Corporation / LLC Formation

This page will go into the exact details of explaining each company structure, it's benefits and the steps needed to register.

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The three basic legal structures.

C Corporation
S Corporation
Limited Liability Company (LLC)

C-Corp in a nutshell

A C corporation is a type of business structure that offers owners limited liability protection and the ability to issue stocks to raise capital. This structure is ideal for businesses that plan to raise large amounts of money from investors, want to maintain their status as a separate legal entity, and have a long-term growth strategy in mind.

As a financial services provider, we can help you set up a C corporation and ensure that your business is compliant with state and federal regulations.

And speak to one of our friendly & professional tax expert today!
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C-Corp

Ownership Structure

The corporation is overseen by its shareholders, board of directors, and management, while one or more owners may be involved. Furthermore, even if a shareholder or owner departs, the corporation remains.

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C-Corp

Taxation Rules

The business is taxed at a unique corporate rate as a distinct entity. Shareholders disclose their portion of earnings (distributed as salaries, bonuses, and dividends) on their individual tax returns.

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C-Corp

Your cut of the Profit

There are three potential ways for profits to accrue to you:
1) Salaries or bonuses distributed to shareholders.
2) Dividends disbursed to shareholders.
3) Sale of shares.

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C-Corp

Accountability and legal liability

The corporation is treated as a separate legal entity.

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C-Corp

Sources of capital

Gain capital by selling equity to investors.

C-Corp

Corporate legal shield

LegalShield is not associated with C corporations or any other business structures. Nevertheless, it provides legal services to assist businesses with a range of legal requirements, including reviewing contracts, drafting legal documents, and managing disputes.

Start a Corporation

Start your business with ease and speed by using our worry-free services and support for the fastest online corporation formation available.

Step 1. Name your corporation

Selecting a business name that captures the essence of your brand is crucial. There are several factors to consider when choosing a business name, including legal requirements based on your business's location and structure.

In the following section, we will discuss the four key considerations for naming your corporation, including:

● Entity name

● Trademark

● “Doing business as” (DBA) name

● Domain name

Choose an entity name

Your business's entity name is crucial for identification purposes by both you and the state. However, some states have limitations on how you can choose your entity name, including restrictions on the use of company suffixes. Moreover, registering a name that's already taken by another business is not allowed in most states.

It is also essential to note that some states require your entity name to reflect your business in some way. When selecting your corporation's name, keep in mind the following:

  • Your chosen name must include either "Corporation," "Incorporated," or their respective abbreviations.
  • Certain words cannot be used if you do not offer that service directly.
For example, you cannot include "Engineering" or "Attorney" unless you have licensed professionals delivering those services.
  • You can search for your name choices on a website to ensure that they are not too similar to other businesses.
  • Your corporation's name cannot suggest that it is associated with any government agency or that it will engage in any illegal activities.

Checking Trademarks

To ensure your business name or logo is not already trademarked, you should conduct searches at both the state and federal levels. To check at the state level, visit the online business portal of the state. For federal level verification, search for your proposed business name in the official trademark database of the U.S. Patent and Trademark Office.

Federal and State Trademarks

Federal trademarks provide more extensive protection than state trademarks, even though obtaining them requires more money and time. State trademarks only protect your trademark within the state where you registered it, which means that you won't have nationwide protection. This is why federal trademarks are more advantageous for corporations planning to do business outside their home state.

“Doing Business As” (DBA) Name

Merely registering your business with a DBA name does not grant legal protection on its own. DBA names, also referred to as trade names, assumed names, or fictitious names, can be registered at the state, county, or city level where your business operates.

Using a DBA Name for Your Corporation

Multiple businesses within the same state can use the same DBA name since it's location-specific. However, it's crucial to ensure that no trademark violations occur since trademarks are protected at the federal level.

Having a DBA name allows you to conduct business under a different name than your own. Moreover, you can use a DBA to open a business bank account and acquire a federal tax ID number (EIN).

Domain Name

You can register your website's web address, known as a domain name, with the help of a service provider. Before registering, it's important to conduct a quick search to ensure that the name is available and has not already been claimed by someone else. Once you have confirmed its availability, it's recommended that you reserve the domain name as soon as possible to prevent others from taking it.

