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Entrepreneurship

How to Start an LLC in 5 Simple Steps

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So, you’ve decided to start your own blog or business. You’ve been working it hardcore, and you may even be making a few stacks from your new gig. If so, it may be time to start your own LLC.

What is an LLC Anyway?

An LLC (short for Limited Liability Company) is a business entity that can be formed in any of the 50 nifty United States. It is neither a corporation nor is it a sole proprietorship/partnership. Instead, you get the best of both worlds by combining the two.

An LLC offers the simplicity and flexibility of starting a sole proprietorship while providing you with the limited liability enjoyed by corporations. In other words, an LLC separates your personal assets from your business assets – protecting them, in theory, if your business was ever to be sued.

Furthermore, owners in the LLC  (referred to as “members”) enjoy the same pass-through taxation treatments that partnerships and sole props are given. Thus, business income is only taxed once instead of twice like in a C-Corp. Pretty sweet deal, eh?

Own a Business, Get More Rewards

In addition to the asset protection and pass-through tax benefits that come with an LLC, one of my favorite things about having a business is the fact that it has its own Taxpayer Identification Number (TIN). That may not sound like much to you, but it helps distinguish the business as a separate tax-paying entity. This also means that the business can apply for its own financial accounts, including credit cards.

Like with personal cards, businesses can earn points, miles, and cash back. Just put your business spending on the card, and you’re good to go. Redeem the points for cash back, gift cards, or travel. Use them for yourself or give them to your employees as a perk. We’ve used them to help pay for more than 12 trips to Europe and the Caribbean in just the last 3 years.

Best Business Rewards Cards

Here are a few of our favorite business cards:

Ink Business Preferred Credit Card

The Ink Business Preferred Credit Card from Chase is easily my favorite business card. I have it and use it myself often. You get 3x points on on the first $150,000 you spend on travel and certain business expenses each year (based on your account anniversary). All other purchases earn 1x points, and there is no limit on how much you can earn. Right now, just for signing up, you can earn an additional 100,000 bonus points if you spend $15,000 in the first 3 months. You can redeem those points for $1,250 in travel through the Chase portal! On the downside, there is a $95 annual – but you can easily make up for that (and more) with the sign up bonus and points for spending.

Ink Business Cash Credit Card

If you’re looking for a straight cash back card, the Ink Business Cash Credit Card from Chase is a great card for you. Right now, you can earn a $750 cash back bonus when you open a new card and spend $7,500 in the first 3 months. You’ll earn 5% cash back on the first $25,000 spent annually at office supply stores, cell phones, landlines, or internet services. You’ll also earn 2% cash back on each dollar spent at restaurants and gas stations on the first $25,000 annually, and 1% on everything else. There is no annual fee and points never expire, making this a great cash back card for any business.

Compare the Best Small Business Credit Cards – Need a rewards card for your small business? We’ve got your back. Check out our list of the best small business credit cards and start comparing cards cards here!

How to Form an LLC

Now that we know what an LLC is and how you can earn extra cash back, let’s chat about how to actually form an LLC, shall we? Understand that each state has their own rules regarding the formation of LLCs, thus we’ll cover as much as we can in our limited space. For example, some states allow single-member LLCs while others do not.

Regardless of where you live, forming an LLC is relatively simple. Although you may wish to seek legal counsel in determining if an LLC is the right structure for your business, you don’t have to use a lawyer to create one. All 50 states allow business owners to create their own LLCs. Just follow one of the easy paths below to get started.

Path #1: Forming an LLC on Your Own

If you are a self-starter, don’t mind searching for and completing government forms, and have the time to do it, starting an LLC on your own is a piece of cake. I’ve done it on my own twice, and it was relatively painless. (If you want a little more guidance, skip this section and use the “Super Easy Way” below!) Here’s how:

1) Choose a name for your LLC. – The first thing you need to do is choose the perfect name for your LLC. But, before you run out and print off those “Bubba’s Balloon Barn” business cards, you’ve got to make sure that there is nobody else using the same name. Simply run a trademark check with the U.S. Patent and Trademark Office by clicking here first. You will also want to run a business name search through the Secretary of State’s website in the state in which you reside. As a final precaution, I always like to do a simple Google search on my business names as well.

