A Complete Guide to Setting Up a Limited Liability Company


Aside from complicated tax laws that govern how a limited liability company and a corporation can take deductions and/or declare income, the two chief differences between them are that a corporation must hold annual meetings, keep minutes of those meetings, and issue stock, while an LLC does not. Both company types insulate owners from personal responsibility for debts.

Although limited liability companies are rather new in the United States, they've been popular for much longer overseas. In Germany, for example, one will find many more titles of Gesellschaft mit beschr?nkter Haftung, or Gmbh, which means limited liability company, rather than Akteingesellschaft, which means "incorporated corporation." In any event, anyone who is forming an LLC with international aspirations should become aware of the laws of different countries.

Forming an LLC

Forming an LLC is not difficult. Of course, there is a lot of paperwork, but most of it is just time-consuming rather than demanding. To begin, a person forming an LLC must choose a unique name that ends with the term "LLC." Some states maintain a list of prohibited words, such as corporation, bank, etc., so business people should check with their state to make sure the business name qualifies.

After that, one must file the applicable forms with the state in question. If the company is going to be operating in multiple states, the business owner must file a form in each state. The filing fee for doing so varies by state, so it's a good idea to check with the applicable state agencies before beginning. Also, if there are going to be multiple owners or officers of the new limited liability company, they must choose one of their number to be the "agent of the LLC." This person would receive all legal and business-related communication should there ever be a lawsuit against the LLC.

The Operating Agreement

Although it's almost never required by law, it's almost obligatory to have an operating agreement. It outlines such potential sticking points as each member's:

  • Voting power

  • Responsibilities in running the business

  • Percentage of ownership

  • Share of profit and/or loss

  • Wishes should he or she die, become disabled or incompetent or sell his or her share of the company

Even if no one leaves the company, the agreement should also detail procedures for bringing new members on board.

Announcing the Company

In some jurisdictions, new companies must publish news of their inception and founding in any local newspaper. Such publications are required over a period of several weeks before the business opens its doors. Eventually, the business must file with the local LLC filing office. Most newspapers will help with the process.

Permits and/or Licenses

Also before the doors open, the business must ensure it's allowed to operate in its area. Different classes of businesses have various requirements; some need an officially issued business license, while others need only a tax-identification certificate. Still others might only need a permit to sell their items. Some states require a combination. In all cases, it's best to contact the state licensing authorities to get all the information and requirements beforehand.

Advertising Disclosure

This site is a free online resource that strives to offer helpful content and comparison features to its visitors. Please be advised that the operator of this site accepts advertising compensation from companies that appear on the site, and such compensation impacts the location and order in which the companies (and/or their products) are presented, and in some cases may also impact the rating that is assigned to them. To the extent that ratings appear on this site, such rating is determined by our subjective opinion and based on a methodology that aggregates our analysis of brand market share and reputation, each brand's conversion rates, compensation paid to us and general consumer interest. Company listings on this page DO NOT imply endorsement. Except as expressly set forth in our Terms of Use, all representations and warranties regarding the information presented on this page are disclaimed. The information, including pricing, which appears on this site is subject to change at any time.