Step 2. Appoint directors and a registered agent

After choosing a business name, it’s time to appoint a board of directors. This group of elected individuals plays an essential role in your company by establishing corporate governance and overseeing organizational strategies, investments, profits, and more.

The number of directors required may differ depending on the state in which your company is registered, and there are no hard and fast rules for structuring your company’s board.

Officers or shareholders appoint directors

Directors in a corporation are elected by officers or shareholders of common stock. Appointing directors is essential not only because some states require their addresses and names but also because of the crucial role they play. They handle corporate planning and strategies, which can greatly benefit your corporation in the long run.

In most states, you must appoint at least one director, but the specific rules vary from state to state. It is worth noting that while directors play a significant role in a corporation, they do not necessarily need to be owners.

Choose a registered agent

To receive official correspondence from the government, a registered agent with an official address is required. This agent serves as the intermediary between the state and your corporation. Depending on the state regulations, you may designate yourself or your business as the registered agent.

Every corporation must appoint a registered agent

Having a registered agent is essential for businesses to receive legal notifications, especially in the event of a lawsuit. The registered agent's physical address must be located within the state and must be accessible during regular business hours to ensure that the corporation can receive legal notices.

Hiring a Registered Agent Service

Although it is possible to appoint a registered agent on your own, there are several reasons why you may consider using an external registered agent service. For some businesses, adding more paperwork can be challenging.

Outsourcing the role of a registered agent allows you to delegate annual paperwork responsibilities to someone else for a relatively low fee. This option is especially beneficial for small online-based corporations that lack a physical presence.

Another important consideration is that registered agents must be available during normal business hours throughout the year. If the registered agent is unavailable during business hours, the corporation may be at risk of a lawsuit. To mitigate this risk, a company would need a registered agent who is available 24/7 all year round, which is why many corporations opt for a registered agent service.

Hiring a registered agent service can help corporations manage paperwork, have a physical address, and operate without any privacy concerns.

Once you have your business name, registered agent, and board in place, the next step is to register your C corporation or nonprofit.

Step 3. File the Articles of Incorporation / Certificate of Incorporation

The legal document used to establish a corporation as a C corp or an S corp is known as the Certificate of Incorporation, also called the Articles of Incorporation. To file this document, you will need to first select a corporate name and registered agent. Certain states may require you to specify the type of corporation you are forming.

The Articles of Incorporation form will request basic information about your business, including the company's address and the number of shares issued. This document is critical to the establishment of your corporation as a legal entity. Keep in mind that the specific requirements for the Articles of Incorporation may differ by state. You can typically find the necessary forms by visiting your state's business filing agency online.

Most states will require this information:

  • Corporation’s name:
    This is your company’s legal name and typically ends in “Corp” or “Inc.”
  • Corporation Address:
    This refers to the primary business address where your corporation operates from, and it must be located within the state where you filed for incorporation.
  • Registered agent:
    It is mandatory to provide the name and operating address of your registered agent.
  • Business purpose:
    This refers to a statement that grants authorization for the business to engage in any legal purpose. Some states may require a specific description of the products and services that the business will offer.
  • Directors and officers:
    Some states mandate providing the names and addresses of directors and officers.
  • The number of shares:
    The number of shares must be specified, and some businesses choose to reserve some shares for future expansion and the addition of new shareholders.
  • Class of shares:
    The type of corporation determines the class of stock that needs to be listed. C corporations can have multiple classes of stock, such as common and preferred, while S corporations can only have one class of stock.
  • Incorporator:
    The incorporator is the person who submits the Articles of Incorporation. These documents must be filed in the state where the corporation is located. Most states require that the Articles of Incorporation are submitted to the Secretary of State’s office, but the specific requirements can vary. The filing fees also vary by state, typically ranging from $50 to $800. To ensure that you send your Articles of Incorporation to the correct office, visit your state’s online business portal.

