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Free LLC Formation – What You Need To Know

Are you one of those in search of how to form a free LLC online? If yes, then the post is for you. If not, there is still something to learn about free LLC formation.

There are websites that advertise free LLC formation online. The impression they create is that a business owner can start a free LLC online.

Before you think that you can actually form a free LLC online without spending money because of the catchy headlines or advertisements you see on the internet, we want to disappoint you early enough that there is nothing like free LLC formation online or offline.

Do not hurriedly close this page because you have been told there is nothing like free LLC formation. There is a reason why some of these LLC formation companies claim you can form an LLC for free. They are right, but you can only agree when you truly understand what it takes to form an LLC.

If you are new to the world of LLC formation, this article will walk you through each step so that you can form your own LLC.

In this article, we will talk about what an LLC is and the benefits you get by forming an LLC.

There are several types of business structures you can choose when starting your own business. This can be a little confusing and overwhelming, but it doesn’t have to be. One of the most common business structures is by using an LLC (limited liability company).

What Is An LLC?

LLC or limited liability company is a type of business legal structure in the US that allows for your personal assets to be protected in the case of a lawsuit or other government action.

Business owners choose LLC business formation when they want to protect personal assets from business liabilities and also receive some tax advantages. LLC or limited liability company limit a business owner’s financial liability.

In the United States, there are two main types of business structures: corporations and limited liability companies (LLCs). The main difference between these two business models is that LLCs aren’t as restricted when it comes to the personal liability of owners. While the corporate structure requires shareholders to be protected by “limited liability,” LLC members enjoy the same protection.

If you have got a small business, you will want to learn about limited liability companies (LLCs). They are the newest type of business entity. In fact, over the last decade, more businesses have made the shift from using C corporations and S corporations to LLCs.

While there are many ways of starting a business, you have to remember that the main reason for its formation is to register it as a legal entity.

When looking for a business to invest in, you should always look for the downside risk. It is very important to protect your investment by setting up things the right way from the get-go. This includes the legal structure of your company.

With these few explanations on what is an LLC, the next phase is how to form a limited liability company, but we are yet to address what it means to form a free LLC online.

First and foremost, it is imperative to know the benefits and drawbacks of an LLC.

You should know the advantages and disadvantages of an LLC

Advantages of Limited Liability Company (LLC)

  • Limited Liability

Members of LLCs are not personally liable for the actions of the company. This means their personal assets such as bank accounts, houses, cars, and other investments — are safe from creditors trying to collect a debt from the business. The creditors can’t go after personal assets like a house or car to pay for business-related debts.

This protection stays in place as long as you operate the business honestly and keep your personal finances separate from those of the business. That is if you maintain a separate business bank account, run your business above-board, and keep good records of your finances, your personal assets will remain safe.

If your business is sued due to an employee or business partner’s negligence, your personal assets will be protected. All your company property belongs to the company; the company is a separate legal entity, which owns all its assets.

This benefit is not available to sole proprietors or a partnership business because you and the business is legally the same person. So if you are sued due to your own, employee or partner’s negligence, your personal assets might be at risk.

  • Pass-Through Taxation

LLCs have better tax advantages and flexibility. Pass-through taxation is an advantage of LLCs. Because the IRS automatically classifies LLCs as either partnerships or sole proprietorships, depending on how many owners the company has, all LLCs are eligible for pass-through taxation.

Instead of paying federal income taxes on its profits, the business passes the income and expenses through to the personal tax returns of the owners, and they pay income tax on any profits. In all, the LLC members get to determine how they want to be taxed.

  • Less Paperwork

Limited liability companies are more flexible than corporations. To prevent your company to be governed by the default rules in your state, you should create an Operating Agreement for your LLC. It is a good idea to have a written operating agreement to create the rules for your company.

Corporations are more heavily regulated than limited liability companies. A corporation may offer limited liability to its owners, but it is subject to a number of requirements that may not suit a small, informal business.

