How to Form an LLC Business Structure: Ultimate Guide

Learn how to form an LLC for your business with our comprehensive guide. Understand the benefits, steps, and requirements to create an LLC business structure.

Table of Content

Are you excited to expand your business in the global market? Then, you should form an LLC because an LLC Business Structure is ideal for every type of business. But if you’ve already decided to form an LLC, congratulations. You’ve done the difficult work of deciding which business type is best for you. Now you must follow our guidelines to start your desired business in the global market. Let’s go!

What Is an LLC, and How Does It Work?

LLC is a simple business structure that mainly protects the owner’s personal assets. LLC is a combination of both corporations and partnerships. Meaning you can get both of their characteristics. LLC owners can get liability protection like a corporation and benefit from pass-through taxation like a partnership

LLC also offers several other benefits to its members. Later, we will talk about it. 

To establish an LLC structure, you have to follow some steps. Now we are going to describe how an LLC works. Stay with us.

  • Formation: In an LLC business structure, there are some specific requirements you need to follow. The government’s law controls these requirements. You need an LLC business name, registered agents, documents, and other information to form an LLC. 

  • Ownership Structure: When you form an LLC, you must keep one thing straight; the LLC ownership structure. For LLC members, you should make an agreement about the responsibility and profits, shares, etc. If you form an LLC, first be clear about ownership with your members. 

  • Management Structure: After deciding on the ownership agreement, you must determine how the management system will work. In an LLC, you should have a system for distributing responsibility. For example, LLC members have the authority to make decisions, and the managers handle the day-to-day operations. 

  • Taxation: Taxation is necessary for an LLC to run the business smoothly. Every LLC should follow the taxation rules to stay within the state or country’s laws. 

  • Ongoing Compliance: If you form an LLC, then you should be aware that LLCs have certain rules with the government, like filing annual reports, franchise taxes, and other documents. You should obey those rules to stand well with your government and run a hassle-free business. 

Why Would You Form an LLC Business Structure?

You might have a question about why most people want to form an LLC. Don’t worry; we will explore the question here.

When a business owner wants to start a business, what facts do they consider? They consider numerous facts like personal liability, ownership, and management, the cost of forming and registering the business, business growth plans, and taxation. An LLC offers all of that. 

That’s why most business owners and entrepreneurs choose an LLC as their company structure.

There are some other important facts that an LLC offers, such as tax deductions, less cost, finding investors, transferability, protecting assets from business debts, etc. So, if you are confused about picking a business structure, don’t be. Choose an LLC.

Types of LLCs 

LLCs have several types based on company size, management, region, and profit. Now we will enlist some of them. Take a look. 

According to size, LLCs can be classified in two ways:

  1. Single-Member LLC: A single-member LLC is an LLC with only one member. It is similar to a sole proprietorship. It is a simple form of LLC where a single owner operates the business and gets the profits alone. And in terms of management, the single owner has full authority in decision-making.

  2. Multi-Member LLC:  A multi-member LLC has more than one member in the business. The members can be individuals, other businesses, or a combination of both. The management and ownership agreement in the multi-member LLC is made according to the member’s opinion. And it’s similar to a partnership

According to the management, LLCs can be classified in two ways:

  1. Member-Managed LLC: Member-managed LLC means all the members in an LLC actively participate in day-to-day operations and decision-making for the company. Each member has an equal say in the management process. 

  2. Manager-Managed LLC: In a multi-member LLC, when some external managers are appointed to handle the management and decision-making responsibilities, it’s called a manager-managed LLC. The managers have the authority to make decisions on behalf of the LLC, while members have a more passive role. 

Learn details what are the differences between Member Managed and Manager Managed LLC.

According to their location, LLCs can be classified in two ways:

  1. Domestic LLC: Domestic is an LLC created and operating in the same state. A domestic LLC is the standard type of LLC formed and operating within a specific state or country. Suppose you form an LLC in Delaware and continue to run it in Delaware; then your LLC company will call it a domestic LLC.

  2. Foreign LLC: When an LLC is formed in a state or country but operated in a different state or country, it’s called A foreign LLC. Foreign LLCs should register with the state authorities to conduct business legally. For instance, if you start an LLC in one US state but run from another country (your home country), it would be considered a foreign LLC in the US.

Some other LLCs are available, including series LLCs, non-profit LLCs, low-profit LLCs, professional LLCs, etc.

  • General partnership — an LLC with multiple members.

  • Series LLC — LLC has several smaller LLCs under control.

  • L3C (low-profit LLC) — for-profit institutions with a philanthropic purpose.

  • Family limited partnership — it’s like limited partnerships formed with family members.

  • Anonymous LLC — a business structure that doesn’t disclose the identity of owners.

  • Restricted LLC — it’s only available in Nevada. A restricted LLC offers lower tax rates when transferring assets to family members.