Step 4. Create corporate bylaws and shareholder agreement

Legal documents called corporate bylaws are created and adopted by the owners and board of directors during a corporation's incorporation or formation. Although these bylaws can differ from corporation to corporation, the following are some of the essential components:

● Business name, purpose, and location
● Members
● Board of Directors
● Committees

● Officers
● Meetings
● Conflict of Interest
● Rules to any amendments to bylaws

● How the company will operate
● Duties and responsibilities of the owners
● Internal management structure
● Shareholder Ownership rights

● Annual Meetings
● Rules for selection and removing directors and officers

While not mandatory in every state, corporate bylaws can be highly advantageous for companies. By setting forth the guidelines and processes that the owners and board will use to operate the business, corporate bylaws can help ensure that everyone is on the same page and that the business runs smoothly.

Bylaws create corporate structure

Furthermore, bylaws establish the structure of the corporation by outlining the rights, obligations, and responsibilities of all members and setting the regulations for the company. They define the process for selecting and removing those in charge, including how they are nominated and elected.

In addition, every corporation must create a thorough corporate records book that contains crucial documents such as minutes from board and shareholder meetings, stock certificates, and records of business transactions.

Finally, when drafting legal documents, corporations should take into account rules governing general operations, shareholders, stock, and other relevant matters.

Draft a shareholder agreement

A shareholder agreement is a contract between a company's shareholders that outlines the company's operations and the rights and responsibilities of the shareholders. It is important to keep the shareholder agreement and any related transactions alongside other corporate documents.

The shareholder agreement aims to ensure that all shareholders are treated equitably and that their rights are preserved. It also allows shareholders to make decisions regarding potential future shareholders and safeguards minority positions. Typical provisions of a shareholder agreement include:

  • A preamble
  • A list of recitals
  • The shareholder's option to sell their share back to the company (voluntary) versus the company's obligation to repurchase shares from shareholders (mandatory).
  • A right of first refusal clause outlines the company's ability to buy a shareholder's securities before they are sold to an outside party.
  • A reasonable valuation for the shares, which will be adjusted either annually or based on a formula.
  • If there is an insurance policy, it could be explained in full.

Secure your corporation with a shareholder agreement

Having a shareholder agreement can provide a sense of security for corporations. Without such an agreement, the business could face difficulties if things don't go as planned or shareholders experience personal problems.

Determine funding and shareholder rules

Creating a shareholder agreement is crucial when beginning a business to establish the company's funding, outline procedures for eliminating inactive shareholders, and address any conflicts that may arise. The shareholder agreement serves as a safeguard for the corporation and those involved with it.


Step 5. Issue shares of stock

Issued shares are shares of stock that a company has sold and are currently held by shareholders. The number of issued shares must be recorded on the company's balance sheet and listed under owners' equity or capital stock. The company must also report the number of issued shares to the Securities and Exchange Commission (SEC) in their quarterly filings.

Issued shares include the stock that the company has publicly sold to raise capital and the shares given to insiders as part of their compensation packages. These shares are only issued once.

After they are first issued, investors can buy and sell shares with each other, and the company may also buy back its own stock. These shares are still considered issued, but they are referred to as "treasury shares."

Facts about issued Shares:

The company's annual report may display the shares, which are utilized in determining the market capitalization and earnings per share. These shares aid investors and analysts in assessing the company's worth.

Private Vs. Public Companies

Private companies are held privately, typically by the company's founders, management, or private investors. Unlike public companies, private companies cannot sell stocks or bonds to the public and may only sell a limited number of shares without registering with the SEC. They are not required to file disclosure statements with the SEC and therefore cannot access public markets, relying solely on private funding.

On the other hand, a public company has sold some or all of its shares to the public. This occurs during an initial public offering (IPO), where shareholders claim a portion of the company's assets and profits.

Public companies can access public markets and sell stocks and bonds to raise capital. Since they trade in the U.S. stock exchange, public companies must file quarterly earnings reports to the SEC. The SEC ensures fair dealing, promotes disclosure and sharing of market-related information, and protects against fraud. Public companies must track and report their stocks to the SEC to avoid a complete stock market crash from happening again.