In contrast to corporations, LLCs are not required to hold annual meetings, make annual reports or pay annual states fees. They also tend to have fewer recordkeeping requirements.

In some states, corporations must observe strict reporting requirements, while LLCs in those same states may not have any such obligations.

  • Management Flexibility

Members of an LLC have a great deal of flexibility in how they run the business. An LLC may be managed by its members, who must make all day-to-day decisions. Alternatively, outsiders are hired to manage the business if members do not want to run the day-to-day operations.

In some states, single-owner LLCs are run by a manager who is authorized to make all management decisions.

Corporations have a fixed management system with directors and officers who oversee company policies while owners (shareholders) meet to elect directors and conduct other company business.

So you can see that LLC owners have more choices about running the business and making decisions.

  • Flexibility In Profit Distribution

Limited liability companies (LLCs), unlike corporations, are structured in a way that offers their owners greater flexibility with the way they distribute profits to their owners. They don’t have to distribute them equally or according to ownership percentages.

For example, two people may have equal interests in an LLC, but one may contribute more money or labour in the business’s startup phase and so receive a greater share of the profits.

For a corporation, profits are distributed according to the amount and type of shares owned by the shareholders.

Disadvantages of Limited Liability Company (LLC)

  • Self-Employment Taxes

LLCs are usually subject to self-employment taxes unless you choose to be taxed as a corporation.

If you choose to create an LLC, the company will be liable for self-employment taxes. Self-employment taxes are paid by the business owners and are in addition to income taxes. The profits of an LLC pass through to those owners, who account for these profits on their personal federal tax returns.

Each member pays for federal items like Medicare and social security. It’s a great idea to talk to a lawyer or accountant before making the decision of whether or not to start an LLC.

  • Confusion About Roles

When an LLC is first set up, it can be challenging to identify all of the roles of the members and managers. This is even more confusing when the LLC has more than one owner. An Operating Agreement can help to define these roles and clarify who’s in charge of what inside the company.

  • Limited Liability Has Limits

LLCs are not as durable as corporations; a member departing the LLC dissolves it. Although LLCs work hard to protect the personal assets of the members, there are instances in which that can be an obstacle. The limited liability your business enjoys can be lost if you don’t follow the rules.

A court can decide to rule that your LLC structure doesn’t protect your personal assets. You can ensure this won’t happen by making sure you keep the business and personal sides of your life separate and by running the business in a legitimate way that doesn’t cause harm to others.

No matter what, the advantages of LLC overweigh the disadvantages.  When you decide to start a business, one of your main concerns is the kind of legal structure that will keep you safe and pave the way for your business growth.

While there are several options that you can choose from, an LLC or a limited liability company is one of the most popular legal structures for small businesses.

An LLC gives you a lot of benefits without being too restrictive and it also allows you to manage all of the risks in an easier fashion than many other kinds of legal structures would.

Now to the topic; how to form a free LLC online. There are few LLC formation service providers that claim they help you start an LLC for free.

If you understand how to form an LLC, you will know that there is no way you won’t spend money.

There are certain things you must pay for and they include state filing fees, annual tax fee, EIN (Employer Identification Number) or Tax ID, operating agreement, and registered agent fee. These are just the basic fees depending on your LLC purpose. You can see that there is nothing like free LLC formation or free LLC registration.

When an LLC formation service company say you can create your free LLC, what they are offering is a free service charge. That is they are not going to charge you any amount for their services but you will only need to pay the mandatory fees for filing your LLC.

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In this sense, you can form a free LLC by not paying the service charges, but you can’t escape the mandatory fees regardless of who forms your LLC for you.

If you are going to use a lawyer or you will do it by yourself, you will spend more than what some of these LLC formation service providers are charging.

At the minimum, a legal professional will charge up to $1000 to form an LLC for you. Whereas with an LLC formation service, you can start your LLC by spending not more than $200. They are genuine and legit.

Why Do Some LLC Services Providers Offer Free LLC Formation?

