If you’re looking to start selling on Amazon, setting up an LLC is a great place to start. Creating your own LLC will help you to establish your own private label brand. This is highly popular for people looking for a side hustle or larger opportunity to help make money from home.
What is an LLC?
LLC stands for Limited Liability Company. It is a legal entity that separates and protects your personal assets if your business is sued (fingers crossed that doesn’t happen!).
While the concept of forming your own company might seem daunting, creating your own LLC does not have to be scary or overwhelming.
Here are the 3 main steps to setting up an LLC:
- Pick a state
- Pick a name
- File the paperwork
Let’s dig in deeper so you’re ready to go!
1. Pick a State
Where should you form your LLC?
The first step in setting up an LLC is picking a state. There is such a thing as “hype states” however, so take caution here. Every state has its own set of rules and requirements regarding LLCs, so make sure you choose the right one for you. States like Delaware and Nevada are often hyped up as great places to form LLCs, but unless you are a resident of those states, they will only increase your costs and double your paperwork.
So which state is the best state to organize your LLC in?
The short answer: the state you live in is the best state!
The long answer: when deciding on which state to register your LLC in, there are two questions you should consider.
- Where do you live?
- Will your business have a physical presence outside of the primary location?
Keep in mind that LLC regulations vary per state. Make sure you double check your state’s laws, regulations, and fees before you start the process. You can find all that information at its Secretary of State’s Office or online with a quick Google search.
If you’re using a website to find that information, make sure the url ends in “.gov” or the state’s abbreviation. This ensures the information you will be receiving is accurate and up to date on your state’s LLC best practices, rules, and regulations.
Where do you live?
What is your physical address? Where does your mail get delivered to? Wherever it is, that is the state and location where you should form your LLC. Why?
Well, there are a lot of reasons, but the short answer is it saves on fees and paperwork.
What if you want to form it someplace else?
If you want to form an LLC that is outside of the state you live in, you most definitely can. What you would need to file for is a Foreign LLC. If you choose to go this route, make sure you have a full understanding of what it means to form a Foreign LLC. When you form an LLC in the state you live in, you are forming a Domestic LLC. If you form an LLC in a state you do not live in, you are forming a Domestic LLC and a Foreign LLC.
For example, if you live in Indiana but want to do business in Wisconsin, you would file for a Domestic LLC in Indiana. Once your Domestic LLC is filed and certified by the state of Indiana, you would then move forward with filing a Foreign LLC in Wisconsin.
While forming a Foreign LLC has its own benefits, it will have a higher price tag and require more paperwork.
Forming a Foreign LLC essentially means you have 2 LLCs, one in your home state (domestic) and one in a different state (foreign). This leads to you doubling what you would have to do if you were only establishing a Domestic LLC.
With a Foreign LLC, you would have:
- 2 LLCs (Domestic and Foreign State)
- 2 state filing fees
- 2 annual report fees
- 2 registered agents (one in each state)
As you can see, setting up a Domestic LLC in your home state is the most cost-effective way to go!
What if your LLC will have a business presence outside of the primary state?
A business presence could be a storefront, office, or even a sales representative. If you have any of these outside of your primary state, filing for a Foreign LLC is a must! While it involves extra costs and paperwork, it is a small price to pay to make sure your LLC is legal in all states.
Other reasons for forming a Foreign LLC include:
- Having a business bank account in another state
- Selling in a state through an agent, distributor, or manufacturer
- You transact or hold business in that state
What if it is all online?
As for a business that is 100% online, like many third-party Amazon sellers are, the answer is still a Domestic LLC. This is because the majority of online businesses are run from people’s homes. Even if you travel while working, you should register your LLC in the state you have the biggest connection to.
To determine which state that is, ask yourself the following:
- Where is your primary address?
- What state do you file taxes in?
- What state are you a resident of?
The answer to those questions will lead you to the best state to file in. Once you have determined what state you will be filing in, the next step in setting up an LLC is finding a legal name!
2. Pick a Name
What should you name your LLC?
A good LLC name is valuable because it helps customers remember and distinguish you from other competitors.
When it comes down to it though, deciding on your LLC name is more than just picking something that sounds cool. Yes, you want something that is unique which your customer base will remember, but you want to make sure you do it right.
Is it legal?
The official name that appears on file with the state is your LLC’s legal name. This is a crucial asset to your LLC so make sure your name is legal.
- It cannot include state-prohibited words such as Bank, City, or Insurance.
- It must include Limited Liability Company or an acceptable abbreviation (LLC, L.L.C., Ltd. Liability Co.) at the end.
- The legal name cannot be the same as an LLC that already exists on file.
Each state has its own list of prohibited words. These are in place so your LLC will not get confused with official government agencies, offices, or businesses. There are also words that are restricted, pending state approval. These might include words such as Bank, Insurance, or Hospital. You can file to have approval to use those words, but it will cost a small fee and will lengthen how long it will take to fully register your LLC.
Is it available?
To find out if the name you want is available, you can do a name check. Your state’s LLC office will be able to tell you if your proposed name is available or not. Websites like LegalZoom also offer services including checking LLC name availability. If it is, great! You can move forward with filing. If not, it’s unfortunately back to the drawing board.
If your name is available but you are not quite ready to file, one thing you can do is reserve your LLC name. Most states will allow you to reserve an LLC name for a short period of time for a fee.