Step 6. File for an EIN and review tax requirements

To identify the business entity with the federal government, corporations are required to have an Employer Identification Number (EIN). To obtain an EIN, corporations can apply online, through mail or fax, and it's a free service provided by the IRS.

Here are some cases where a corporation needs to apply for an EIN:

  • The Secretary of state gives a new charter to your corporation
  • Your corporation changes to a sole proprietorship or a partnership
  • A new corporation is developed following a statutory merger
  • If you become a subsidiary of a corporation

Apply for necessary business permits or licenses

In addition to obtaining an EIN, some corporations may also need to obtain various licenses and permits from federal, state, and local agencies. The specific requirements and fees for these licenses and permits may vary depending on the corporation's location, business activities, and local government regulations.

Certain business activities, such as agriculture, production and sale of alcoholic beverages, fish and wildlife management, and radio and television broadcasting, typically require federal permits and licenses.

Meanwhile, state, county, or city licenses and permits depend on the corporation's location and the nature of its business activities. Each state requires at least one type of business license, with states regulating a wider range of activities compared to the federal government. For instance, common state-regulated activities include plumbing, restaurant operations, retail, and dry cleaning. As requirements can vary depending on the state, county, and city, it is recommended to consult the relevant state's website for specific information.

Submit your corporation’s first report

After incorporating, some states may require you to submit an Initial Report and pay fees. The Initial Report must usually be filed within 30 to 90 days after registering the business with the state, and fees vary by state. However, many states do not require an Initial Report. In Washington, for instance, the Initial Report fee is $10.

To file the Initial Report, you will typically need to provide information such as the corporation's name, registered agent information, the address of your principal office, contact information, the nature of the business, and the names of appointed directors, members, stockholders, or trustees. Regulations for filing the first report may differ by state, so it's important to check with the state where your corporation is registered.

CHY can help you file your Initial Report and the annual reports following it.

We can help

We guarantee fast and accurate online corporation formation services that come with long-term business support to assist you in starting, running, and expanding your business. With our assistance, you can rest assured that your corporation will be formed today without any hassle.

If forming a corporation seems challenging, we can ease your burden by handling all aspects of formation and compliance. This allows you to focus on realizing your business vision.

Start Your Corporation Today!

Start your business with ease and speed by using our worry-free services and support for the fastest online corporation formation available.

And speak to one of our friendly & professional tax expert today!

S-Corp in a nutshell

An S corporation is a tax classification that LLCs or corporations can apply for if they meet certain criteria. It can provide tax savings and avoid double taxation.

Our S corp services can help you form an LLC with S corporation status and provide other services to help run and grow your business while staying compliant with state and federal laws.

And speak to one of our friendly & professional tax expert today!
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S-Corp

Ownership Structure

The corporation is governed by a board of directors, management, and shareholders, while one or more owners may be involved. In addition, the corporation remains in existence even if a shareholder or owner departs.

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S-Corp

Taxation Rules

The S corporation does not pay federal tax; instead, shareholders report the company's income, losses, deductions, and credits on their personal tax returns.

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S-Corp

Your cut of the Profit

Distributions are allocated to owners and shareholders based on the proportion of their investment.

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S-Corp

Accountability and legal liability

The corporation is regarded as a distinct legal entity. Failure by shareholders to correctly report their salaries on their yearly tax returns may result in monetary penalties.

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S-Corp

Sources of capital

Raise capital by selling equity to investors, limited to a maximum of 100 shareholders who are either US citizens or residents.

S-Corp

Corporate legal shield

While not absolute, an S corporation offers shareholders a corporate legal shield that safeguards them against the corporation's debts and legal obligations. However, this protection may be revoked if shareholders engage in illegal conduct or do not adhere to the necessary requirements.

Form your S Corp Today

Start your S corporation with ease and speed by using our worry-free services and support.

Step 1. Choose your business name

Choosing a name is the initial step to create an LLC. Although it can be an enjoyable process, it's crucial to consider specific factors to ensure your LLC filing is accepted by your state.

Be Unique

To ensure clarity and prevent misunderstandings, each state demands that your LLC name must be exclusive within that state. In many states, you can check if your preferred business name is available by using a search engine on the Secretary of State website or the website of the relevant agency that deals with the business formation. However, these search engines are not always reliable, so it's advisable to verify that your chosen name is genuinely available by contacting the state agency directly via phone or email.

Follow the rules

It is crucial to comply with your state's regulations regarding business naming to avoid rejection. Although these laws differ from state to state, they typically prohibit names that could mislead the public, such as those that may imply an association with the government or illegal activities.

If your business name suggests that you are licensed in a particular profession, your state may require you to present evidence that you and other members have valid licenses to practice in those fields, such as law, accounting, medicine, and engineering.

Choose a designator

In order to comply with state laws, LLCs must include a "designator" in their name that indicates the type of business entity. The most commonly used designator is "limited liability company" or its abbreviation, "LLC." However, the specific abbreviations that are allowed may differ depending on the state.

Other considerations

Before finalizing your LLC name, there are a couple of other considerations to keep in mind. First, even if your desired name is approved by the state, it's possible that someone else has already trademarked it at the federal or state level. To avoid legal issues, it's essential to search federal and state trademark databases and conduct thorough research to ensure your name isn't already taken.

Second, it's important to check for available domain names for your business website. If your desired name doesn't have a suitable domain name available, it may be worth considering another name. Our domain name service can assist you in finding and securing a strong domain name.

Once you've confirmed the availability of your desired name, we can help you reserve it to prevent others from using it while you complete the LLC formation process.

Step 2. Appoint a registered agent

It is necessary to appoint a registered agent for your LLC, as almost all states require you to do so. The registered agent is the person or business entity responsible for receiving important legal notices and service of process on behalf of your business. Typically, the registered agent must be available during normal business hours to receive notices in person.

The requirements for a registered agent may vary depending on the state, but usually, they must be a resident of the state with a physical address (not a P.O. box) or a business entity authorized to do business in the state with a physical presence there.

Many business owners choose to use a registered agent service to avoid the responsibility of being constantly available to receive legal notices and the potential embarrassment of being served with a lawsuit notice in front of clients.

Step 3. File formation documents

To officially establish your LLC, you must file Articles of Organization with the state. This document may also be referred to as a Certificate of Organization or Certificate of Formation, depending on the state. Generally, you can complete this process through the Secretary of State office in your state. Once your Articles of Organization are approved, your LLC becomes official.

Most states require you to complete a form, which can be done online or on paper, to file your Articles of Organization. The form typically asks for basic information about your business, including the legal name of your LLC, the names and addresses of members, the name and address of your registered agent, and the management structure, among other details. To simplify this process, you can rely on our business formation services to handle the paperwork for you.

When submitting your Articles, most states will also require a filing fee, which can vary greatly from state to state, ranging from $0 to over $400.

Keeping the Articles of Organization Current

While you submit the Articles only once, it is important to note that you must update them if any of the information you provided changes. In such cases, you will typically need to file an amendment to your original Articles. If you require assistance with amending your Articles of Organization, we offer an amendment filing service. Additionally, our Worry-Free Compliance service includes two amendment filings every year.

Step 4. Create an operating agreement

The next essential step is to draft an LLC operating agreement. Although only a few states legally require an operating agreement, it is a critical document for any LLC.

Typically, an operating agreement outlines the company's regulations, which are similar to corporate bylaws, the names of LLC members, each member's percentage of ownership, profit-sharing procedures, guidelines for adding or removing members, and more.

Additionally, having an operating agreement in place reinforces the members' protection against personal liability if the LLC is sued and someone argues that it is not a separate entity. This protects the members' personal assets, not just the businesses. The operating agreement covers financial management and decision-making processes, including management and member voting structures. It is essentially an agreement between you and other members about the rules of your LLC. Once signed by all members, it becomes legally binding.

If you're unsure where, to begin with writing an operating agreement, we offer a customizable template to help you get started.

Step 5. Apply for an EIN and acquire licenses and permits

Obtain an Employer Identification Number (EIN) from the IRS, also known as a Federal Tax Identification Number. In some cases, LLCs with employees or multiple owners are required by law to have an EIN. Additionally, most banks require an LLC to have an EIN to open a business bank account. This nine-digit number is used for tax purposes and other financial paperwork.

