This content doesn’t contain and isn’t meant to provide legal, tax, or business advice.*
There’s an abundance of information out there about how to start a business. Sometimes, all you need is a simple, straightforward step-by-step guide to take you from square one directly to your goal. That’s what we’ll do in this post: show you the six steps it takes to create an LLC.
The name of your LLC is the first contact many have with your brand, and you want it to make a good initial impression.
Naming your online store may take some time—the perfect name doesn’t come to everyone overnight. Sometimes it requires lots of brainstorming and even collaboration. There are also lots of free tools, like Shopify’s business name generator, to get your creativity flowing.
Once you’ve landed on a name, check to ensure someone else hasn’t claimed it first. Many states have business directories you can search. You’ll also want to look outside your state, especially if you plan to sell to a wide audience. Scan Google, social media, and available domain names to see what’s out there.
Your federal employer identification number (EIN) separates your personal identity from your business identity. It acts like your business’s social security number (SSN), so to speak. In other words, it’s a unique numerical combination the government uses to identify your LLC.
To get an EIN, go to the IRS website and fill out an application via online form. The process is free, takes under 15 minutes, and is completely online. You’ll get your EIN immediately upon completion.
You also need to inform yourself of any tax obligations. This includes income tax, sales tax, use tax, value-added tax (VAT), and other potential tariffs.
An LLC operating agreement is a written contract where members of an LLC can define specific responsibilities, compensation, equity, and more. Members of an LLC can customize various terms to be more specific to the needs of the business.
Some states require this document when filing your LLC. And even though it’s not mandated in every state, it can be helpful—particularly for multi-member LLCs. An operating agreement provides a clear approach to how profits and losses are handled, along with the rights of each member.
You can write the operating agreement yourselves or, better yet, start with a template or hire a registered agent service or attorney to do it for you.
It’s easier to keep personal and business finances separate. Separating your finances also provides more protection to your personal assets. You’ll need your business information, including your EIN, to open a business bank account.
Depending on the location and nature of your business, you may have to file additional paperwork as part of your articles of organization. Additional LLC formation documents could include:
When you’re ready to share your new business with the world, you can launch and promote your online store. We’ve created an online store launch checklist to help you remember everything from marketing to inventory to fulfillment. Drive traffic to your site to make your first sale, and invest in small business loans to grow your business.
Once you have your EIN and business name, it’s time to officially Register LLC everything. Registering your business is a fairly straightforward process, though there may be extra steps required for merchants operating in certain industries, like food and beverage or CBD. You may also need to get a business license, depending on your niche and location.
When it comes to sole proprietorships versus LLCs, sole proprietorships have an advantage of simpler tax filing over other business structures—owners pass business taxes through as part of their personal tax return, and income is only taxed once.
The downside of a sole proprietorship is that since the business and its owner are legally considered the same entity, owners are 100% responsible for any debts or lawsuits incurred by the business, potentially putting personal assets at risk.
Meanwhile, when comparing LLCs to corporations, both offer protections of owners’ personal assets. Corporations can offer public stock options as well as enjoy taxation flexibility. However, corporations are typically more complex to form and operate, as they have additional paperwork, a board of directors, and shareholder meetings.
Some advantages of incorporating as an LLC include:
On the other hand, there are also disadvantages to LLCs:
Single-member LLCs and sole proprietorships have one owner. While single-member LLCs can hire employees, sole proprietors don’t have that option. Owners can avoid double taxation by passing business taxes through as part of their personal tax return. Sole proprietorships don’t offer any personal liability protection.
A general partnership is an informal business arrangement where two or more people agree to own and operate the LLC equally. This means they evenly divide all profits and losses. Each partner is legally considered the same entity as the business, meaning there’s no personal liability protection in a general partnership—but partners can pass business through on their personal tax return.
Family limited partnerships, or FLPs, are formed by family members who combine resources to establish and operate a business. FLPs typically have two different types of owners—general partners and limited partners. General partners are responsible for operation, whereas limited partners don’t have any management responsibility, but can still buy into the business to get income. These are a popular choice for families who want to pass down generational wealth.
A series LLC is a type of business structure that allows an owner to separate business assets and operations into different subsets, called series. A series LLC allows each subset to function as a regular LLC while also protecting the individual series from any liabilities that another one might incur. Not all states allow series LLCs, so be sure to check with your local legislature.
An L3C, or low-profit limited liability company, is a hybrid structure that combines elements of an LLC and a nonprofit business. While L3Cs are allowed to generate a profit, this income must be used to benefit a charitable cause. Not all states recognize this business structure.
Member-managed and manager-managed LLCs, unsurprisingly, refer to how an LLC is managed. A member-managed LLC is when all owners, also called members, share responsibility for day-to-day operations. Member-managed LLCs are common with small to midsize businesses. Manager-managed LLC structures are more common for larger-sized businesses, or with owners who want a less active management role. In this case, members might either designate one or more members to handle day-to-day activities—or hire employees to take on these responsibilities.
*This post is for information only. You are responsible for reviewing and using this information appropriately. Requirements are updated frequently and you should make sure to do your own research and reach out to professional legal, tax, and business advisers, as needed. Businesses outside of New York will have different steps and requirements. To sell products using the Shopify platform, you must comply with the laws of the jurisdiction of your business and your customers, the Shopify Terms of Service, the Shopify Acceptable Use Policy, and any other applicable policies.
It costs between $40 and $500 to start an LLC, depending on the state’s filing fee. You can also hire business incorporation and registration services or an attorney to help with the process, with costs ranging from around $100 to a few thousand, depending on location and complexity.
A single-member LLC has one owner, while a member-managed LLC has multiple owners. Single-member LLC owners can run the business how they choose, while member-managed LLC owners share responsibility for day-to-day operations and decisions.