It is easier for one to think why will a company offer free LLC formation, that is no service charge.

It is because they want to earn business owners’ trust so that they will entrust them with other aspects of their businesses.

Before we show you which of the cheapest LLC formation company you can patronize,  you should know the basic steps to form an LLC. This is important so that when choosing an LLC service provider, you will know what to pay for.

How To Start An LLC

Starting an LLC is very easy and doesn’t take much time if you have all the necessary documents. In the next part of this article, we will guide you to form your LLC online.

Step 1. Choose A State

Most business owners will choose a state where they live and plan to do business. While this is a good idea, there is more for you to know. Every state has their own state filing fees. Some are very high and some are cheap. Another thing is the states also have their annual tax fee. Some states are free while some states are not free, and can be expensive.

The most expensive states to file an LLC

At this time of publishing this article, these are the states with the highest filing fee.

  1. Kansas ($160)
  2. Maine ($178)
  3. Alabama ($237)
  4. Washington ($200)
  5. New York ($205)
  6. Alaska ($250)
  7. Texas ($300)
  8. Tennessee ($308)
  9. Nevada ($425)
  10. Massachusetts ($520)

The states with the cheapest annual tax fee

At this time of publishing this article, these are the states with the lowest annual tax fee.

  1. Arizona  $0
  2. Mississippi $0
  3. Missouri  $0
  4. New Mexico  $0
  5. Colorado  $10
  6. Kentucky  $15
  7. Hawaii  $15
  8. Michigan  $25

There are other states with cheap annual tax fees but the reason why they are not included here is that they have a high state filing fee.

You have the right to make your choice of state to form your LLC. If you ask us to make recommendations for you based on a low budget, below are the states you can choose to start your LLC.

  • Kentucky
    Filing fee: $40
    Annual tax fee: $15
  • Arizona
    Filing fee: $50
    Annual tax fee: $0
  • Mississippi
    Filing fee: $50
    Annual tax fee: $0
  • Missouri
    Filing fee: $50
    Annual tax fee: $0
  • New Mexico
    Filing fee: $50
    Annual tax fee: $0
  • Colorado
    Filing fee: $50
    Annual tax fee: $10
  • Hawaii
    Filing fee: $50
    Annual tax fee: $15
  • Michigan
    Filing fee: $50
    Annual tax fee: $25

Step 2. Name Your LLC (Limited Liability Company)

Choosing a business name can be hard, but you will have to choose something before forming your LLC.

Checking to see if your LLC name is available online can take a little effort. Once you have gone through the process and chosen an LLC name, you will need to meet the requirements for names that are approved by your state.

Your state may limit the number of characters you use or restrict certain words in your business name.

The name of the business must include the phrase “limited liability company,” or one of its abbreviations (LLC or L.L.C.).

Your business name cannot include words that could confuse your LLC with a government agency (FBI, Treasury, State Department, etc.).

We understand that searching for a unique and brandable name for your business is not easy. So we recommend that you hire someone to search for the best name for your LLC.

Step 3. Get A Registered Agent

All LLCs must appoint a Registered Agent. The person or business receiving official notifications and correspondence on your behalf is called your registered agent.

You have the option to appoint yourself to be your company’s registered agent. If you do not wish to perform this function yourself and do not select a third-party registered agent, you will need to choose a professional registered agent service.

The registered agent must have a physical address in the state where the LLC is filed and agree to accept legal mail on behalf of the LLC.

You won’t want to take up this responsibility as being your own registered agent. It has downsides, it might distract you during business hours when you need to be at a designated place at a particular time. Also, you must be up to date with legal processes in running your LLCs.

Would you be able to handle these responsibilities while running your business?

Many of these LLC formation companies offer this service, so you don’t need to worry about this.

Step 4. File Your LLC Articles of Organization

The Articles of Organization are the documents you fill out and file with your secretary of state to create an LLC. It includes basic information about the business, your registered agent’s name and address and lastly your LLC management structure.

