The goal of this resource is to share the process required to form an LLC for your creative business.
By the end, you’ll know the general process required and will just need to research and submit the right forms for your state. (Not sure if your business is ready for an LLC yet? Then hop over to this “Should I be an LLC?” in-depth resource.)
Why should you trust me?
You might not know who I am. So, why should you trust what I say?
Hi! I’m Kiffanie Stahle, founder of the artist’s J.D. A place designed to add ease to the legalese of running your creative business.
In addition to running the artist’s J.D., I am a licensed California attorney. And day in and day out, I’m helping my clients run successful, thriving creative businesses (with all their legal ducks in a row).
Since at a certain point many creative businesses transition to an LLC, creating LLCs is a regular part of my practice. In fact, over the past 10+ years, I’ve formed hundreds of California LLCs.
So it’s safe to say that I know a thing or two about how to transition your business into an LLC.
Overview of process
The process of creating an LLC isn’t hard. You have to:
- pick your LLC name
- mail forms to your state
- appoint an agent of service of process
- publish your LLC name (in some states)
- create an operating agreement
But doing each of these five steps correctly is the difference between having an LLC and having an expensive piece of paper.
What do I mean?
When you are a sole proprietorship or a partnership if anything goes wrong in your business, your personal assets are affected.
But once you start to accumulate personal assets you don’t want to risk those if something goes wrong in your business. And so by creating an LLC, those assets become off-limits. LLCs effectively put a fence between your personal life and your business life. (Read this in-depth guide if you want to know more.)
But if you don’t do these steps right (or fail to keep your LLC legit after it’s created), then you weaken your fence. And make it easy for lawyers to knock it down when anything goes wrong. This means, you might have an LLC on paper, but it carries no legal weight. And when that happens, your personal assets are back on the table.
This post guides you through the five steps that you’ll need to complete to form your LLC. (Plus a bonus sixth step because you might need to prepare and submit documents within the first few months. And I couldn’t leave you hanging.)
Step 0: Decide what state is your home base
For the vast majority of you, the state you’re going to create your LLC in is the state you live in.
Occasionally I will get the question, “Well, I’m an online-only business. You know, South Dakota, Wyoming, some of these other states, Nevada have no business taxes, have no income taxes. So I want to create my LLC there.”
The reason I would discourage you from doing this is that even though you’re an online-only business, you are still a resident of a specific state. You are still sitting in your studio to create. You still have a physical location where you store your products (and where people can return them to). If you sell digital products, you still have a physical location where you work. And if you are complying with email marketing laws, you have a postal address in the footer of your email marketing messages. And so that state that you are a resident of, is going to want to say that you are doing business in their state.
And so even an online-only business isn’t going to really save themselves anything by registering in another state.
And there are a couple of exceptions to this, including if:
- you have a warehouse or brick and mortar store in another state
- you have employees in another state
- the business owners are residents of multiple states
- you are only a short-term resident of the state (e.g. while in school or military)
And in these cases you’ll usually need your LLC recognized by multiple states, so you’ll create it in the state you have the longest term connection to (or the cheapest) and then once it’s created get it recognized by other states.
Step 1: Choose a name
The default rule is that your LLC name should be:
Business Name LLC
As long as the default rule complies with the laws of the state you are creating your LLC in.
(What do you do if you want to have multiple brands in the same LLC? Check out this post.)
To find the rules in your state, you’ll want to check the website of the LLC division. This is usually part of the Department of Corporations or Secretary of State. But in general, these rules are that your LLC name:
- must end with an LLC designator, e.g. LLC, L.L.C., or Limited Liability Company
- cannot include prohibited words, e.g. bank, insurance, corporation, or city (these vary state to state)
- cannot be the same as another LLC on file in that state
In order to figure out if your LLC name meets the last criteria, you’ll need to search your potential LLC name in your state’s LLC database.
Most states will let you search their online database for free. If not, they’ll have a process where you can search your desired name for a small fee.
If you need time to file your documents, and you are concerned that someone will take your name, most states have a solution. And will allow you to reserve the name for a period of time for a small fee, while you prepare your filing documents.
While the requirements of your state might be fairly simple to comply with, you must also make sure that your name won’t infringe on another company’s trademark.
For example, I could probably form Etsy, LLC with my state officials. But this won’t stop Etsy’s lawyers from sending me a cease and desist letter when I open a store featuring locally handmade goods. And that’s because the name that I picked, could confuse consumers and infringe on Etsy’s trademark.
To check the availability of a trademark, you need to perform a detailed trademark search. You can find out my step-by-step process here.
Want to dive in deeper?
