LLC Formation Steps

 LLC Formation Steps

1. State Select

2. LLC Name Search - availability

3. Registered agent

4. LLC Formation & Registration

5. EIN Number

6. Operating Agreement

7. Annual Report

8. Licenses and Permits

9. Taxes

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State Filing

Annual Report

IRS Filing

Operating Agreement and Federal Tax ID Number aka EIN

 

A Foreign LLC is not an LLC that is formed outside of the United States.

 

New Jersey LLC Costs:

New Jersey LLC formation: $125

New Jersey LLC annual report: $75 per year

 

C Corp vs. S Corp, Partnership, Proprietorship, and LLC: What Is the Best Business Entity?

Sole proprietorships are by far the simplest business structure. There really is no structure. Sole proprietors with no employees do not even need to register with the Internal Revenue Service (IRS). They can simply use their Social Security numbers as the business tax ID.

 

LLC Vs Sole proprietorship Vs Corporation

A sole proprietorship is when a person does not form a business entity and they operate their business as themselves. In the eyes of the law, you are your business in a sole proprietorship. This is a very risky setup because if your business is sued then you are personally responsible for all of the debts and the liabilities. This means that your personal assets like your home, your cars, and your bank accounts are at risk of being used to cover those debts and liabilities. We’ll save you some time right off the bat. A sole proprietorship is a bad idea. A sole proprietorship offers you no protection whatsoever. A sole proprietorship is typically set up when someone is unaware of the options that they have when it comes to setting up their business structure. In essence, a sole proprietorship is not protecting anything, not you and not your personal assets.

 

An LLC is a hybrid between a corporation and a sole proprietorship. It harnesses the advantages of both while leaving behind their disadvantages.

 

An LLC is a Limited Liability Company. It’s a legal entity also known as a business structure and it can be used to run a business, or it can be used to hold assets such as real estate, boats, or aircraft. The owners of an LLC are called members. An LLC can be owned by 1 person called a Single Member LLC, or an LLC can be owned by 2 or more people called a Multi-member LLC. An LLC is a business structure, designed specifically to protect your personal assets from the liabilities of the business.

 

LLC formation steps

1.       LLC Name Search

2.       LLC Registered Agent

3.       LLC Filing Forms

4.       LLC Operating Agreement

5.       EIN for an LLC

6.       LLC Annual Report

7.       LLC Taxes

...

 

Before Preparing Your Documents

·         Before preparing your LLC Formation Documents, you need to have 2 things completed.

·         First, you will need to choose a name for your LLC.

·         Your desired LLC name cannot be in use by an existing company.

·         You can determine your name’s availability by checking your State’s LLC database.

·         Second, make sure you have chosen a Registered Agent for your LLC, or that you have hired a Commercial Registered Agent.

 

 

What is a Registered Agent & Registered Office?

Your Registered Office can be an actual office address, or it can be your home address, or even the address of a friend or family member.

 

Service of Process

Again, your Registered Agent must agree to accept delivery of legal documents related to any lawsuits against your LLC.

Delivery of legal documents related to a lawsuit is known as Service of Process.

Service of Process includes items such as complaints, summons, and/or subpoenas.

Many states will also use your Registered Agent as a general point of contact for mailing you business & state tax notices, payment reminders, and other documents.

 

Who Can Be Your LLC’s Registered Agent?

You have 3 options for designating your LLC’s Registered Agent:

Option 1: You can be your LLC’s Registered Agent.

Option 2: A friend or family member can be your LLC’s Registered Agent.

Option 3: You can hire a Commercial Registered Agent for a fee.

 

Note: There are a couple states that allow your LLC to serve as its own Registered Agent, but this is the exception to the rule. In 90% of the states your LLC cannot be its own Registered Agent.

 

·         If you have a street address in the state, then choose Option 1.

·         Option 1 is the most convenient and least expensive (it’s free!). This is what the majority of our customers do.

·         If you don’t have a street address in the state, then choose Option 2 or Option 3.

