Why you need to form a US LLC and how you can do it from anywhere in the world

April 1, 2022

5 mins

Why you need to form a US LLC and how you can do it from anywhere in the world

April 1, 2022

5 mins

A Limited Liability Company or LLC is a US-specific business structure allowed by state statute. An LLC is a legal business entity owned by its members.

Many small business owners choose this type of structure because it’s simpler to form and operate than a corporation, and offers more protection from liability than a sole proprietorship.

A key feature of an LLC is that it protects the owners or shareholders of the company against any personal liabilities that is they are not liable for any debts or liabilities incurred by the company.

In addition, LLCs function as hybrid entities, that is, they combine the characteristics of a corporation and those of a partnership or a sole proprietorship.

They can also operate with one member, as a single-member LLC, or with multiple owners.

It is also possible to have multiple businesses under one LLC. You can also use an LLC to take title to an asset, such as real estate or a car.

Ownership of an LLC is open to a broad spectrum. Members or owners of an LLC may include individuals, corporations, or other LLCs and there is no limit to the number of members. Owners can also be foreign individuals, foreign entities, other LLCs, and corporations. However, financial companies, such as banks or insurance companies, cannot form LLCs.

Generally, LLCs are much easier to set up than corporations and they provide more tax flexibility.

By default, LLCs are treated as a “pass-through” entity for tax purposes, that is LLCs avoid double taxation. However, an LLC can also elect to be treated like a corporation for tax purposes, whether as a C-corporation or an S-corporation.

With an LLC you do not have to worry so much about maintenance. There are very few requirements you have to fulfill in the state where it is formed.

Depending on the state you may be required to send in an annual report. The other requirement is that you complete a document confirming with the state if the address of the LLC changes.

So how do you form an LLC?

You can form a US LLC in 6 steps as follows:

Pick a name for your LLC
Find a registered agent in the state you want to form your LLC in
File your LLC Articles of Organization
Sign your LLC Operating Agreement
Obtain your EIN or tax ID
Open a bank account for your LLC

Name your LLC

Before you name your LLC, you need to make sure that it meets all the requirements laid down by the state where you are registering.

States have a directory where you can check through to see if your proposed business name is available. Your LLC name has to be distinguishable from any other that already exists.

Furthermore, you want your name to help you stand out with customers and stimulate recall from a branding perspective.

You do not want customers trying hard to remember your company’s name. Make the name easy to spell and easy to remember. The shorter the better, one to two syllables usually work fine.

Pick a registered agent in the state you want to form your LLC in

A registered agent or registered office essentially serves as the home base for your LLC in the US state you form your LLC in. If there are legal documents that need to be sent to your LLC, they would be sent to your registered office or agent.

There are two ways you can go about this, as a non-resident. You can decide to have a US-based family member or friend be your registered agent or you can use a commercial registered agent.

If you are going with a family member or friend, they have to agree to receive important documents and mail them to the registered address and be available during working hours Monday through Friday. They also have to be recognized by the state as a registered agent.

This is a lot of hassle so we don’t advise it. There is an easier way to go about it and it is by working with a commercial registered agent.

Commercial registered agents can receive your legal and regulatory documents and forward scanned copies of the same to your email for a fee.

A few of them also offer added services like a virtual assistant who can make appointments and pick calls placed to your LLC.

File your LLC Articles of Organization

The state where you are registering your LLC will require that you file Articles of Formation.

They are also called Articles of Organization, Certificate of Formation, or Certificate of Organization. This is to establish the existence of your LLC with the state where you are registering.

You can decide to file this document with the state by mail, or by filling out a form online. You would have had to have selected your LLC name and your registered agent before you can proceed.

Sign your LLC Operating Agreement

An Operating Agreement is an agreement between the member(s) of the LLC that sets forth how the LLC will be managed financially and operationally.

Unlike your LLC Formation Documents, the Operating Agreement does not need to be mailed to the state. It is an internal document, that is you just need to keep a copy of it in your in-house business records.

The purpose of the Operating Agreement is to spell out who the members of the LLC are and what percentage of it they own. This percentage is known as membership interest. It also defines how the LLC is managed, how taxes are paid, and how profits and losses are distributed amongst the members.

Obtain an EIN or tax ID

Your Employer Identification Number (EIN) signifies your registration with the United States Internal revenue Service (IRS). You do not need to be a citizen or a resident to apply for an EIN. However, as a non-resident, you cannot apply for it online, except if you are using a service, which would attract a fee.

Your EIN is important because you will need it when filing taxes for your LLC. If you wish to carry out the process yourself you would need to fill out a form called SS-4 and mail or fax it to the IRS.

Open a bank account for your LLC

The next step is opening a bank account for your LLC. Once your EIN application has been approved you can then apply for a US-based bank account. The easier way to do this as a non-resident is to open an account with an online bank. You can perform the entire process remotely.

Wrapping up

So there you have it: a step-by-step guide to forming your LLC in the US in days.

As you can tell this is a lot of work that takes you away from your core job of focusing on your product and market strategy and penetration.

So what to do? Let Kwanza handle your LLC formation for you. With our all-in-one US formation service, you’ll get: