Steps to start an LLC or corporation

Both a Limited Liability Company (LLC) and Corporation (CORP or C-Corp) have their advantages and disadvantages. If you’re not sure which one is best for you, first read: Differences Between an LLC & CORP for Small Businesses.

You’ll also want to consider: Which State Should You Incorporate In?

Now let’s dive into the practical steps you’ll need to take for each option.

Forming an LLC

Setting up a Limited Liability Company involves less formal responsibilities that corporations, but there are still a number of formalities to go through:

1. Register Business Name

Each state has their own specific business registration rules. For example, in California, you can’t use the words ‘Bank, Trust, Trustee, or Olympic’, while in Hawaii there are 18 words you can’t use, and in Kentucky only ‘Cooperative’ is a no-go.
But the main things that most states don’t allow are names which are:

Similar to another business name on record in that state.
Misleading to the public, such as ‘Bob’s Electronics’ when you sell tires.  
Seen as part of the government, like the words ‘city, borough, or federal’.
Financial institution words like ‘bank, trust, or insurance’, unless legally authorized.
Professional licensing terms if you don’t have that license, like ‘attorney, CPA, or engineer’.
Additional forms of prohibited words, like adding ‘ing’ or using a plural.

You will need to make sure that your company name ends in an LLC designator, whether it’s the abbreviation, the full word ‘Limited Liability Company’, or ‘Limited Company’. For a list of more specific rules, visit your chosen state’s website.

It’s also important to make sure your business name doesn't infringe on any existing or pending trademarks. Do this by checking the USPTO website. You also have the option of registering a ‘Doing Business As’ or DBA, which legally gives you the right to do business under a fictitious name.

As you can see, things can get complicated with a business name registration. But it doesn’t need to be that way. We’ve simplified things with the upcoming RelateLegal, part of our small business toolkit. It makes this step as easy as choosing a domain for your website in a search box, and will also do the heavy lifting on your registration paperwork.

2. Choose a Registered Agent

This is an individual or company that agrees to accept legal documents on behalf of your LLC, especially for litigation situations. A registered agent (also called ‘resident agent’ or ‘statutory agent’) is required by most states, and must meet each state’s requirements.

At a minimum, the registered agent must have a physical street address in the state where your LLC is registered. Most businesses use a professional service for this. Or with the upcoming RelateLegal tool, you can get everything you need including your registered agent, in one package.

You or another member of the LLC can act as registered agent, provided you meet these requirements:

Your name and physical address must be viewable in public records.
Be present and available at the listed address from 9 am to 5 pm Monday through Friday, to receive official documents.
Stay current with your mail so you can respond to important documents promptly and avoid missing deadlines.

Note that if you miss a deadline or lose an important document, it could cost you your business compliance and get your LLC status revoked by the state. So with small businesses typically having so many things to handle that they can easily get distracted, that’s why most choose a professional service, or an LLC package where the registered agent is included. 

3. File Articles of Organization

Also called ‘Certificate of Formation’ or ‘Certificate of Organization’ by some states, this is the main registration paperwork for your LLC. In most cases, the fee is around £100.
Each state has specific requirements, but the main ones are:

LLC name (see step 1)
Name and address of your registered agent. 
Core business information, such as the names of the LLC members, and a description of how operations will be managed.

Learn more: Understanding Articles of Organization.

4. Choose Your Management Structure

LLCs need a management structure to vote on important issues, like strategic decisions, buying equipment, real estate, or taking a loan. This management can either come solely from the members, or you can appoint outsiders. External management would be similar to how corporations have a Board of Directors. 

5. Write an LLC Operating Agreement

Some states (although not many) make it mandatory to have an Operating Agreement, which is a document that describes how the LLC will function and be managed. Even if this isn’t a legal requirement, it’s a good idea to create one. This will give you a clear guide on how your individual business operates, instead of just being guided by generic state laws.

Learn more: How LLC Operating Agreements Work.