·         Choose Option 2 if you have a trusted friend or family member (who has a street address in the state).

·         Since you won’t need to hire a Commercial Registered Agent, you’ll save yourself some money.

·         If you (or friends or family members) don’t have an address in the state, then you will need to choose Option 3 and hire a Commercial Registered Agent.

 

What are LLC Formation Documents?

·         In order to form your LLC, you must file LLC Formation Documents and pay your State filing fee.

·         LLC Formation Documents are the state-specific forms that officially create your LLC.

·         These documents are often referred to as your Articles of Organization, Certificate of Organization, or Certificate of Formation.

·         Some states also require additional documents in order to create your LLC.

 

Filling Out Your Documents

·         Your LLC Formation Documents will contain your LLC’s name, your LLC’s office address, your LLC’s effective date and your LLC’s Registered Agent information.

·         Many states require additional information (or additional documents) to be filed with your LLC Formation Documents.

·         Since the LLC Formation Documents are state-specific, we needed to create 50 individual lessons that walk through how to file them step-by-step for each state.

 

 

How to File LLC Formation Documents

·         Generally, there are two ways you can file your LLC Formation Documents with your State.

·         You can send your LLC Formation Documents by mail or you can fill out your LLC Formation Documents online and submit them electronically.

 

·         The State will charge a one-time fee in order to form your LLC.

·         There are no monthly fees to form an LLC.

·         The fees vary by state and you can find them listed below.

·         If you send your LLC Formation Documents by mail you will pay your state filing fee with a check or money order.

·         If you fill out your LLC Formation Documents online and submit them electronically you will pay your state filing fee with a debit or credit card.

 

 

What You Can Expect

·         Once you submit your LLC Formation Documents along with the filing fee, the State will review and process your documents.

·         If there are any issues with your filing, the State will notify you and then tell you what corrections need to be made.

·         If you filed by mail and there are no issues, on average your LLC will be approved in 1-2 weeks.

·         If you filed online and there are no issues, on average your LLC will be approved in under 1 week.

·         Depending on your state, you will receive back a stamped and approved copy of your LLC Formation Documents.

·         This confirms your LLC is now a legally formed business in the state.

 

Ongoing Requirements

·         Once your LLC is formed, paperwork with the State is not over.

·         As part of the ongoing requirements for your LLC, most states require that you file an Annual Report (or similar document) and pay a recurring fee (usually once per year).

·         Also, you will be required to file State taxes every year.

·         Additional details on these items are listed below.

·         You will also need to file annual state income taxes, as well as other tax documents, depending on the structure of your business and whether or not you have employees. Calculating your tax obligations can be complicated and, if done improperly, can negatively impact your LLC. We recommend that you get help from a professional once your LLC is formed. Hiring a tax professional will not only help keep your LLC in compliance with the state, but it will also give you an advisor to go to for other business questions.

 

What is an Operating Agreement?

·         An Operating Agreement is an agreement for the member(s) of your LLC that sets forth how the LLC will be managed both financially and operationally.

·         Your Operating Agreement also spells out how much of the LLC each member owns.

·         You can have 1 member who owns 100%, you can have 2 members with a 50/50 split, 60/40, 70/30 (anything really!), or you can have 3 or more members and you can split the ownership any way you’d like.

·         The LLC is a flexible business structure. There is no limit on the number of members you can have. And, there are no restrictions on how you split the ownership of the company.

 

Internal Document

·         Unlike your LLC Formation Documents, the Operating Agreement does not need to be mailed anywhere.

·         You do not need to mail it to the State.

·         You do not need to mail it to the IRS.

·         It is strictly an “internal document”.

·         This means that you will just keep a copy with your other business documents.

 

Purpose of the Operating Agreement

·         Again, the purpose of the Operating Agreement is to spell out who the member(s) are and what percentage of the LLC they own, also known as their “membership interest”.

·         It also defines how the LLC is managed, how taxes are paid, and how profits and losses are distributed amongst the member(s).