See also: How to Create a Website in 6 Easy Steps

2) Purchase your website domain name. – Nearly as important as picking your business name is making sure that the web address you want is available for purchase. You wouldn’t build a brick and mortar business in a location where nobody could find you, would you? The same holds true for your virtual real estate. Although many businesses can get started without one, a website may be one of the most important tools that you have to grow your business. I  usually buy our domain names at GoDaddy because they are cheap – and you know how stingy I am. Seriously, buy your web address now. You don’t have to put your website up right away, but you need to be sure that you have the web location that you want.

3) File your Articles of Organization. – These are the documents that will make your LLC official. You can go online to the Secretary of State’s office in your state to find and complete these documents. Typically, there will be a section called “Start a Business” (or something similar) displayed fairly prominently on the SOS home page. Most states will allow you to file the forms and pay the fee online. To complete the forms, you will need the official name of the business, address of the business, names and addresses of the owners/members, and the name and address of the “registered agent” (the member or third-party who will file and accept papers on behalf of your new LLC). When you’re done, the SOS will review your application. Once approved, BOOM! You have an LLC!

4) Create an Operating Agreement. – An operating agreement is a document that delineates how the business is to be run. It outlines the structure and purpose of the LLC, names officers for the LLC and explains their duties, and documents the ownership percentage that each member has vested in the company. You can find examples to use as a guide by doing a quick Google search. Or, you can just click here, here, and here.

5) Get a new Employer Idendification Number. – Now that you have a new business, you need to let the IRS know about it…and pay your taxes. Therefore, you should go ahead and apply for the LLC’s very own Employer Identification Number – especially if your LLC has more than one member! Since the IRS does not recognize an LLC as an official tax classification, you will also need to decide whether you want your business to be taxed as an S-Corp, Partnership, or Sole Proprietorship/Disregarded Entity.  There are tax advantages and disadvantages to all of them, so be sure to do your due dilligence before deciding. As a special bonus, travel hackers can use this number to apply for business credit cards – thus giving you a whole new way to earn points! Business, points, BOOYAH! How ya like me now?!? Click here to apply for your new EIN.

Path #2: Forming an LLC on Your Own (The Super Easy Way)

Do you feel like you need a little extra guidance and assistance to form your new LLC? Not to fear! There are several online businesses that offer to help you create your new LLC for a fee. Places like LegalZoom can save you time and hassle. All you have to do is complete a simple online questionnaire, and they will complete and file all of the necessary paperwork for you. So, if you want to make LLC formation as easy as possible, click on our LegalZoom affiliate link above to get started.

Starting your own LLC is easy peasy, and it can help protect your personal assets if your business ever gets sued. So, do it yourself or check out LegalZoom to get started today!

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47 Comments

  1. Yes, Greg! LLC is what I need for my business I am building. I still consider that the LLC protects owners and shareholders from personal liability in case of judgments or debts against the business. And this is what I have been enjoying in LLC.

    1. I love the simplicity and ease of creating the LLC. Plus, there aren’t as many requirements as there are in a corporation. Love me some LLC!

    1. Honestly, I would go ahead and do it now Stefanie. It is a little bit of a hassle, but it adds a layer of protection for your assets. We pretty much made the switch once we started making money online. Also, it forced us to keep a separate set of books instead of just lumping it all together with the income from our day jobs.

  2. I created an LLC for my business as a form of protection against our personal assets since I give out financial advice all day long and never know who is reading it. Definitely worth doing it, especially since the cost is so low.

    1. Yeah, it really doesn’t take a ton of work to get it started. Obviously, each state is a little different. But, we decided that it would at least be a layer of protection for us…just in case.

  3. Thanks for sharing this info, Greg! The big question I have is this: do I need to form a separate LLC for each website I own? Or can I just have one LLC for, say, five websites? Would I run into issues if I only had one LLC when I wanted to sell each individual website? That’s the confusing part. I’d rather just own one that can act as an umbrella than form a new one for each website.

