Pre-pandemic: Author Deborah Sweeney of MyCorporation inside her Calabasas, California, office.
Expert Deborah Sweeney of MyCorporation has advice on how to start an LLC. (Credit: Courtesy of MyCorporation)

When starting a small business — and many women have, during the pandemic — you might consider forming a limited liability company, or LLC. It’s a flexible entity that creates a much-needed separation between professional and personal assets. In the event of an unforeseen circumstance, no one would be allowed to seize an LLC owner’s personal belongings such as houses or cars.

The concept of an LLC first came about as a result of Hamilton Brothers Oil Co., which back in the late 1970s wanted an entity that would provide liability protection but avoid the so-called “double taxation” of corporations (where income is taxed first at the corporate level, and then again at the personal level when it’s distributed to shareholders). But it took much wrangling and finally a ruling in 1988 by the Internal Revenue for LLCs to look as entrepreneur-friendly as they look today. 

If you think that the LLC is the right fit for you and your business, here are a few steps for getting started. 

1. Determine your specific LLC structure.

Here are the four most common LLC structures.

  • Single Member LLC. If only one member, or owner, decides to run the business then the best option is a single member LLC.
  • Member Managed LLC. This is ideal for multiple members running an LLC. A member managed LLC allows everyone to share the same amount of responsibilities and receive equal treatment.
  • Manager Managed LLC. A board of managers is appointed to oversee the direction and operation of the LLC. A manager managed LLC is ideal for situations where members need help running the business.
  • Professional LLC. Licensed professionals that work in specific occupations may form a Professional LLC (PLLC). These professionals must determine if their state of incorporation provides PLLC legislation. They may also be asked for proof of their profession. 

In addition to determining your LLC structure, it’s a good idea to understand your state’s LLC rules and regulations. For example, while all 50 states have passed LLC legislature each state also abides by different rules when forming an LLC. For example, some states may require the LLC to publish a notice related to the LLC’s formation in a local newspaper. Forming an LLC is a slightly different process in every state. Seek guidance from an attorney or legal professional as necessary.

2. File articles of organization

Articles of organization contain basic information about the LLC. If you plan to form an LLC, you’ll need to complete articles of organization. This application is then submitted to the Secretary of State along with a filing fee. 

Some of the information that goes into articles of organization includes:

  • LLC name
  • LLC principal street and mailing address
  • Registered agent information (name and physical street address)
  • Purpose 
  • Members (names and mailing addresses)
  • Management structure (usually a check box of options is available)
  • Effective date (optional)
  • Print name(s), signed name(s), and date 

3. Draft an operating agreement

A written LLC operating agreement covers essential rules and regulations for running the business. This includes the rights and responsibilities of each member, the members’ ownership interest, and information on how to conduct business meetings, take votes, allocate revenues and losses, and provisions for when a member that involuntarily, or voluntarily, leave the LLC or pass away.

Is it a requirement to have an operating agreement? Most state laws do not require LLCs to have written operating agreements. However, it is still recommended that members of an LLC draft one for referral and reference purposes. 

4. Think About Next Steps

Once you have determined your LLC structure, completed articles of organization, and drafted a written operating agreement, your LLC will be nearing complete formation. 

Remember to file for a trademark for your business name, appoint a registered agent, and obtain necessary business licenses. Follow all other outstanding areas of compliance requirements in your state of incorporation as well, including filing an annual report in a timely manner and publishing a notice of intent for your LLC in the local newspaper, if requested by the state of incorporation.

Deborah Sweeney is the CEO ofMyCorporation.comwhich provides online legal filing services for entrepreneurs and businesses, startup bundles that include corporation and LLC formation, registered agent services, DBAs, and trademark and copyright filing services. You can find MyCorporation on Twitter at @MyCorporation.