- Should you have multiple brands or projects in the same LLC? Watch this video to understand when it does (and doesn’t) make sense.
- Get my step-by-step process for doing a trademark search.
- When naming (or re-naming) my business do I need to do a trademark search? Learn my answer here.
Step 2: File articles of organization
The first document you need to file with your state officials is often called “articles of organization.” Some states call this document a “certificate of formation” or “certificate of organization.” Regardless of the name, this document is what legally creates your LLC in your state.
The department in your state where this form is filed also goes by different names, some states it’s the Secretary of State, while others Department of Corporations, but a Google search usually can quickly tell you the name in your state.
The “LLC Creation” form is usually simple. It requires you to enter your LLC’s name, its address, and in some states the names of the owners. (The business owners go by the legalese name of members). If the LLC has more than one member, some states require all the owners to sign this initial filing document.
When you submit this initial filing document, you’ll also have to pay a filing fee. This amount varies, some states like California are $70, but Massachusetts is $520. This filing fee is often listed on your articles of organization or can be found on your state’s website.
Once you have this form back from your state, it’ll be stamped and filed and your LLC will officially exist!
(Want a quick cheatsheet with direct links to all the forms, fees, and requirements for your state? It’s included for all 50 states and the District of Columbia in my LLC book!)
Step 3: Appoint a registered agent
A registered agent, statutory agent, or agent of service of process is a person/business that will receive legal paperwork for the LLC. And you’ll be required to tell the state who this is on either your initial filing document or your initial report.
The LLC’s registered agent is:
- public record, usually in a free, easily accessible, public, online database
- required to have a physical street address in the state (no P.O. Boxes or mailboxes at places like the UPS Store)
- required to be at that physical street address M-F during normal business hours (9 AM – 5 PM)
And most states will allow you to function as your own LLC’s registered agent, but not all states do.
But even if you can function as your own LLC’s registered agent, when do I recommend you do it yourself? And when do I recommend that you hire it out?
If you have a physical location that is not your home, like a storefront or a studio space, and someone is always there during normal business hours, then I would say do it yourself. Because you will save yourself about $100 a year while meeting the legal requirements and not giving up any privacy.
But if I worked from home or had a physical location that I didn’t want to be at 9 AM – 5 PM Monday through Friday so I had the flexibility to travel, have long lunches, or pop in random galleries, then I would hire it out to a commercial registered agent. If you are going to hire it out, then you can use our partner Northwest Registered Agent for $125/year to act as your LLC’s registered agent. (If you use our partner, we’ll earn a small commission and won’t change the price you pay, but we love and use them personally for many reasons including that they are a Privacy First company.)
Step 4: Publish your LLC name
In a few states to finish creating your LLC, you must publish a legal notice. This is done for several consecutive weeks in a newspaper.
After it’s been published for the appropriate time, you’ll get an “affidavit of publication” from the newspaper to provide to your state to prove you met this requirement.
(Want a quick cheat sheet to find out if publication is required in your state? And if it is, how to reduce the cost associated with this step? It’s included for all 50 states and the District of Columbia in my LLC book.)
Step 5: Prepare an operating agreement
Even though only a few states require operating agreements, all LLCs should have one.
If you are running your LLC alone, it might seem like overkill. But when you are running your business alone, it’s even more important to follow the silly “rules” and formalities to prove that you are running your LLC like it’s expected and that you deserve to keep your fence.
If you are running your LLC with others, an operating agreement is the rules, boundaries, and expectations between the business owners. It also pre-determines outcomes if specific situations arise. (If it sounds a lot like a contract, that’s because it is!)
For example, your operating agreement should spell out:
- what percentage of the business each of you owns
- each owner’s contribution to the business (financial, property, or hard work)
- how profits (and losses) will be shared
- the roles and responsibilities of each of the owners
- how owners will vote on business decisions
- who will manage the LLC on a day-to-day basis and what they have to consult with the others about
- when meetings must be held and what can be voted on at those meetings
- what happens if one of the owners dies, becomes disabled, or wants to leave the business
- how an owner can be forced to sell ownership in the business
Step 6: Next steps to creating an LLC
Of course, that’s not it!
Once you create your LLC, you need to do all the things to keep your LLC’s fence strong.
- filing any initial reports or ongoing annual reports your state requires
- paying your state’s LLC franchise tax when required
- creating a central file of important legal documents
- getting an EIN for your LLC
- getting any required permits and licenses (or transferring existing ones over to your LLC)
- making sure the LLC has its own money separate from yours
- showing off your LLC status
- documenting major business decisions
Want help tackling these next steps? Check out this in-depth resource on maintaining your LLC.