    1. You certainly can form an LLC for each separate website. That would form the highest “level” of protection, as long as you aren’t co-mingling funds, accounts, etc. We have two of our websites under one umbrella. We are breaking some of our other business ventures out into their own separate LLC since it is more of a separate business.
      As for your other question, you shouldn’t have any problem selling web property if you run everything through one umbrella company. Think of it as a business that owns several company vehicles or a company that owns multiple pieces of real estate. They can sell off those individual assets without having to sell the entire company. Your websites are no different. Instead of real property they are just virtual property.
      Hope that helps! (Disclaimer: I’m not a lawyer and the advice is free…so it is worth what you paid for it 🙂 )

    1. Hey Kim,
      We do not currently have LLCs for the rental properties, although we have considered it several times. If we decide to go with the rental property LLC, I’m not sure if we would go with just 1 LLC or multiple LLCs (one for each house).For now, we are just going with a partnership structure with an umbrella insurance policy – more for convenience and simplicity sake than for anything else. However, now you have my wheels turning again!

      1. I met with my accountant today and we discussed this. He said each property needs to be its own LLC. If someone sued for an incident on one property, then the other ones are protected. You do have to file a tax return for each LLC, but unless you have assets or income of $250K or more on each property, it’s pretty simple, over that you have to file something else that I didn’t pay attention to because our properties do not make that much money per year. He also said it was much easier to leave them alone and take out lots of liability insurance and, like you, that’s what we’ve done, but it is more risky. The other issue is that a mortgage generally will not recognize an LLC as a lien holder. I’d love to hear more if you find out any other pros/cons.

        1. Yeah, that is the proper guidance – one that I’ve read several times from accountants and lawyers. However, in reality, I don’t know many investors that actually set up a separate LLC for each. I know of a few who own lots of properties who set up LLCs for like 3 properties at a time. So if they own 9 properties, they set up 3 LLCs. That way they are still protecting most of their properties from liability while avoiding having to run 9 separate LLCs, sets of books, checking accounts, etc. Fun discussion Kim! Love it!

        2. It’s been several years since I was involved with this. As I recall, you buy the property and then transfer it to the LLC. You are right about the mortgages too.

  4. Nice walk through Greg! We had our LLC set up and taken care of a few years ago and actually got our renewal letter in the mail last week. We ended up needing to get liability insurance as well which unfortunately isn’t cheap…at least it’s deductible. 😉

    1. Thanks John! I’m gonna private message you about what you have set up.

  5. When do you think it would be worth it for a blogger to form an LLC? And like Kim, I’m wondering if you have an LLC for your rental properties. I don’t have any but hope to start investing in rental properties in the future.

    1. Hey Andrew,
      Let me start off by reiterating that I’m not a lawyer or an accountant. However, I would think that it is a good idea to form an LLC when 1) you start making money from your blogging pursuits and 2) when you have personal assets to protect. We do not currently have an LLC established for our rental business, but we’ve thought about it. From what I have read, the best way to set those up is to form 1 LLC per property. In theory, each property is then protected from a lawsuit on the other property. I know some rental owners who have multiple properties put 2 or 3 properties into an LLC, then start another LLC when they get 2 or 3 more. We only have 2 places currently and are relying on an umbrella insurance policy for any liability issues…but we may need to rethink that at a certain point. Hope that helps!

  6. Great explanation and walk through! I have two LLCs, one for my blog and one for my financial planning business, and I think Legal Zoom is a great resource to set them up.

    1. Thanks Shannon! Legal Zoom makes it pretty darn easy, right? I actually did it on my own, but there were certainly times where I had wished I’d paid the money to use LZ 🙂

  7. I haven’t pulled the LLC trigger quite yet. Though we live in a pretty sue-happy society, small fries like myself typically don’t yet have much to worry about.

    1. True…but you never know. I basically spent a total of 1 hour and about $90 for my state filing fee, so it was pretty simple. If you are making money from your pursuits and you have assets to protect, it isn’t a bad idea to think about. Plus, it is uber easy.

  8. I’ve been toying with the idea for years, but like a lot of things it’s fallen down the priority list, but legal zoom was one of the routes I was thinking of using.

    1. Honestly, if you’re thinking about doing it, LZ makes it really easy for you. I went ahead and did it without, but there were times I wish I’d had a little guidance – especially the first time around!

  9. Great rundown, Greg. The Heavy Purse is an LLC and I used Legal Zoom to do the initial set-up as well. Simple and affordable, then I used a lawyer for a few more complicated items that I need to set-up as well.