If you need assistance obtaining an EIN, we offer an EIN service to help you obtain it. Please note that in some states, you may also be required to obtain a state tax identification number for use when paying state taxes.

Business Licenses and Permits:

To ensure that your business is operating legally, it is likely that you will require licenses and/or permits. Depending on the state and local government, a general business license may be required to conduct any type of business within the jurisdiction. This license is in addition to the Articles of Organization.

Your business may require various types of licenses or permits, including building permits, zoning permits, professional licenses, or licenses for selling specific products. These licenses and permits may be required at the federal, state, or local levels, and different industries may have different licensing requirements. As a result, there is no single central source for determining which licenses and permits are needed. Research is required.

If you don't have the time or interest to conduct research or want the assurance that your business has all the necessary licenses and permits, our business license report service can perform the task for you.

Step 6. File the form to apply for S corp status

After your LLC or C corporation is approved by the state, you'll need to file Form 2553, Election by a Small Business Corporation, with the Internal Revenue Service to obtain S corporation status. The IRS requires you to complete and file the form within 75 days of your LLC or C corporation formation or before the start of the tax year in which the election will take effect, or during the preceding tax year.

Note that if your LLC is past the 75-day election deadline, you must also file Form 8832, Entity Classification Election, to elect to be taxed as a corporation. You will need to file both forms together via USPS-certified mail.

Visit the IRS website for more information on when and how to file Form 2553 and other details on setting up an S corporation.

Additional steps on Forming an S Corp

It's essential to understand that forming an LLC or corporation can vary by state. While most states follow the five typical steps, some states like California and West Virginia have additional procedures, and others like New York, Arizona, and Nebraska have a publication requirement. Although our LLC formation instructions below generally apply to most states, it's worth noting that some states may use different terms for the same thing. For instance, a "registered agent" in most states may be referred to as a "statutory agent," "resident agent," or other similar terms. Similarly, "Articles of Organization" may also be called by different names in some states.

Pros and Cons of Filing as an S Corporation

Before making the decision to apply for S corporation status, it is important to consider the advantages and disadvantages of this classification for your particular business. While there are benefits, such as tax savings, not all business types may benefit from this election. Therefore, it's important to carefully evaluate your options and seek advice from a tax professional to determine whether an S corporation election is the best choice for your business.

LLC Advantages:

Before diving into the advantages of filing as an S corporation, it's important to note that the benefits for LLCs are not exactly the same as those for C corporations. With that said, let's take a closer look at the advantages for LLCs.

Self-Employment Taxes Explained

An LLC is already subject to pass-through taxation, so the advantages of electing S-corp status for an LLC are specifically related to self-employment tax. This can be a bit complex, but for certain LLCs, it has the potential to result in significant tax savings.

Members of a typical LLC are considered self-employed, meaning they receive their share of profits from the LLC as compensation and cannot be employed by the LLC. As self-employed individuals, they are required to pay self-employment taxes (which include Social Security and Medicare taxes, totaling around 15.3%) on all profits they receive from the LLC. This is higher than the taxes they would pay if they were employed by someone else since their employer would be responsible for paying a portion of these taxes.

Dividing Salary and Profits

When an LLC elects S corporation status, its members can receive compensation in two ways: by receiving their share of the profits and by being paid as an employee. By doing so, they are only required to pay Social Security and Medicare taxes on their salary, and not on the profits they receive. This can result in significant tax benefits depending on the profitability of the company. However, it's important to note that members will still need to pay income tax and other applicable taxes on their share of the profits. Additionally, money paid out as salary is tax-deductible for the business.

Reasonable Compensation

However, it is important to note that the IRS requires a "reasonable salary" to be paid to LLC members who are also employees. This is to prevent them from avoiding Social Security and Medicare contributions by receiving an annual salary of only $1. The instructions for Form 1120-S state that "reasonable compensation for services rendered to the corporation" must be paid to corporate officers in the form of wages, and the IRS typically considers this to be similar to what others in the same field are earning. If the IRS deems the salary to be unreasonable, it has the power to reclassify non-wage distributions (which are not subject to employment taxes) as wages (which are subject to employment taxes), and several court
cases have upheld this right.


