The steps below provide a general overview of key actions necessary to form a limited liability company. Please note that the actual steps to form an LLC vary state-by-state. If you have instead decided to form a corporation, see Incorporation in 6 Steps or are not sure about which entity to form see What Form Should My Company Take? “C” Corporation, “S” Corporation or LLC?
The laws of the state of formation will govern your company, including laws related to mergers, duties of managers and officers, members’ rights, filing requirements and fees, and franchise taxes due to the state. You must qualify to do business as a foreign LLC in every state in which you intend to operate, except for your state of formation (See Where Should You be Qualified to Do Business). For business, legal and tax reasons, Delaware is the most common state of formation for startups (See Why Incorporate in Delaware).
Be sure your company name complies with your state of formation’s statutory requirements: many states both require and prohibit certain words in the formal name. You should then check whether the name is available in your state of formation and any other states in which you wish to qualify to do business. If you intend to use the business name as a domain name, trademark or service mark, you should also consider running a separate search (such as a trademark or copyright search) for similar names already in use in the market. See What's in a Name? And Confirming You can Own It.
- Certificate of Formation. An LLC is considered to exist when its certificate of formation has been filed with the secretary of state. In some states, such as California, the certificate of formation is referred to as the articles of organization, and many people use the terms certificate and articles interchangeably. For a new company, the certificate is generally brief because very few items must be covered to make it effective. In most states you must designate the name of the LLC, a registered agent for service of process and an address for the company.
- Operating Agreement. The operating agreement sets forth the ownership structure and general governance provisions for the company, typically including details regarding the company owners (often called members); the members’ rights and responsibilities, including how to allocate the business profits and make contributions; manager and member meetings; quorum requirements; acting by written consent; manager powers, election and voting; officer roles, election and term; the issuance of units; restrictions on transfer; indemnification; dividends; notice of electronic transmission; and other provisions.
You can file the certificate directly with the state of formation, though most companies engage a third-party service company (who also serves as the company’s registered agent for process). Filing fees apply, though many service companies will advance them for you. Processing times vary, but many states offer rush processing for an additional fee. Remember, your LLC does not legally exist until the certificate is filed, not just received. You should receive notice from the state once your formation document is considered officially filed.
Once the certificate is filed, you will need to finalize the company’s initial equity structure — i.e., issue common units to the founding members, set up an equity incentive plan, and have all founders execute proprietary information and invention assignment agreements. The company will also need to apply for an employer identification number, which is required to open a company bank account. Some states also have additional publication or statement of information filing requirements, so checking the formation rules in the applicable state is important.