Almost everyone shares the similar dream of starting their own business. This gives you the benefits of being a business owner, and more importantly, being your own boss.
One way you can achieve this is by forming your own limited liability company (LLC). This offers some benefits different from the ones given from a sole proprietorship.
But how long does it take to set up an LLC? The average data processing time for most states is about seven to ten business days.
Other states could take up to four to six weeks to finalize. We’ll break down why it will take this long to form your LLC and start running your business.
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A Limited Liability Company (commonly known as an LLC) is a business structure created under state law that offers the benefits of pass-through taxation and limited liability protection. We’ll explain what these are later in the article.
These are the key differences between an LLC and a sole proprietorship.
Typically, a person may change a sole proprietorship to an LLC business. However, sometimes an LLC can also be set up as the first business.
Similarly to corporations, an LLC is an independent legal entity created to be separate from the owners.
This allows a business owner to not be held personally responsible in the case that the business goes through debt, bankruptcy, or any form of liability.
The owners are able to conduct business while protecting their personal assets. If the business goes through hardships, the only asset that can be seized is the business bank account or any property strictly related to the business.
Before we get into how long an LLC takes to set up, let's take a look at the LLC formation process and the steps you need to take to file this business structure.
When setting up an LLC, you are required to file a Certificate of Organization form. This is also commonly referred to as the Articles of Organization.
The Articles of Organization verify your LLC within the state. This legally binding document is sent to the Secretary of State for processing and approval.
The following are included in your submission of the Articles:
Keep in mind that you will also need to pay a filing fee when you are filing your Certificate of Organization form.
Also, you should obtain an LLC Operating Agreement when you are setting up your LLC. Operating agreements are not mandated by the state, however they are helpful for you and your business. They outline the management of your legal entity while also helping with your federal taxes.
Along with your EIN, you may also need to get a zoning permit. These legal documents will make sure that you are following the requirements of the area when you are operating your business.
Depending on your state, there can also be some differences in the process. For example, the state filing fee may be different. It is worth consulting with a law firm to confirm the laws in your state to avoid any additional fees.
When you have all of the necessary documents, you are ready to begin the process of your LLC formation.
The first thing you need to do is submit the Articles of Organization. Doing this will register your unique business name. It will allow the state to process your submitted documents.
Some states will also require a business to submit an annual report on their business activities. So, you should be ready to record and provide that information to the state office.
You also need to select a registered agent to communicate and serve as the middleman between your LLC and the state government. Each state requires an LLC to have a registered agent to process documents and ensure that you are compliant by maintaining paperwork.
Lastly, you should finalize your operating agreement when you form an LLC. Remember, this agreement will serve as the guideline for your organization and operations.
Read more about the best States to form an LLC in.
Each state has its own specific set of rules and requirements for setting up an LLC and processing the paperwork. This means the time it takes to set up an LLC can vary depending on where you are.
The typical time is 7 to 10 business days while in some other states it could take about 4 to 6 weeks. For example, Arizona takes about 22-27 business days to process the submitted documents.
After you file your application, the state will review and approve your submission. In some states, it could be as be as fast as 3 business days as they will approve the articles of organization immediately.
It is worth noting that filing online is generally faster and will take less time to form your LLC.
You can file the documents online in mere minutes, or submit the documents by regular mail which can range from a few business days to weeks.
Some services, such as GovDocFiling Packages, allow you to file documents online within minutes.
The total turnaround time to form an LLC varies by each state. It depends on how fast that state processes business filings.
It is also worth keeping in mind that there may be delays due to COVID 19. Certain states have suspended some services which may affect business filings and the time it takes to review applications.
So how fast can you get an LLC approved and formed in your state?
First you should make sure that you have all of the documents needed for your LLC application. Once you have submitted your application, your application will be reviewed and the approval time will be based on your state.
In some states, once all of your information is received, the state agency will often issue approval for the LLC within only three business days.
LLC formation can be quick depending on the state and if they allow options to speed up the process.
In some cases you can request expedited processing. If you choose to do this, your application will be reviewed ahead of others.
It depends on your state and the price of the additional fee will vary. However, it can greatly reduce how long it will take to form your LLC.
The expedited processing can reduce the processing time by up to 10 business days.
Since expediting depends on the states and each state's timeline will vary, not all states will offer this option.
For example, all LLC filings in California are approved within three to five business days, so they don't offer an expedited filing option.
In this scenario, the only way to speed up your LLC formation would be filing it online instead of regular mail.
When you form an LLC, it can be good for one to two years depending on the state that you are located in. When the period ends, you must renew your LLC.
The renewal fee for your LLC will vary based on the state that you are set up in.
The process to form an LLC isn't complicated as long as you have the necessary documents. It won't cost you a lot of time.
It also won't cost you much money either.
Depending on the state, the LLC fees to set up and file paperwork will range anywhere between $40 to $500.
If you opt to use filing services, then they can charge an additional fee to assist you with the procedures.
You can also incur more fees if you choose to put a rush on your LLC processing.
Why should you switch to an LLC? At what point do you need a limited liability company?
The LLC benefits are different from a sole proprietorship. As mentioned earlier, the two major benefits are pass-through taxation and liability protection to safeguard your personal assets.
As the owner of an LLC, you will only be required to file individual taxes. Business income or losses will be passed through to the business owner.
This means that the Internal Revenue Service (IRS) will not require you to file separate income taxes for your business.
Your company's profits will be part of your personal income. Therefore, it will be taxed on personal income tax rates.
When you are running a sole proprietorship, you represent the same entity as your business. This means that you share the same debts and liabilities as your business.
If your business were to acquire debts or liability issues, then creditors will have the right to seize your personal assets such as your home, savings accounts, and more.