·         Remember, your LLC can be owned by one person (called a Single-Member LLC) or your LLC can be owned by 2 or more people (called a Multi-Member LLC).

 

What You Need for Your Operating Agreement

·         In order to complete your Operating Agreement, you will need some basic information.

·         The formation date of your LLC.

·         The name and address of the Registered Office and Registered Agent.

·         The general business purpose of the LLC.

·         Member(s) percentages of ownership.

·         Names of the Members and their addresses.

·         Your final Operating Agreement is not “set in stone”. You can make changes as needed.

 

Making Changes to your Operating Agreement

·         One of the benefits of forming an LLC is the flexibility of managing your business.

·         The Operating Agreement is a working document that is meant to be fluid and allow for changes as your business grows.

·         If you want to make simple changes (such as a change of address for a member or changing your Registered Office or Registered Agent), you’ll need to revise the original Operating Agreement.

·         If, however, you need to make complex changes (for example one member purchases the interests of another member, or you decide to raise financing with investors), it is best to hire an attorney. Making changes like these can have negative legal and tax consequences if done incorrectly.

 

Once all changes are made, you’ll need to print the new Operating Agreement and have all of the members sign it.

 

It is best practice to keep a copy of all versions of your Operating Agreement so you have a history of the changes that were made.

 

Who Needs Your Operating Agreement?

·         You may need to provide a copy of your Operating Agreement to:

·         A lender if you are obtaining financing

·         A title company if you are purchasing real estate

·         Accounting and tax professionals for financial assistance

·         Lawyers for legal advice

·         Potential investors or partners who have an interest in your business

·         Operating Agreement Protects Your Assets

·         If you’re involved in a legal battle, the Court will likely ask for your LLC’s Operating Agreement.

·         Having one can help prove to the Court that you have a legitimate LLC and that you are running your business properly.

 

 

Annual Report : Filing Fee and Due Date

Filing fees and due dates for the Annual Report vary by state.

 

·         Filing fees can range from $9/year up to $800/year.

·         Some Annual Reports are due every year.

·         Some Annual Reports are due every 2 years.

·         And, some Annual Reports are due every 10 years.

·         Again, it all depends on your state and its requirements.

 

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Forming an LLC outside of your home state will require you to register that LLC in your home state as a Foreign LLC. This means you now have to pay 2 LLC filing fees, maintain a registered agent in the foreign state, and pay annual reporting fees in both states.

Certificate of Authority”, “Application for Authority”, or “Foreign LLC Registration”

Certificate of Good Standing” or “Certificate of Existence” (or similar form) from the original state where your LLC was formed.

 

1. Will you do-it-yourself (DIY), hire a lawyer, use an online incorporation website, or go through our free online course?

If you form your LLC yourself, you will just pay the state filing fees (see below for a list of all 50 states’ filing fees).

 

If you hire a lawyer, it will cost you between $1,000 and $1,500.

 

If you use an online incorporation website, it will cost you anywhere between $99 and $900 (note: if you pay just $99, you’ll need to pay extra for your Operating Agreement and Federal Tax ID Number aka EIN)

 

Regardless of which method you choose to form an LLC, you will still have to pay state filing fees.

 

Registered Agent, a Resident Agent, and a Statutory Agent OR Commercial Registered Agent

Do you need to hire a Registered Agent?

If you don’t have a street address located in the state where you are forming your LLC then you will need to hire a Commercial Registered Agent. Fees range $100 to $300 per year.

 

Do you need to pay for an Operating Agreement or are you getting one for free?

If you DIY, you will most likely need to purchase an Operating Agreement online. Fees range $50 to $200. You may also be able to find one for free online. Just remember, bigger is not always better.  Your Operating Agreement should be clear and concise.  Less fluff, more substance.

 

In nearly all states (except Ohio) your LLC’s Registered Agent must have a physical street address (no PO boxes allowed) in the state where you’re forming your LLC. The Registered Agent should also generally be available during normal business hours (9am – 5pm) in case “service of process” arrives.

 

Service of Process includes the delivery of legal documents such as a complaint, summons, or subpoena.