6. Understand Tax & Regulations

Your LLC may have added tax requirements and legal regulations which you’ll need to handle, such as:

Business License(s) — some industries need extra local and state business permits. Find out if you have any of these extra requirements by viewing the state website your LLC is registered in.
IRS Employer Identification Number (EIN) — the IRS uses this to track your business activities. If your LLC has more than one member, even if it has no employees, you’ll need an EIN. One-member LLCs that intend to have employees or choose to be taxed as an S-Corp will also need an EIN. To get one, apply on the IRS website.
Employer & Sales Taxes — if you have employees or are collecting sales tax from the goods you retail, you’ll need to register with the state taxing authority. Learn more by viewing the state website your LLC is registered in. 

7. File Annual Report

In many states, filing an Annual Report is mandatory. Failure to do this can earn you penalty fines, loss of your LLC registration and license to operate, or even dissolution of the company by the state. The main purpose of the Annual Report is to confirm or update your company’s address, registration information, and member information, as well as details of the services your business offers. Some states allow you to file it online, while others require hard copies to be mailed to the department of the Secretary of State.

Fees for annual reports vary. For example, in Kansas it costs $50 online or $55 by mail, while Florida charges $138.75 and a $400 late fee. Learn more: Does Your Company Need to File An Annual Report with Your State?

8. Register to Operate Out of State 

If you want to do business in a different state than the one your LLC is registered in, you may need ‘foreign qualification’. This will involve a Certificate of Authority application (also called a ‘Statement & Designation by a Foreign Corporation’), filed with your Secretary of State office.

Learn more: Foreign Qualification: What It Takes to Do Business In a Different State.

Creating a Corporation

Incorporation involves more formal responsibilities than an LLC, but if you play your cards right it can offer significant benefits to your small business.  These are the steps you’ll take to register as a CORP:

1. Register Business Name

Like an LLC, each state has its own specific rules around business registration and the company name you choose. But the main things that most states don’t allow are names which are:

Similar to another business name on record in that state.
Misleading to the public, such as ‘Bob’s Electronics’ when you sell tires.  
Seen as part of the government, like ‘city, borough, or federal’.
Financial institution words like ‘bank, trust, or insurance’, unless legally authorized.
Professional licensing terms if you don’t have that license, like ‘attorney, CPA, or engineer’.
Other forms of prohibited words, like adding ‘ing’ or using a plural.

You will need to make sure your company name ends in a CORP designator, whether it’s the abbreviation, ‘Incorporated’ or ‘Corporation’. For a list of more specific rules, visit your chosen state’s website.

It’s also important to make sure your business name doesn't infringe on any existing or pending trademarks. Do this by checking the USPTO website. You also have the option of registering a ‘Doing Business As’ or DBA, which legally gives you the right to do business under a fictitious name.

As you can see, things can get complicated with business name registration. We’ve simplified things with the upcoming RelateLegal, part of our small business toolkit. It makes this step as easy as choosing a domain for your website in a search box, and will also do the heavy lifting on your registration paperwork.

If you’re worried that your business name will get snapped up while you’re waiting to get your  Articles of Incorporation filed, check with your state’s corporation office — some allow you to reserve the name while your paperwork is pending.

2. Choose a Registered Agent

The same applies to corporations as LLCs — a registered agent is the requirement in most states. You’ll need to appoint an individual or company that agrees to accept legal documents on your behalf. Also called a ‘resident agent’ or ‘statutory agent’), each state has their own specific rules.

At a minimum, the registered agent must have a physical street address in the state where your LLC is registered. One of the LLC members can act as registered agent for the LLC, but most businesses use a professional service for this. Or with the RelateLegal tool, you can get everything you need including your registered agent, in one package. 
You or one of the other owners of your business can act as the registered agent, if you meet these criteria:

Your name and physical address must be viewable in public records.
Be present and available at the listed address from 9 am to 5 pm Monday through Friday to receive official documents.
Stay current with your mail so you can respond to important documents promptly and avoid missing deadlines.

Note that if you miss a deadline or lose an important document, it could put your incorporation status at risk. The last thing you’d want is to start from scratch again, so for peace of mind most companies use a professional service, or an incorporation package where the registered agen is included. 