LLC Disadvantages:

While there are benefits to having an LLC with S corporation status, it's important to consider the potential drawbacks compared to a regular LLC:

Stricter Requirements

As mentioned earlier, S corporations have more regulations to follow than regular LLCs or C corporations. For instance, S corporations are limited to having a maximum of 100 members, and those members cannot be partnerships, corporations, or non-resident aliens. In contrast, traditional LLCs do not have such restrictions.

More IRS Scrutiny

Due to the restrictions mentioned earlier and the requirement to pay a "reasonable salary," LLCs with S corp status are often subjected to closer scrutiny by the IRS. This increased attention could result in a higher likelihood of being audited, even if you comply with all regulations. As a result, S corp owners may consider adopting many of the formalities that C corporations follow (such as holding regular meetings and maintaining extensive records), even if they are not legally obligated to do so.

Additional Accounting and Bookkeeping

If you choose to have an LLC filing as an S corporation, you should expect to deal with more paperwork than a regular LLC. If you were not previously responsible for payroll, you will have to do so now as an owner-employee. Additionally, your taxes will be more intricate.

Because of these extra duties, you are likely to have increased administrative expenses. You might need to hire an accountant, bookkeeper, and/or payroll software or service to help you manage these tasks.

Start an S Corp Today!

Start your S corporation with ease and speed by using our worry-free services and support.

And speak to one of our friendly & professional tax expert today!

LLC in a nutshell

A limited liability company (LLC) is a popular business structure that provides owners with limited liability protection and pass-through taxation. This means that owners are not personally liable for the company's debts and obligations, and the company's profits and losses are passed through to the owners' personal tax returns. LLCs are a great option for small businesses, startups, and entrepreneurs who want to protect their personal assets and keep their business affairs separate.

At CHY we can help setup your LLC for free.

And speak to one of our friendly & professional tax expert today!
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LLC

Ownership Structure

Can be a sole owner or involve shareholders, investors, and partners

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LLC

Taxation Rules

Can be taxed through owners’ individual tax returns or as a corporation.

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LLC

Your cut of the Profit

Each owner's investment ownership level can be determined either by direct proportion or through an agreement.

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LLC

Accountability and legal liability

An LLC is treated as a separate legal entity.

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LLC

Sources of capital

Acquire capital by means of investments and loans from both owners and shareholders.

LLC

Corporate legal shield

An LLC’s corporate legal shield offers a safeguard for the personal assets of its owners against possible lawsuits or debt collection attempts by creditors. This protection is often called limited liability, which is a crucial advantage of creating an LLC.

Start your LLC in Minutes

We guarantee accurate and timely LLC formation with our worry-free services and support starting from $0, all done quickly and easily online.

Step 1. Name your LLC

Once you have made the decision to establish an LLC, the next step is to give it a unique name that stands out from others. When selecting a name for your LLC, It is crucial to ensure that it does not already exist as another limited liability company in your state.

The degree of differentiation required for your LLC’s name varies depending on the state. While minor alterations such as modifying the punctuation or using plural instead of singular may be acceptable in some states, it is generally easier to have a more distinct name. Nevertheless, one essential element is to include “limited liability company” or an approved abbreviation of it at the end of the business name. The allowable abbreviations also differ by state.

How to Get an LLC with a Unique Name

Research is crucial when selecting a name for your LLC. You can begin by conducting a Google search and checking social media platforms. However, it's also essential to conduct a business database search on your Secretary of State's website to ensure the name is not already taken. It's also important to note that your LLC name must not have been previously trademarked, which can be either federal or state. You can check for federal trademarks on the U.S. Patent and Trademark Office (USPTO) website. To determine whether your desired business name has a state trademark, you can contact the appropriate office in your state. However, it's important to note that many states do not have a search engine for checking existing trademarks.

Registering a Trademark

After confirming that your desired business name is available, you have the option to register your own trademark. A state trademark is less expensive and less complicated, but it limits your trademark protection to the state in which it's registered.