 

LLC’s Operating Agreement:

After you’ve completed and signed your LLC’s Operating Agreement, you can then apply for your Federal Tax ID Number (also known as your LLC’s EIN) from the IRS: Federal Tax ID Number (EIN).

 

If you form an LLC outside of your home state, you’ll be required to register that out of state LLC as a foreign LLC in your home state. For example, if you form an LLC in Nevada, but you don’t live there then you’ll be required to register that Nevada LLC in your home state as a foreign LLC in order to do business in your home state. This means you now have two LLCs. One in Nevada and one in your home state. You have to pay two state filing fees. You’ll be required to pay for a registered agent in order to use their address for your Nevada LLC and you have to pay two annual report fees.

 

 

you now have 2 LLCs (one in Nevada and one in your home state)

you have to pay 2 State filing fees

you will be required to pay for a Registered Agent in order to use their address for your Nevada LLC

you have to pay 2 Annual Report fees

 

Taxes Are Paid Where Money Is Made

 

Non-U.S. Citizens and non-U.S. Residents

Note: There are no citizenship or residency requirements to forming an LLC in any US state. Non-US residents can form LLCs in the USA.

If your business will have no physical presence in the USA, then you can choose any state.

 

The type of US taxes and state taxes you pay will depend on how your business makes money. There isn’t a simple answer for what the “best state” is for the lowest taxes for non-us residents/citizens. You’ll need to speak with an accountant familiar with non-resident alien taxation and the 60+ US tax treaties.

 

if there is no physical presence), how you obtain and EIN and open a bank account are different. And foreign-owned Single-Member LLCs have an additionally filing requirement with the IRS.

 

How to Apply for EIN without an SSN or ITIN

How a non-US resident can get an EIN Number (Federal Tax ID Number) for a U.S. LLC

 

You’ll also want to send to the IRS your LLC approval along with the EIN application. The name of your LLC approval form will vary depending on the state, but it will either be a stamped/approved Articles of Organization, Certificate of Organization, or Certificate of Formation.

 

Myth #1 – An EIN costs money

This is false.

 

EINs are completely free ($0) from the IRS.

Myth #2 – You need to be a US citizen or US resident to get an EIN

This is false.

Myth #3 – You need an SSN to get an EIN

This is false.

 

You don’t need an SSN (Social Security Number) to get an EIN.

 

You only need an SSN (or ITIN) if you want to apply for an EIN online.

 

Solution:

You can get an EIN without an SSN by sending Form SS-4 to the IRS by mail or fax (instructions).

Myth #4 – You need an ITIN to get an EIN

This is false.

 

You don’t need an ITIN (Individual Taxpayer Identification Number) to get an EIN.

 

In fact, you can’t even apply for an ITIN unless you need to file a U.S. tax return. Meaning it’s impossible to get an ITIN before forming your LLC because the LLC would first need to exist and generate income for a tax year, then when April 15th of the following year comes around, you would submit your U.S. tax return along with your ITIN application.

 

Solution:

You can get an EIN without an ITIN by sending Form SS-4 to the IRS by mail or fax (instructions).

Myth #5 – You need a Third Party Designee to get an EIN

This is false.

 

You are not required to use a Third Party Designee to get an EIN.

You only need to use a Third Party Designee if you are hiring someone to get your EIN, not if you are applying for the EIN yourself.

 

Solution:

You can get an EIN without a Third Party Designee by sending Form SS-4 to the IRS by mail or fax (instructions).

Myth #6 – You need an attorney or accountant to get an EIN

This is false.

 

While yes, you can certainly hire an attorney or an accountant to help you get an EIN (they’ll act as your Third Party Designee), you are not required to do so.

 

Solution:

You can get an EIN without an attorney or an accountant by sending Form SS-4 to the IRS by mail or fax (instructions).

 

Myth #7 – You can get an EIN online

This is false.

 

You can’t get an EIN online unless you have an SSN or ITIN.