This document is also known as Certificate of Formation or Certificate of Organization.

You can complete the formation document by yourself either online or by mail, or hire an LLC formation service to handle it for you.

We will guide you on the LLC formation service to use and show you the step-by-step process to form an LLC with snapshots.

Step 5. Create an LLC Operating Agreement

To make your LLC’s operating environment is as comfortable and efficient as possible and to help avoid future misunderstandings, you should create an LLC operating agreement.

LLC operating agreement is a list of provisions that governs how you run your LLC. It lets you and your co-owners decide how to split ownership and profits (or losses); who will do what; and what happens if somebody wants to leave.

In your agreement, you and your co-owners will establish each owner’s percentage of ownership, the share of profits (or losses) responsibilities and rights, and plan for the future in case someone leaves the LLC.

Although many states don’t make it mandatory to have an LLC operating agreement, it is will a bad decision not to have one. Operation agreement has six main sections and they are ownership, management, contributions and distributions, general rules, dissolution, and signature.

Even if you are the sole owner of your LLC and you aren’t entering a contract with any other person, it is necessary for you to have an operating agreement. This document will help to plan, organize and write down the rules of your LLC.

That is not all; an operating agreement will be helpful when seeking funding because you can present to potential financiers to show your company’s plan and organization.

Additionally, without an operating agreement, state law will dictate how your LLC operates. If you have the document, it will override those of your state LLC statutes.

Step 6. Get an EIN (Employee Identification Number)

EIN is just like the social security number (SSN) for your LLC. It is known as Federal Tax Identification Number (FTIN) or Federal Employer Identification Number (FEIN).

You will need an Employee Identification Number (EIN) from the IRS (Internal Revenue Service). This number is used to track and report your tax information, as well as your employees’ information.

You can get this from the IRS yourself from the IRS website, or you can use an LLC formation service to get it on your behalf.

Even if you don’t have an employee, you will still need an EIN to open a bank account for your business. There are other cases where you will need an EIN. For example, if your business will collect payments from customers globally, you need may need a Stripe account. In the process of opening a verified Stripe account, you will be required to provide your EIN if you don’t have SSN.

It is sure that you have gotten a clear glimpse of how to form an LLC. If you understand these basics step, you can go ahead to start your LLC.

Now is the time to address fully the main topic of how to form a free LLC online. From the details above, you should know that free LLC formation is not possible. So the question you should ask or be asking is what is the cheapest LLC formation service?

You might ask, why can’t I do it by myself without using any LLC formation service? You might not reside in the state you are forming your LLC, or you might not even be living in the United States.

You will need a trusted, reliable and competent LLC formation service to help in the filing and forming of your LLC. They will do all the heavy lifting for you to form your LLC and send you your company documents. This means that you will be using the best online LLC formation service with free LLC registration.

Free LLC registration in this context means that you are only going to pay for the required fees needed to set up your LLC. You are not going to pay for the cost of their services. In other words, you can register your LLC online for free.

This is so true and there are no hidden charges. The reasons why they are doing this for free have been stated before.

Where Is The Best Place to Form a Free LLC Online?

There are many LLC formation services online. A lot of them have started business registration as far back as 20 years ago. They have been in the business for a long time. So you have are a reason to trust them.

Free LLC Formation Service With Inc Authority

Inc Authority is an LLC formation service company existing for over 30years that renders LLC registration for entrepreneurs.

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Inc Authority has established an outstanding reputation in the business world. They are one of the fastest-growing LLC formation service providers, with hundreds of thousands of customers to date.

They have created thousands of businesses for customers throughout the world, and they are thrilled to help you launch your business too.

They pride themselves on providing excellent customer service—they have attracted hundreds of thousands of customers, and their 5-star rating proves it. They are rated A+ on Trust pilot and is one of the highest-rated companies on the site.

Inc Authority Trust pilot

Inc Authority Trust pilot

They are committed to exceeding customer expectations with high-quality products and excellent service. This is not hype; check out the reviews on Trust pilot to confirm for yourself.