  • PLLC — a professional limited liability company for licensed occupations such as medicine and law.

How to Start an LLC Business Structure

We already know that forming an LLC is a significant idea for business owners. But the USA has the best reputation for giving the best benefits to business owners. LLCs are beneficial for both residents and non-residents in the US. And that’s why we will elaborate on the steps of forming an LLC.

  • Select a State: The first requirement for forming an LLC is choosing the right state according to your business needs. To choose a state, you should consider crucial facts like the formation cost, process duration, accessibility to resources, economic prospects, state laws, taxes and fees, and other compliance requirements. Choosing the right state can bring rapid success to your company. 

  • Choose a Unique Name: A unique name is mandatory for an LLC company. If your chosen name is already registered on DBA, then the Secretary of State’s office will not qualify that name. So, select an available name by searching for DBA. Also, you can include “LLC” or “Limited” in your company name, for example, ‘BestRide LLC.’

  • Register Agent: If you are a non-resident in the US, then hiring a registered agent is mandatory for your company. Because you will stay in your home country or state. In that case, the assigned register agent will handle all your documents. A registered agent will receive notices and file essential documents with the Secretary of State. 

  • LLC Operating Agreement: An LLC operating agreement is not required in every state in the US. But it is recommended that you have an agreement. And if you form a multi-member, an agreement could be necessary to avoid business disputes. Also, it provides members with a clear understanding of their responsibilities and rights within the company. An operating agreement includes some important details-
  • How the business will be organized.
  • Responsibilities of board members.
  • Voting requirements.
  • How the management will work.
  • Capital contributions.
  • Restrictions on transferring and selling shares.
  • Distributions.
  • Membership Changes.
  • Division of company profits and losses.
  • Dissolution of the company, when needed.

  • File Articles of Organization: Your LLC business structure will be formed when you file articles of organization (also called a Certificate of Organization or Certificate of Formation) with your secretary of state’s office. It’s an official requirement in every state. The documents contain the following:

The average state filing fee is about $100 to start an LLC. When the documents are filed, the state officially recognizes your LLC, and you can begin doing business while enjoying the benefits of limited liability protection.

  • Get Permits and Licenses: Your LLC may need some permits and licenses to operate legally. You need several licenses according to your business industry, state location, and the type of goods or services you provide. For example, you may need a lease agreement to lease a space in your business state. Research what permits you need and then apply for them.

  • Physical Address: Domestic or foreign LLCs need a physical address to form a business. The physical address is needed for legal and administrative purposes. It is required in your business state and represents the physical location of your business. 

  • Registered Business Address: The LLC receives mail and correspondence from a mailing address. The registered business address is necessary because it receives important communications, such as legal notices, government correspondence, customer inquiries, and other business-related mail. So, it’s required when you form your LLC business.

  • Get EIN From the IRS:  EIN( Employer Identification Number) is required for various purposes. To open a bank account, apply for several licenses, file taxes, hire employees, and apply for business loans, you will need an EIN. You can directly apply to the IRS for an EIN.

  • Bank Account: A business bank account is not a legal requirement but a key requirement for any kind of business. For an LLC to get liability protection for your personal assets, you must separate your business account from your personal account. To open a bank account, you need information, including an LLC member’s photo, personal and business address, EIN, US phone number, passport, etc. 

  • A Payment Gateway: After completing your LLC registration, you may need a payment gateway like Stripe or PayPal. If you run your LLC online, then a payment gateway for several purposes. There is no alternative to a payment gateway for easy online payments and security purposes. 

  • Other Requirements: Depending on the state, you must complete other ongoing requirements, including filing taxes, annual reports, other fees, maintaining business records, and other state regulations. 

Benefits of Forming an LLC

Now let’s get into the LLC business structure advantages and disadvantages. After knowing the advantages and drawbacks, you will understand why you should form an LLC and what you should avoid while forming one.

Benefits of Forming an LLC
  • Limited liability Protection: This is the most attractive benefit of an LLC that every business owner wishes for. Your personal assets will be protected from business debts and lawsuits in an LLC. 

  • Less Regulation: Compared to other business structures, LLCs have fewer rules and regulations with the state. Also, LLCs are relatively easy to form and maintain. 

  • Ownership Structure: LLCs have the facility in terms of ownership and membership. You can add several members (partners) to your company and can have an agreement about the distribution or ownership. Also, the responsibility is equally divided among the members. The flexibility of adding or removing members only has an LLC business structure

  • Flexible Management: LLC offers flexibility in terms of company management. If you form an LLC, you can either handle it by the company members or by hiring a manager. So, this facility allows the owners or members flexibility or management. We already discussed it in our previous topic in the types of LLC section. 