 

And even if you have an ITIN, many foreigners get an error message (an IRS reference number) at the end of the online EIN application and end up having to use Form SS-4.

 

Solution:

You can get an EIN by sending Form SS-4 to the IRS by mail or fax (instructions).

 

Myth #8 – You need to call the IRS to get an EIN

This is false.

 

While yes, the IRS does have a department called the International EIN Department (1-267-941-1099), as a foreigner who’s formed a U.S. LLC, you can’t call this number to get your EIN.

 

This phone number is used for companies that were formed outside of the U.S., not companies formed inside the U.S. that are owned by foreigners.

 

Solution:

You can get an EIN by sending Form SS-4 to the IRS by mail or fax (instructions).

 

Myth #9 – You need a U.S. address to get an EIN

This is false.

 

You don’t need a U.S. office address or U.S. mailing address to get an EIN.

 

The IRS just needs a “mailing address”, which can be a U.S. address or it can be a non-U.S. address.

 

However, if you want to open a U.S. bank account for your LLC, it looks much better when your EIN Confirmation Letter shows a U.S. address. For this reason, we recommend hiring Northwest Registered Agent ($125 per year). Northwest will let you use their address for your Registered Agent address, your LLC’s office address, and your EIN application so you can open a U.S. bank account for your LLC. Any mail that is sent to your LLC will be scanned by them and uploaded to your online account.

 

Sending Form SS-4 to the IRS to get an EIN

Form SS-4 is called the Application for Employer Identification Number (EIN).

 

Once you fill out Form SS-4 you can then send it to the IRS by mail or fax.

 

Fax has a faster approval time than mail.

 

We’ll discuss the details of how to complete Form SS-4 further below, but before we do, there are a few other important things to discuss first.

 

Make sure your LLC is approved before getting an EIN

Make sure your LLC is approved first before applying for your EIN to avoid having an EIN attached to the wrong LLC name (if your LLC filing gets rejected).

 

You’ll also want to send to the IRS your LLC approval along with the EIN application. The name of your LLC approval form will vary depending on the state, but it will either be a stamped/approved Articles of Organization, Certificate of Organization, or Certificate of Formation.

 

However, if you apply for your EIN first and your LLC is later approved, then there are no issues. The IRS doesn’t check to make sure an LLC exists first before getting an EIN, so if the LLC name on your state forms matches your EIN Confirmation Letter, you’re good.

EINs are used for:

An EIN is primarily used by foreigners to open a business bank account in the U.S. for their LLC.

 

Your EIN will also be used for U.S. tax reporting and filing requirements, hiring employees (if applicable), and sales tax licenses/permits.

 

Your LLC’s EIN will also be used for account registrations for Amazon FBA, eBay, Youtube, Google Adsense, Paypal, Shopify, Stripe, and many more.

 

Many foreigners have online businesses these days, like dropshipping, affiliate marketing, blogging, and freelance work, where they need an EIN for their LLC.

 

How to complete the EIN Application (Form SS-4) for Foreigners

Download Form SS-4:

IRS: Form SS-4, Application for Employer Identification Number

 

Instructions for Form SS-4:

IRS: Instructions for Form SS-4

 

Complete Form SS-4 by hand or on your computer:

You can either print the form, fill it out by hand (use a black pen), then sign; or, you can type in the form on your computer, then print and sign.

 

USE CAPITAL LETTERS:

If you are filling out Form SS-4 by hand, we recommend using ALL UPPERCASE letters. The IRS prefers UPPERCASE letters and this can help speed up your EIN application.

 

EIN (upper right)

You’ll see an “EIN” box in the upper right of the form. DON’T ENTER ANYTHING HERE.

 

The IRS will enter your EIN number in this field after they approve your application.

 

1. Legal name of entity (LLC)

Enter your LLC name in the exact same way it’s listed in your Articles of Organization, Certificate of Organization, or Certificate of Formation.

 

Note: If you’re forming an LLC in Louisiana or West Virginia, you may need to obtain your EIN before forming your LLC, so make sure your LLC name is available (or you’ve reserved it, as per Louisiana LLC filing instructions) before getting an EIN for your soon-to-be LLC.