Why Inc Authority Will Register Your LLC Online For Free

Inc Authority knows that the first step to starting a business is incorporating, but many people don’t know how or where to go about it. So they make the process of incorporation simple, affordable and painless.

By making your initial LLC formation free, they keep more money in your pocket because they waive their service charges, labour costs and overhead. Additionally, you only pay the compulsory Secretary of State Fees regardless of where you choose to form your LLC.

For emphasis, Inc Authority understands how easy it is to get lost in all the forms and legal jargon that go along with filing for an LLC. So they simplified the process with their free online LLC filing service.

You don’t pay any fees (other than the very mandatory state filing fees) and you don’t have to deal with lawyers or accountants unless you want to!

Another reason why Inc authority offers free LLC registration service is; their free LLC formation shows you how they can help you manage your business.

After you have seen how fast, efficient and helpful their business experts are, they hope you will trust them to help with other important business details like picking and buying a domain name, creating a professional website, building business credit, getting business funding,  and more.

So to summarize it all, they offer free LLC formation because they want to earn your trust first. That way, when business funding or other important matters come up, you will trust them.

NB: This is not an Inc Authority review but a guide on the cheapest place to form an LLC. You can still take it as how to form a free LLC online.

Registered agent is not free, but at Inc Authority, you will get it free for the first year. Most LLC formation services will charge you for the first year.

How to Form a Free LLC Online With Inc Authority

To begin with your Free LLC formation in the US, there are some things you should get beforehand if you are not a US resident. You need;

  • A US phone and
  • A US house address

This shouldn’t come to you like a challenge. You can get the phone number and address easily.

Go get a US phone number, you can use the Dingtone app. Go to your app store and download it. Go get a free US house address, you use should Shipito. You should be able to a free US house in just 3 minutes.

Your US address will be in that format. Take note of the state, CA means California.

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Once you have all of them, you can now proceed to form your LLC using Inc Authority.

Step 1. Proceed to Inc Authority

When on the homepage, click on the ‘Get Started’ tab at the upper right.

Free LLC Formation

Step 2. Select Business Type And Filing State

By default, it is on Limited Liability Company (LLC). Leave it like that. For this guide, we choose Kentucky as State. It is one of the cheapest states to form an LLC.

Free LLC Formation

Click on Save and Continue.

Step 3. Enter Business Owner Details

You need to enter your first name, last name, email address, and US Phone number. I have told you to get a US number and if you already have it, enter it on the phone number option. Tick the box (I agree to the terms and conditions).

Free LLC Formation

Click on Save and Continue.

Step 4. More Details About Your Business

At this stage, you will follow a series of questionnaires about your business. It is necessary you provide the right details.

Is this is your first business?

Choose ‘Yes’ or ‘No’.

Free LLC Formation

 

Click on Save and Continue.

What motivated you to start your own business?

Choose any answer. You can choose ‘All of the above’.

Free LLC Formation

Click on Save and Continue.

When do you plan on being open for business?

Choose ‘I’m already open for business.

Free LLC Formation - How To form a free LLC online

Click on Save and Continue.

What type of business do you have?

You can choose any of the businesses that fit what you do.

Free LLC Formation - How To form a free LLC online

Click on Save and Continue.

Do you already have or will you be hiring any employees in the first 12 months?

Choose ‘No’.

Free LLC Formation - How To form a free LLC online

Click On Save and Continue.

Will you be accepting credit card payments?

Choose ‘Yes’

Free LLC Formation - How To form a free LLC online

 

Step 5. Your LLC Details

You will need to enter your proposed business name. You can decide to use your personal name if you want to run a personal brand. If not, use a brand name which is much preferable. If the business name you choose is available, it will be created instantly upon state approval.

Enter your business description in one complete sentence.

Free LLC Formation - How To form a free LLC online

Click on Save and Continue.