  • Pass-through Taxation: LLC business structure offers pass-through taxation, which benefits LLC business structure members. The LLC members get the profits, losses, deductions, credits, and other tax benefits by flow-through in their personal income tax return and pay taxes at the individual tax rates. This means you can avoid double taxation in an LLC structure.

  • Separate Entity: An LLC is a separate business entity from its members. This means the company will run as usual when a member dies or leaves the LLC. The LLC doesn’t depend on the members. Also, when the law sues the LLC company, the member’s company shares and personal property don’t get lost. 

Drawbacks of LLC

The disadvantages of an LLC business structure are minor compared to their benefits. But to become aware of some facts, take a look at the list below.

  • Cost: An LLC could sometimes be more costly than a sole proprietorship. Also, maintaining an LLC is relatively expensive, with taxes, fees, etc. So, be prepared before forming an LLC in the US.

  • Business disputes: In a multi-member LLC, sometimes conflicts arise among the members about business decisions. Also, disagreements about ownership or the transfer of ownership will arise when a member dies or leaves. To avoid these conflicts, LLC members should sign an agreement before forming an LLC.

  • State Regulations: Different states in the US have specific rules like filing the annual report, paying franchise tax, and other state requirements. To run your LLC, obey the state laws and always try to maintain these regulations.

Learn more about the Advantages and Disadvantages of LLC.

LLC Business Structure Example

In the US, around 21.6 million LLCs have been formed. So, you can realize how demandable and beneficial an LLC is. Now, we will enlist some famous LLC companies here.

  • Google LLC.
  • Amazon.com LLC.
  • Microsoft Corporation LLC.
  • Coca-Cola Refreshments USA, Inc. LLC.
  • Tesla, Inc. LLC.
  • IBM Credit LLC.

Why Is LLC Beneficial for Non-Residents in the US?

Are you an entrepreneur or a freelancer? Do you want to extend your business to the massive global market? Then hurry up and start your business in the US. You may wonder, then, why LLC? LLCs are most convenient for non-resident business owners for various reasons. 

  • Business Opportunity: In the US, countless business opportunities await entrepreneurs and freelancers. We all know that the US has the biggest economy in the world. So, if you form your LLC in the US as a non-resident, it allows you to access the vast US market, and your business will always grow. 

  • Market Diversity: As we know, the US has the most significant consumer with market diversity. So, there will be huge consumers available for your product or service. As a non-resident, you can have the opportunity to advertise your product or service to a diverse market.

  • Liability Protection: We have already talked about this several times. So, no confusion could be left at this point about whether an LLC could protect assets even if you are a non-resident. 

  • Tax Treaty Benefits:  An LLC can provide potential tax benefits. If you are a non-resident and do online business in the US, you don’t have to pay sales tax, VAT, or GST to advertise your company in some states. 

  • Low-cost Setup: If you choose the right state, you can form your LLC with lower fees, and maintaining your company will be less costly. So, choosing the right state is also beneficial for non-resident business owners.

  • Access To US Capital: The US also has the most respected investors in the world. They are willing to invest in exciting startup ideas. So, it’s a great chance for non-resident entrepreneurs.

  • Business Credibility: Forming an LLC business structure in the US can allow non-residents to expand their business. The US provides several tax treaty benefits, investors and grants, and loans that help the non-resident to grow their LLC businesses. 

At this point, it’s established that an LLC is wholesome for non-residents and freelancers. You must have the courage to begin your LLC company in the US. While opening your LLC business, you might need some help. To solve these issues, you can get help from a professional.

How Will Business Globalizer Help You to Form an LLC?

Reading our discussion, you got the idea that forming an LLC could be trickier for non-resident business owners because there are a lot of steps you have to complete, including selecting the right state, hiring a registered agent, filing legal documents, obtaining a license, EIN, virtual address, etc.

Business Globalizer can complete all the required steps to form your LLC at a very reasonable price. Business Globalizer is IRS certified agent. You just have to connect with us; we will provide all the necessary services to start your LLC in the US.

FAQ

Q1: Can I start an LLC online?

Answer: Yes, you can start an LLC online in many states in the US. Most states in the US provide online platforms to complete the necessary steps to form an LLC. You may need professional assistance to complete the necessary steps. 

Q2: Is LLC a corporation?

Answer: No. Although LLCs and corporations have similar liability protection, they are different business entities with different ownership structures, management, and taxation.

Q3: Which state is ideal for a foreign LLC?

Answer: In terms of popularity, Wyoming, New Mexico, and Delaware are the most popular states in the US for non-residents to start LLCs. The reasons behind their popularity are privacy, low costs, and funding-friendly local regulations.

Bottom Line 

Evaluating our discussion, you can understand that launching and growing a US LLC business anywhere is easy, even without citizenship. With the least cost and most benefits, there is none other than an LLC business structure. So, be a business opportunist and get to extend your business in the global market.

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