Start an LLC

An LLC is a relatively new type of business organization. The first LLC law was passed in 1977. Since then, every state has enacted legislation allowing the formation of LLCs.

LLCs share a significant characteristic with corporations: limited liability. Corporate officers, directors, and shareholders cannot be held liable for any debts of the corporation unless they are liable under other laws. This is true only if management takes care to preserve the corporate formalities, such as maintaining separate bank accounts, holding regular meetings, making minutes of those meetings, and generally treating the corporation as a distinct entity under the law. If management fails to take the steps, then the law allows the "piercing of the corporate veil" which can subject officers, directors, and shareholders to individual liability. An LLC has the same protections from liability as the corporation—and the same vulnerability if not treated as a separate entity.

LLCs also share a significant characteristic with partnerships, or, if the LLC is owned by a single member, with individual taxpayers. Income to an LLC is not taxed at the entity level. Instead, it is included in the income tax returns of the partners or single individuals who own the LLC.

To organize an LLC, you must file a document with the state in which the LLC is to be created. This document is usually called the Articles of Organization, but sometimes it is called something else, depending upon the state. The Articles of Organization state the name of the LLC, its business address, and the types of business the LLC will engage in.

The Articles of Organization also state the name and address of the registered agent for the LLC. The registered agent is the person or company that serves as the contact point between the state and the LLC. The registered agent also receives official correspondence from other businesses.

How long it takes to get an LLC depends upon the state in which it is organized. In the past, organizers would mail Articles of Organization to the state, along with the required filing fee. Later, some states began authorizing fax filing. Today, most states have set up e-filing systems that allow filing of various documents, usually including Articles of Organization for an LLC.

Again, depending upon the state, registration of the LLC can be accomplished online in real time. When that occurs, an LLC can be completely set up in only a day or two. However, other states have significant lag times, some in the range of two to three weeks for approval, even if the registration is filed online.

Some states include on their websites the expected wait time to process a filing. Others state the date of the most current documents they have processed to give people an idea of how long it will take for approval of a filing.

In short, it can take between a day or two and the better part of a month to organize an LLC.

State filing fees vary greatly, from $40 to as high as $500. Your state of incorporation might also charge an annual fee to keep your LLC current.

You can file to form an LLC on your own by providing all the paperwork, meeting the legal requirements, and managing the required steps through your state's specific filing system(s) and processes.

You can also call on the Business Services team at Rocket Lawyer to help you navigate the processes and systems and to ensure you have all the legal requirements met in order to file quickly and correctly. You will only pay your state filing fees if you sign up for a new Rocket Lawyer membership ($39.99 per month). Without a membership, the LLC filing costs are still only $99.99 plus the state fees.

If your business does not have a physical address in your state (P.O. boxes are not acceptable substitutions), you may be required to have a registered agent. Registered agents accept official and legal correspondence on behalf of your business. The Business Services team can set you up with a registered agent for only $149.99, with an added discount of 25% with a new membership, to stay Confidently Legal™.

There are benefits to forming your own LLC, even if you work alone. The main benefit is liability protection. Depending on how you file, there may or may not be tax advantages.

Limited Liability: Forming an LLC can help protect your personal assets. If your business fails or if you are sued, your business is sued and not you personally. In most cases, unless you assign personal assets as collateral, these assets may be protected if your business declares bankruptcy or is on the losing side of a lawsuit.

Federal Taxes: You can file taxes as a "disregarded entity" or as a corporation. If you file as a "disregarded entity," then you are liable for pass-through taxes. This means you file your business income with your personal taxes and you will have to pay self-employment taxes. If you file as a corporation, your business files as a business separate from your personal taxes. You'll benefit from discussing with your accountant what option may be best for you.