Legal Topics

Author: Priyanka Saxena on Sep 28,2017

How to Start a Limited Liability Company

When it comes to starting your own business, there's more to get done besides obtaining a loan and hiring employees. For the sake of protecting yourself and your investors from financial ruin, such as the payout for a major lawsuit, you as an entrepreneur would have to attain limited liability.

What is Limited Liability?

In laymen's terms, limited liability means that all members of a particular company are protected from some legal liability for what the company does as a whole. For example, if a customer were to file a lawsuit or there's an issue regarding the company's debt, then the company would be a legal shield for its individual members or shareholders. They would not have to file for personal bankruptcy in the event of having to pay major claims, but under the law, their company would make their settlement on their behalf.

The advantage of a limited liability company (LLC) is that it combines the legal protection owed to a corporation with the tax benefits of a partnership. This model is flexible and well-suited for businesses operating under a single owner.

How to Start Your LLC:

Here is how you can set up your own LLC.

1. Choose a name for your company. Your business name should be well-researched against the names of other LLCs listed by your local or state government, and it shouldn't infringe on any other company's trademark. The legal name of your business will also need to end with the phrase "Limited Liability Company," "LLC," or some other abbreviation.

2. File Articles of Organization with your state's business office. The articles of organization refer to the document that formally creates your LLC, providing the names of its members and answering whatever requirements your state mandates for the creation of a new business. Some states also require you to submit a filing fee and that you designate one of your members as a "registered agent." This member will receive and handle all legal documents in the event of a lawsuit or court summons, as well as handle the annual renewal of your business charter.

3. Write up an LLC operating agreement. This step is not usually required by law, but it can provide your company with legal protection in the event of an employee dispute. Your operating agreement should spell out the members' percentage ownership in the business, rights and responsibilities, allocation of profits and losses, and rules for meetings and votes. In this case, you may wish to obtain the services of a good lawyer who can ensure that your agreement reads consistently and is fair to all LLC members.

4. Get all the necessary licenses and permits before you open. Some states require small businesses to have a specific license in order to operate. Fortunately, the Small Business Administration provides a webpage listing each state's licensing requirements for reference.

For more information on state business law and setting up a limited liability company, visit and other relevant legal sources.

Image by Florida Coastal School of Law on Flickr

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