    1. You know, nothing beats a lawyer if you need some specific items and hands-on help. For something as simple as our setup, doing yourself or using LZ is a great option. Thanks for stopping by Shannon!

  10. This is a great overview of forming a LLC and it will work for most people.

    As a lawyer, I do want to caution people about respecting the corporate form. I’ve seen instances where individuals have formed LLCs to protect their assets, but then ended up having business that were undercapitalized or failed to keep business records. In cases like that a court can still hold individuals responsible for corporate liabilities. Just because you set up an LLC does not mean you are completely free from personal liability.

    1. Thanks Jessica! You make a great point about the LLC structure. I try to run our LLCs in the same way that I would run a corporation. That means separate books, separate bank accounts, balance sheets, P&L statements, the whole nine-yards. I hope this would help if I ever had to go to court…

  11. This was helpful Greg… If I go through Legal Zoom are they the registered agent? If I don’t who would the RA be if I’m doing the process myself?

    1. Hey Kay,
      No. LegalZoom will not be your registered agent, although I believe that you can purchase “Registered Agent” services through LegalZoom or at a UPS store, etc. Mainly, you need to have a street address on file with the state – which is why P.O. boxes don’t work. I’ve always just registered myself or Holly as the RA. Hope that helps!

  12. This is so helpful! Do you happen to know if legal zoom also assists with the tax stuff? I’m so stuck on which route to take because I don’t want to skip something and it’s keeping me from moving forward.

    1. Hey Britt,
      LLCs are state-based business entities that are not recognized by the IRS. So, essentially, you’ve got some limited liability but your taxes can be filed on your personal income tax return. You’ll report your income on Schedule C if you are the sole owner. (Technically, the IRS views the LLC as a sole proprietorship for tax purposes.) If you have more than one owner, the default classification by the IRS is a partnership. Taxes are still pretty simple. Just use Form 1065 to report partnership income.

      You’ve also got the option to elect to be taxed as a corporation – typically an S corp. To do so, you’ll need to file Form 8832 with the IRS and the appropriate paperwork with your Secretary of State’s Office in the state where the LLC resides. You’ll also need to set up your business tax and unemployment tax arrangements. If you choose this route, I would definitely suggest getting some input from an accountant. You can certainly do it on your own, but you may need help to do it right. I’ve done it on my own, so feel free to email me with any questions.

      Hope that helps!

  13. An LLC is valuable for both your personal accounts and your business. If someone sues your business, the lawsuit can not go after personal assets like your home or retirement accounts. If someone sues you personally, they can not go after your business assets.

  14. Thanks for the help! I had the recommendation to form an LLC, but all the verbage is super confusing. I appreciate the time you have taken to break it down! Still confusing, but a lot easier to understand and sort through.

  15. I am an accountant and having an LLC is great! I recommend to my clients to do an S-Corp election if they have payroll or location liabilities. The great thing about an LLC is the fact that you can limit that liability but still not have to have a separate tax return. Unless you have two members on the LLC.
    LLC’S are great when you are starting out small with a home based business but as soon as you have a location that is outside of your home or if you sell large valued items, you should make an S-Corp election.

    Keep your assets safe, especially in business.

    Thanks for a great read!

    1. Angie, I want to set up a home based online business to be able to test products on Etsy to see what sells the best. The things I want to test are jewelry, hair accessories, clothing, small wood things like coatracks/key holders/small shelves/wine racks, and bigger wood things like $300 coffee tables/$500 headboards/ $2,500 bedframes. I would be working out of my house. I would have a business partner. And would like the possibility to hire employees after a year or so. I would like an LLC. But is the business partnership thing, $300-$2,500 price range on some of my products, and future hiring of employees, gonna force me to make it an S-Corp?

      1. Let me preface my answer by reiterating that I’m not a lawyer or accountant. It is my understanding that you can hire employees and have a partnership as an LLC. Your default tax classification will be listed as a “partnership” if you take on a partner. However, you may elect to have your LLC taxed as an S-Corp for taxation purposes. To do that, you’ll need to file IRS Form 2553. As always, it is best to consult a lawyer or tax professional if you have questions.

  16. Hi
    all the verbage is super confusing. I appreciate the time you have taken to break it down! Still confusing, but a lot easier to understand and sort through.

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