The final step to take in setting up an LLC might seem like the least fun, but will actually take you the least amount of time.
3. File the Paperwork
What paperwork is the right paperwork?
After deciding on your state and LLC name, next comes the paperwork. And let’s be real, paperwork is not fun. It can be time consuming and confusing. Thankfully, the paperwork for registering an LLC is actually very user friendly! On average, it will only take you a half hour to an hour to complete it.
What you will be filing is known as Articles of Organization and an LLC Operating Agreement.
Articles of Organization
Articles of Organization is a formal legal document that needs to be filed to establish a limited liability company at the state level.
Forming and filing this paperwork should take less than an hour. You can either do it yourself or consult an experienced attorney. Most states’ Secretary of State websites contain pre-printed forms for you to use so you can just fill in the blanks. Companies that specialize in helping people file for LLCs also offer free Article of Organization forms that are user friendly. So if you want to do it yourself, you are certainly able to. Plus you’d be saving on attorney fees!
Just do a quick online search to find the one that best fits your LLC. Wonder. Legal offers a great online template that allows you to select the state you want to form your LLC in and updates the template accordingly.
Having trouble finding Articles of Organization in your state? Try searching for a Certificate of Organization or Certificate of Formation. Same thing, just different names.
Here’s what information is included:
- Name of the LLC
- Address of the LLC (principal place of business)
- Type of Legal Structure (i.e. a Limited Liability Company)
- Purpose of the LLC’s business (use broad language to avoid limiting future prospects)
- Name and address of the registered agent
- Name(s) of manager(s) and members of the LLC (if known at the time of filing)
- Effective Date
Every business that is registered with a state as a legal entity must have a registered agent. Also called a statutory agent or agent of process, a registered agent is the person who will accept federal and state legal documents and service of process.
Be careful about companies telling you to hire them as your registered agent. Some trick people into thinking they need an experienced company, but that just results in more money out of your pocket.
Anyone can be a registered agent! You, a friend, a family member, etc. As long as they have a business address in the state your LLC is located and are available during business hours, they can be your registered agent.
Once all of that information is gathered, all that’s left to do is sign and file. When filing, you also need to take into account the cost of filing fees.
Make sure you check filing fees in your state. Articles of Organization can be filed with your state’s Secretary of State office or a similar state agency that can handle business registration. All states require payment of a corresponding filing fee. The amount varies depending upon the state of organization. While most states have modest fees averaging $50, other states such as Tennessee charge $300.
LLC Operating Agreement
An LLC Operating Agreement is rarely required to be filed by state law, but it is essential that one is still created. LLC Operating Agreements set rules of ownership and operation of business. It allows you to structure the financial and working relationships in a way that best suits your business. This can be for a single-member LLC or a multi-member LLC.
The operating agreement helps guard your limited liability status and ensures your business is governed by your rules.
Here are the main things typically included in LLC Operating Agreements:
- Percentage interests of member(s)
- Rights and responsibilities of member(s)
- Voting powers
- How profits and losses will be allocated
- How the LLC will be managed
- Meeting and voting procedures
- What to do if a member wants to sell their interest dies, or becomes disabled
Many companies have created templates for LLC Operating Agreements so you do not need to start from scratch. The Northwest Registered Agent offers an amazing free LLC Operating Agreement pdf and/or Word download.
Next Steps for Setting Up an LLC
You’ve completed the 3 main steps to setting up your own LLC. Congratulations! So what comes next?
Publish a Notice (if required by state)
Depending on your state, there may be an additional step. A few states require you to publish a notice in a local newspaper. It is a simple notice that states you are forming an LLC. It must be published several times over a period of weeks and an “affidavit of publication” is then submitted to your LLC filing office. If you are having trouble with that, your local newspaper should be able to help you out.
Licenses and Permits
After filing, be sure to secure all licenses and permits before you open your doors. Not all businesses are the same, so what you need will vary depending on the purpose of your LLC.
Here are the most common licenses and permits you may need:
- Business license (tax registration certificate)
- Federal Employer Identification Number (EIN, Employer ID Number, Federal Tax Number, etc.)
- Seller’s permit
- Zoning permit
Annual LLC Fees
In addition to the one-time filing fee to form your LLC, each state requires an annual fee. The annual fee is called the Annual Report in the majority of states but can also go by these names:
- Annual Certificate
- Annual List of Members
- Annual Registration Fee
- Biennial Report
- Biennial Statement
- Business Privilege Tax Return
- Decennial Report
- Franchise Tax Report
- Periodic Report
The average annual fee in the United States is $100. There is no way around this. You must pay this fee to keep your LLC in compliance and in good standing regardless of income or LLC activity. If you do not pay it, your LLC will be dissolved.
Did you know that Viral Launch Started as an LLC?
Casey Gauss was a fresh college dropout and coding with socks on his hands to stay warm when he co-founded Viral Launch as an LLC in 2014. It is now 2018 and that LLC has transformed into a tech company that has over 50 employees. Driven by the desire to help other people launch their own online businesses, Viral Launch continues to grow as an 8-figure corporation.
If Casey was able to do it, why not you?
Viral Launch is Here for You
As always, Viral Launch is here to help you in your Amazon journey. For more tips on Amazon advertising and selling strategies, we encourage you to subscribe to our blog, check out our Youtube channel, and listen to our Follow the Data podcast.