3. Appoint Directors

Your Board of Directors could be the owners, and/or external shareholders. The number of directors required will depend on state regulations. For example, some states mandate a specific number of directors in relation to the number of owners. Learn more by visiting your state’s website.

4. File Articles of Incorporation

Also known as ‘Certificates of Incorporation’ or ‘Charter’, you can get these forms from the website of the state where you incorporate, and you’ll file them with the Secretary of State office. 

Learn more: Understanding Articles of Incorporation and Understanding Corporate Charters.

5. Write Corporate Bylaws

These are effectively your ‘business bible’, explaining the rules governing how your corporation will operate. Corporate bylaws include clarifications on vital things like stocks, the number of directors, meeting structure and record-keeping.

Although your bylaws don’t need to be filed with the state, they’re an important part of establishing your corporation. Learn more: Small Business Bylaws.

6. Create a Shareholders Agreement

The Shareholders Agreement document clarifies what to do when something happens that causes one of the shareholders to transfer ownership of their shares in the corporation, such as a death. This is an optional document, but advisable to get it done because it protects the shareholders and prevents needless legal issues further down the road.
Learn more: The Basics of a Shareholder Agreement.

7. Hold First Board of Directors Meeting

Whether your corporation has several directors or just one, an initial Board of Directors meeting is needed to clarify important factors. This includes discussing your bylaws, whether you want to go for the S Corporation tax designation, management processes, and issuing stock. 

8. Issue Stock

As a small corporation, you’ll most likely not have to worry about the added regulations that come from the Securities & Exchange Commission (SEC) or your state's securities regulation agency. You’ll simply agree on the stock arrangement and issue stock certificates. Learn more: How to Issue Stock.

9. Get Business Permits & Licenses

Some types of businesses need specific permits and licenses to operate. This added paperwork varies depending on the state and local government. Learn more: Apply for Licenses & Permits.

10. Understand Tax & Regulations

Because CORPs are separate tax entities, you’ll need a separate tax ID number. Once you get your Articles of Incorporation approved, you’ll be issued a corporate number. This is basically like the Employer Identification Number (EIN) for corporations. Learn more: What's the Difference Between a Tax ID Number and a Corporate Number?

Also note that some industries need extra local and state business permits.

11. Open a Corporate Bank Account

As a separate legal entity, your corporation must have separate banking. Shop around for the best perks on offer. Each bank has specific document requirements. For example, some banks  ask for a Corporate Resolution before they’ll open the account, while others only want a copy of your Articles of Incorporation and corporate tax code. Learn more: How to open your first corporate US account.

12. File Annual Report

In many states, filing an Annual Report is mandatory. Failure to do this can earn you penalty fines, loss of your incorporation and license to operate, or even dissolution of the company by the state.
The main purpose of the Annual Report is to confirm or update your company’s address, registration information, and member information, as well as details of the services your business offers. Some states allow you to file it online, while others require hard copies to be mailed to the department of the Secretary of State.
Fees for annual reports vary. For example, in Kansas it costs $50 online or $55 by mail, while Florida charges $138.75 and a $400 late fee. Learn more: Does Your Company Need to File An Annual Report with Your State?

13. Register to Operate Out of State 

If you want to do business in a different state than the one your CORP is registered in, you may need ‘foreign qualification’. This will involve a Certificate of Authority application (also called a ‘Statement & Designation by a Foreign Corporation’), filed with your Secretary of State office.
Learn more: Foreign Qualification: What It Takes to Do Business In a Different State.

Takeaway

In this article, we covered the checklist steps you’ll take when setting up an LLC and a Corporation. For both, the process starts with business registration, and follows with different kinds of paperwork and regulations. Depending on your state and industry, there may be added requirements like specific licenses.  
If the thought of going through all these steps gives you a tension headache because you’re already too busy as a small business owner, the good news is there’s a simpler way forward. Try RelateLegal, the only place where you can register your business name in seconds.

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