Step 6. Business Address

By now you should already have a US address if you have created it using shipito as stated earlier in this post. Your shipito address is a California address so your state should be California.

Free LLC Formation - How To form a free LLC online

Click on Save and Continue.

Step 7. Employer Identification Number (EIN)

EIN is very important in completing your LLC formation. After going through other LLC services, getting your EIN from Inc Authority is a good deal at $49. They are the cheapest so far.

Choose ‘Yes’.

Free LLC Formation Service - How To form a free LLC online

Click on Save and Continue.

Step 8. Operating Agreement

The operating agreement provides proof you own the LLC.

Free LLC Formation Service - How To form a free LLC online

Choose ‘Yes’

Step 9. Legal Documents Package with Ownership Certificates, and Seal

Ignore the lawsuit protection package. Choose ‘No’.

Free LLC Formation Service - How To form a free LLC online

Click on Save and Continue.

Minutes and Resolutions

Choose ‘No’.

Free LLC Formation Service - How To form a free LLC online

Click on Save and Continue.

Express Processing

This is for quick delivery if you want the whole process to be done within a few days. Choose ‘No’ and be patient. If you have the money you can choose ‘Yes’.

Free LLC Formation Service - How To form a free LLC online

Click on Save and Continue.

Website Registration (Domain Registration) + Business Email

The purpose of this is to secure your domain  (website address) for your business if you don’t have one at the moment. In my case, I have already the domain secure and it is presently a website having custom email.

To reduce cost, ignore it. Choose ‘No’.

If you need a domain name for your business you can get it at Namecheap and secure it yourself.

Free LLC Formation Service - How To form a free LLC online

Click Save and Continue.

Business Phone Number

Ignore the business phone number. Choose ‘No’.

Free LLC Formation Service - How To form a free LLC online

Click on Save and Continue.

INC Success Advisor

You don’t really need this, so you should choose ‘No’.

Free LLC Formation Service - How To form a free LLC online

Click on Save and Continue.

Business Checking & Credit Card

The choice is yours to choose ‘Yes’ or ‘No’. You might not see this page when you try to do yours. This is just an offer for a limited time.

Free LLC Formation Service - How To form a free LLC online

Click on Save and Continue.

Step 10. Make Payment

Tick ‘Free – Standard delivery’.

Choose your payment method; Credit/Debit card or PayPal.

If your card is not accepted or does not work, use Paypal.

If you don’t have a Paypal account, you can create one and buy funds in order to complete the payment.

Free LLC Formation Service - How To form a free LLC online

 

If you follow these same exact steps, you will be spending a total sum of $178. What we skipped were add-ons and they are optional in forming an LLC. The decision is yours to add them to your LLC formation.

If your transaction is completed successfully, your LLC will be created by Inc Authority. At this stage, congratulations to you. But it doesn’t end here.

How To fill The EIN And Memebers Form From Inc Authority

After you have completed your LLC registration, Inc Authority will send you two forms; EIN and members forms.

They are easy to fill. For the EIN form, enter your full name, and your US address in the allotted places. For the SSN field, enter Foreign. It means that you are a non-US citizen and that you have no SSN or EIN yet.

For the members’ form, enter your full name and US address. If there are other team members, enter their full name and their US address.

Inc authority can help you start an LLC quickly and easily. We will assemble your documents and file them directly with the Secretary of State. You can choose either to receive your completed LLC package by mail or electronic delivery.

To wrap this up, there is nothing actually as completely free LLC formation or Free LLC registration. You must spend money no matter the state you chose to file and form your LLC. You will spend money no matter the LLC formation service you use.

What is free in LLC formation and which is rendered by a few LLC formation services is the zero charges for filing your LLC. The mandatory fees cannot be bypassed.

If the article has been helpful to you, kindly show a token of appreciation by sharing it with others using the social media icons below.

This article contains general business and legal information. Do not substitute it as legal advice. Information tends to change often. Always consult your accountant or lawyer when making decisions regarding your LLC formation.

Last Updated 26/3/2022


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