On the other hand, federal trademarks are more expensive and take longer to obtain, but they provide nationwide protection for your company and offer more comprehensive protection. Federal trademarks also permit the use of the ® symbol, whereas state trademarks only allow TM (trademark) or SM (service mark). By trademarking your LLC, you can prevent other businesses from using the same or similar name.

Registering a DBA Name for Your LLC

If you want to use another name for your LLC, you can register a DBA (“doing business as”) name. This can be beneficial if your LLC offers multiple products or services and helps distinguish between different business aspects.

The naming regulations for LLCs vary by state, and certain words are often prohibited, including those that are obscene, misleading, or restricted such as "bank," "engineering," "insurance," and "savings." Some states require additional licenses and paperwork to use these words. After deciding on a name, you can reserve it for a fee in most states to ensure it's available when you're ready to launch your business. Additionally, it's a good idea to reserve a domain name for your company website to have it ready for launch.

Step 2. Choose a Registered Agent

A registered agent serves as a crucial link between a Limited Liability Company and the state in which it is registered. This intermediary, whether an individual or business, acts as a representative for the company and receives legal documents, tax forms, government correspondence, and notices of legal action.

Although it's possible to serve as your own registered agent if you have a physical address in the state where your LLC is registered (P.O. boxes aren't allowed), outsourcing this responsibility to a registered agent service has several advantages. It provides greater privacy and flexibility and can reduce the stress of serving as your own agent. Engaging a third-party registered agent service like CHY ensures that you remain compliant with legal requirements, always protected, and strategically organized.

Step 3. File the Certificate of Formation / Articles of Organization

The name of the paperwork required to register a business varies depending on the state where it's being filed. Typically, it's called the Articles of Organization, although some states may refer to it as a Certificate of Formation or Certificate of Organization. Regardless of the name, the purpose remains the same - to obtain state recognition of the LLC and define the particulars of its members.

Filing Requirements

To determine the filing requirements for your LLC, it's essential to check your state's Secretary of State website since they differ from state to state. The fundamental information you'll need to provide includes the LLC name, mailing address, and details about the registered agent, such as their name and address. Additionally, you may be required to specify the LLC's purpose and list any current members and/or managers.

Certain sections of the form may be unfamiliar to those new to the business world. For example, you might be asked to indicate whether your LLC is member-managed or manager-managed. In a member-managed LLC, the members handle daily operations and delegate responsibilities amongst themselves. In contrast, a manager-managed LLC has one or more supervisors appointed by the members.

You'll also need to provide the location of your business operations, which should be where members work together. If your company operates from a personal residence, you should use your home address. If mail isn't deliverable to your business location, ensure you provide a USPS-verified mailing address.

Finally, the form must be signed by an LLC organizer before submission. In most states, you can file the form online or by mail, and the Secretary of State website will have instructions for submitting the form and payment.

Step 4. Get an Operating Agreement

While not mandatory in all states, an LLC Operating Agreement is a wise business decision. This legally binding document clearly defines ownership terms, management decisions, and regulations. It safeguards the personal assets of owners, outlines ownership percentages, responsibilities, and voting power, and provides a succession plan if an owner decides to depart from the business. An Operating Agreement is invaluable in preventing miscommunication and resolving conflicts between members. Even though it is not required by law to file an LLC Operating Agreement with the Secretary of State, it is recommended that the document is securely kept with other essential paperwork once all parties have agreed to the terms and signed it.

Create an LLC Operating Agreement Online

Using an Operating Agreement template can help you establish a strong business structure and format for this crucial document. CHY provides several plan options that come with a customizable LLC Operating Agreement template at a very affordable price.

Step 5. Apply for an EIN and Review Tax Requirements

Once your LLC has been formed, it is recommended that you register it with the federal government by obtaining an Employer Identification Number (EIN) from the IRS.

An EIN is the business equivalent of a personal Social Security number and is mandatory if your LLC has multiple partners or employees. Applying for an EIN, which is also known as a Federal Tax ID Number, is free and can be done easily on the IRS website. The EIN is issued instantly when applied online.

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