits at the end of a specified term, which could be monthly, quarterly, or yearly.

Voting Rights

Members’ voting rights usually follow the percentage of contributions they put into the company. For example, a member who owns more than 50 percent of the LLC may have two votes, if that is how you decide to structure the company. The other members may have one vote. You may structure the voting rights as you please, and you may also decide whether you need a majority or super majority for the company to execute any major transaction, such as a loan or the purchase of additional property.

Dissolution and Withdrawal

The operating agreement also provides for dissolution of the company, including whether the company is administratively dissolved by the state or the members and/or managers decide to dissolve the company. This section of the operating agreement also provides regulations dictating how a member may withdraw from the company and that member’s rights.

5. Additional Requirements

Forming a business is more than just establishing the limited liability company. Almost all businesses must have a federal tax ID, known as an employer identification number (EIN), and a registered agent, at a minimum. Licenses and permits may also be requirements, depending on the type of business you are starting and the location.

Employer Identification Number

Even if you are the only employee, it is a good idea to get an employer identification number (EIN) for such things like establishing a bank account. In many cases, you will be able to use this number for transactions instead of your social security number. The following information is required to obtain an EIN:

  • The name of your LLC.
  • Your “Doing Business As” name, if you use one.
  • The number of members in the LLC.
  • The name of the “Responsible Party” (the person who will be responsible for communicating with the IRS).
  • The Responsible Party’s social security number.
  • Your business’s physical business address (you cannot use a post office box address).
  • Your business’s mailing address.
  • The county your business is located in.
  • The state your company was organized in.
  • The primary activity of your business.
  • The reason you are applying for an EIN. This may be because you started a new business, hired employees, created a trust, to comply with the IRS, your bank needs it for a pre-established company because you changed the type of organization, or you bought a business.

You must also tell the IRS if you are providing certain products or services, if the business owns a vehicle that weighs 55,000 pounds or more, whether the business involves gambling, if you sell tobacco and/or firearms, if you sell or manufacture alcohol, if you have to pay federal excise taxes, and whether you have applied for an EIN before.

You also have a choice of paying annual instead of quarterly taxes if you do not expect to pay more than $4,000 in wages. You will also need to provide the date that the business was acquired and provide the accounting year (fiscal or annual).

Registered Agent

All limited liability companies are required to maintain a registered agent. The agent accepts official mail for the business, including, but not limited to, mail from the Secretary of State and service of process. A registered agent must be a person or business who maintains a publicly accessible address that is always available during regular business hours. The registered agent must be located in the state where your LLC is formed. While some people do act as their own registered agent, it is always a good idea to have a company that provides this service so that you are sure you do not miss any important deadlines.

Website Services

Most businesses have a website to sell their products and/or services. If you do have a website, you will need a privacy policy and terms of use, often referred to as terms and conditions or TOC. These documents protect you and your customers. The privacy policy lets customers know how you will be handling their personal information, and the terms of use could contain anything from age restrictions to shipping policies.

Payroll

Before you set up an LLC, you should know how you are going to handle payroll. Part of the operating agreement discusses the terms by which your members and managing members will be paid. This may include weekly salaries, bonuses, and even stock options.

6. What Documents Will I Receive?

When you create your limited liability company, you will receive your articles of organization, EIN (if requested), and the organizer resignation that we file so we are not considered part of your company.

Conclusion

When setting up a business, you should make sure you understand all the rules and regulations and have the correct contracts and agreements in place. To avoid legal issues with managing members and members, you should have a detailed operating agreement, an EIN, a registered agent, and the proper documents for your website. Get started now by forming an LLC in the state of your choice.