Steps to Creating an LLC

The following is a post from staff writer Crystal at Budgeting in the Fun Stuff, where she writes about finding the balance between paying your bills, saving for your future, and budgeting in the fun stuff along the way.

Have you decided to start your own business? Have you thought about incorporating a hobby job like blogging? One way to set up a small business is in the form of a limited liability company (LLC). LLC’s offer the business owner protection from creditors and are easy to set up.

Feel free to follow these basic four steps to set up an LLC:

LLC Step 1 – Pick a Business Name

The first step is the one that actually takes the most work. You will need to pick a name that resonates with your company’s purpose and is legal in your state. You don’t want to violate trademark rules by selecting a business name that already exists. Your legal name needs to end with the LLC designation to comply with state regulations.

LLC Step 2 – Fill out the Articles of Organization with your State

You can typically get the Articles of Organization from either the Secretary of State’s website or a local office. These articles will include your business name, business purpose, membership officers, and your place of business. You will also need to identify one person as the registered agent. This is the person who will receive all of the formal information about the business, so you most probably will be selecting yourself.

LLC Step 3 – File the Forms

You will need to send the Articles of Organization to the Secretary of State and pay the state’s filing fee. This fee can range depending on the state that you live in. Some states have a fee as low as $25 and others have fees as high as $1,000. It can take a few weeks for the state to process your application and for you to obtain approval.

LLC Step 4 – Create an Operating Agreement

This step is optional and most useful if more than one person is part of your LLC.  Operating agreements govern exactly how the LLC will operate. They determine what each officer’s function is and exactly how the business will conduct its day to day duties. This should clearly state ownership percentages and rules governing conduct. Be sure to include detailed information covering how to resolve disputes should they arise. Obviously, if you are the only member of your LLC, this step can be pretty easy.

Please keep in mind though that LLC’s do have some additional costs, so look into the specifics to see if you are making enough to justify the additional expenses. One example I found online pretty much boiled down the cost to the point that if you are not making more than $24,000 a year, it may be a better bet to stay a sole proprietorship or form an S-corporation instead.

I personally am staying a sole proprietorship with my blog for at least one more year since we are in a low tax bracket and I’m not making $24,000 a year yet.

What is your view on LLC’s versus sole proprietorships?

7 Responses to Steps to Creating an LLC

  1. krantcents says:

    The only advantage is the limited liability aspect. I would probably consider it if I sold a product or service.

  2. Frugally Savvy says:

    I will be incorporating a new business next month and will definitely follow these steps to do it.

  3. Darwin's Money says:

    Where did the $24,000 come from? Sounds kinda random. I have an LLC primarily for the protection of my personal assets. There are plenty of nutbags on the web that will sue you for anything.

  4. Ravi Gupta says:

    Great article! I’ll be looking into it, and echo Darwin’s thoughts. Too many people are sue happy these days.

    -Ravi Gupta

  5. Dana says:

    We’re looking into this too – It’s sad to say it but I agree that people are “sue happy”.

  6. Crystal says:

    “Sue happy” is probably why I will be incorporating sooner rather than later…

  7. Noah says:

    I agree that people are “sue happy” nowadays but if you spend some time putting (possibly with a lawyer) a good disclosure page together, wouldn’t that handle most issues. Most people trying to make some money off blogs probably don’t even hit the $600 it takes in CA to pay for the business license. I would be interested to see how many cases nowadays end up with a blog owner losing almost everything over someone suing. Maybe the secret is to move to a state that has a very small business license fee :)

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