 

If you’re forming your LLC in any other state, don’t apply for your EIN until your LLC is approved.

 

2. Trade name of business (if different than #1)

Most foreigners who have formed an LLC don’t also have a Trade Name (aka DBA, Doing Business As, or Fictitious Name).

 

Most foreigners leave #2 empty.

 

(related article: Do I need a DBA for my LLC?)

 

If on the other hand, you’ve filed a DBA after forming your LLC, your DBA is owned by your LLC, and you want your LLC to do business under that name, then you can enter your Trade Name/DBA Name/Fictitious Name in #2.

 

3. Executor, administrator, trustee, “care of” name

Leave this empty. This field does not apply to LLCs obtaining an EIN.

 

4a and 4b: Mailing address

On lines 4a and 4b enter a mailing address where the IRS can send you reminders and tax documents.

 

This address can be a U.S. address or it can be a non-U.S. address. This address can be the same address you used listed on your LLC filing forms, but it doesn’t have to be.

 

This address should be one that is reliable and where you can regularly receive mail for your LLC. This should also be the address that you will use when filing future tax returns with the IRS.

 

However, using a U.S. address here may make it easier when opening up a U.S. bank account. The address that is listed in 4a and 4b will be the same address that is listed at the top of your EIN Confirmation Letter. Some banks accept this as a proof of U.S. address.

 

The best and least expensive way to get a U.S. address (if you don’t have friends or family in the U.S.) is to hire a Registered Agent that will allow you to use their address not only as your LLC’s Registered Agent address, but also as your LLC’s office address. The company we recommend for this is Northwest Registered Agent ($125 per year). They’ll let you use their address for your U.S. LLC and any mail that is sent to your LLC will be scanned and uploaded to your online account. They are a great company and have been in business for over 20 years.

 

Notes:

 

If the address is a non-U.S. address, make sure to enter the city, province (or state), postal code, and the name of the country. Enter the full country name. Don’t use an abbreviation.

If you need to change your LLC mailing address with the IRS in the future, you file Form 8822-B.

5a and 5b: Street address (if different)

You can leave 5a and 5b empty.

 

6. County and state where principal business (LLC) is located

Enter the county (not the country) where your LLC is located in the U.S.

 

This will either be your LLC’s principal address or your LLC’s Registered Agent address.

 

Example: Broward County, Florida

 

Tip: To find out what county your LLC’s address is located in, you can use the following tool: What County Am I In.

 

7a. Name of Responsible Party

The EIN Responsible Party must be an individual person, therefore, it will be an LLC Member (owner).

 

If you own a Single-Member LLC, you will be the Responsible Party.

 

If you own a Multi-Member LLC, any of the LLC Members (owners), including yourself, can be the Responsible Party.

 

7b. SSN, ITIN, or EIN (of Responsible Party)

This is the box that confuses most people who don’t have an SSN or ITIN and want to get an EIN for their LLC.

 

The solution is to enter “Foreign”.

 

The IRS issues EINs to foreigners all the time and this is what you must enter if you don’t have an SSN or ITIN.

 

Note: If your LLC is owned by another LLC (a “Parent LLC”), you can’t use your Parent LLC’s EIN. You must enter “Foreign”. And you also must list a person (not a company) in 7a.

 

For more information, see EIN Responsible Party for LLC.

 

8a. Is this application for a limited liability company (LLC)?

Check off “Yes”.

 

8b. If 8a is “Yes,” enter the number of LLC members

Enter the number of LLC Members (owners) for your LLC.

 

Single-Member LLC: Enter “1”.

 

Multi-Member LLC: Enter the total number of Members in your LLC.

 

Note: If your LLC is a subsidiary owned by another company (or companies), enter the number of companies that own this LLC.

 

8c. If 8a is “Yes,” was the LLC organized in the United States?

Check off “Yes”. Although your LLC will be foreign-owned, your LLC will still be organized in the United States.