However, when you own an LLC, you are protected. Your business organization and your personal life are held separately. You will no longer be held responsible for the business debts and liabilities.
Being protected means creditors cannot seize the personal items of members such as their cars, bank accounts, or houses even if the company goes bankrupt. It is a good idea to have a separate business checking account for an LLC.
As long as you do not pierce the corporate veil, you are protected. Piercing the corporate veil is a unique situation in which business transactions are mixed with your personal transactions. This will void the personal liability protection that an LLC offers if a court decides to hold LLC members responsible.
A verbal contract (formally called an oral contract) refers to an agreement between two parties that's made —you guessed it— verbally.
Formal contracts, like those between an employee and an employer, are typically written down. However, some professional transactions take place based on verbally agreed terms.
Freelancers are a good example of this. Often, freelancers will take on projects having agreed on the terms and payment via the phone, or an email. Unfortunately, sometimes clients don't pull through on their agreements, and hardworking freelancers can find themselves out of pocket and wondering whether a legal battle is worth all the hassle.
The main differences between written and oral contracts are that the former is signed and documented, whereas the latter is solely attributed to verbal communication.
Verbal contracts are a bit of a gray area for most people unfamiliar with contract law —which is most of us, right?— due to the fact that there's no physical evidence to support the claims made by the implemented parties.
For any contract (written or verbal) to be binding, there are four major elements which need to be in place. The crucial elements of a contract are as follows:
Therefore, an oral agreement has legal validity if all of these elements are present. However, verbal contracts can be difficult to enforce in a court of law. In the next section, we take a look at how oral agreements hold up in court.
Most business professionals are wary of entering into contracts orally because they can difficult to enforce in the face of the law.
If an oral contract is brought in front of a court of law, there is increased risk of one party (or both!) lying about the initial terms of the agreement. This is problematic for the court, as there's no unbiased way to conclude the case; often, this will result in the case being disregarded. Moreover, it can be difficult to outline contract defects if it's not in writing.
That being said, there are plenty of situations where enforceable contracts do not need to be written or spoken, they're simply implied. For instance, when you buy milk from a store, you give something in exchange for something else and enter into an implied contract, in this case - money is exchanged for goods.
There are some types of contracts which must be in writing.
The Statute of Frauds is a legal statute which states that certain kinds of contracts must be executed in writing and signed by the parties involved. The Statute of Frauds has been adopted in almost all U.S states, and requires a written contract for the following purposes:
Typically, a court of law won't enforce an oral agreement in any of these circumstances under the statute. Instead, a written document is required to make the contract enforceable.
Contract law is generally doesn't favor contracts agreed upon verbally. A verbal agreement is difficult to prove, and can be used by those intent on committing fraud. For that reason, it's always best to put any agreements in writing and ensure all parties have fully understood and consented to signing.
Verbal agreements can be proven with actions in the absence of physical documentation. Any oral promise to provide the sale of goods or perform a service that you agreed to counts as a valid contract. So, when facing a court of law, what evidence can you provide to enforce a verbal agreement?
Unfortunately, without solid proof, it may be difficult to convince a court of the legality of an oral contract. Without witnesses to testify to the oral agreement taking place or other forms of evidence, oral contracts won't stand up in court. Instead, it becomes a matter of "he-said-she-said" - which legal professionals definitely don't have time for!
If you were to enter into a verbal contract, it's recommended to follow up with an email or a letter confirming the offer, the terms of the agreement , and payment conditions. The more you can document the elements of a contract, the better your chances of legally enforcing a oral contract.
Another option is to make a recording of the conversation where the agreement is verbalized. This can be used to support your claims in the absence of a written agreement. However, it's always best to gain the permission of the other involved parties before hitting record.
Fundamentally, most verbal agreements are legally valid as long as they meet all the requirements for a contract. However, if you were to go to court over one party not fulfilling the terms of the contract, proving that the interaction took place can be extremely taxing.
So, ultimately, the question is: written or verbal agreements?
Any good lawyer, contract law firm, or legal professional would advise you to make sure you formalize any professional agreement with a written agreement. Written contracts provide a secure testament to the conditions that were agreed and signed by the two parties involved. If it comes to it, a physical contract is much easier to eviden in legal circumstances.
Freelancers, in particular, should be aware of the extra security that digital contracts may provide. Many people choose to stick to executing contracts verbally because they're not sure how to write a contract, or they think writing out the contract terms is too complicated or requires expensive legal advice. However, this is no longer the case.
Today, we have a world of resources available at our fingertips. The internet is a treasure trove of invaluable information, platforms, and software that simplifies our lives. Creating, signing, and sending contracts has never been easier. What's more, you don't have to rely on a hiring a lawyer to explain all that legal jargon anymore.
There are plenty of tools available online for freelancers to use for guidance when drafting digital contracts. Tools like Bonsai provide a range of customizable, vetted contract templates for all kinds of freelance professionals. No matter what industry you're operating in, Bonsai has a professional template to offer.
A written contract makes the agreement much easier to prove the terms of the agreement in case something were to go awry. The two parties involved can rest assured that they're legal rights are protected, and the terms of the contract are sufficiently documented. Plus, it provides both parties with peace of mind to focus on the tasks at hand.
Bonsai's product suite for freelancers allows users to make contracts from scratch, or using professional templates, and sign them using an online signature maker.
With Bonsai, you can streamline and automate all of the boring back-office tasks that come with being a freelancer. From creating proposals that clients can't say no to, to sealing the deal with a professional contract - Bonsai will revolutionize the way you do business as a freelancer.
Why not secure your business today and sign up for a free trial?