Using LegalZoom to Set Up your Delaware LLC

This is Part III of the Delaware LLC series. Start series here.

LegalZoom Logo

OK, this is where the real action happens. Once you've got your business and personal accounts separated, it's time to take the plunge and get your LLC. There are any number of companies that would jump to help you: The Company Corporation and LegalZoom are just two. But since I've had good experience with LegalZoom in the past I used them.

I'll guide you through the whole process, which takes about 30 minutes. Let's go!

Whether you're here to incorporate or do an LLC, they can handle either, and for just about every state. But for the purposes of this, we're going with a Delaware LLC.

Step 1:

Get to LegalZoom's LLC start page.

There are three packages you can choose, but you don't have to worry about picking which until checkout. There's something here for everyone from the budget-conscious to the impatient high-roller. I chose the middle package (Standard), because I wasn't in a huge hurry, and because I'm a sucker for fancy stuff like leather-looking binders and company seals:

LegalZoom "standard" package swag

Before we go too much further, here's a rundown of the price I paid for the whole deal:

Cost rundown for Delaware LLC

I chopped off the part where it states that the purchase price is tax deductible, subject to IRS limitations. Also, if you are a little queasy on the total, they offer an installment plan over 2 months. It also mentioned that a typical lawyer would charge $1839 for a LLC. Wowzers. Anyway, enough with narrow filler. On with the show.

I'll hit on some of the screens you'll see and give you some extra info on what they are asking. The little help parts on the forms were quite helpful in making informed decisions about which paths to take.

Step 2:

I won't go over every screen (although almost all are here), but some key ones.

LLC membership and units of share

The answers you see above are my answers, and not necessarily the defaults. See the "How did most people answer this question?" parts? Those were helpful, but I sometimes went against the wisdom of the crowd. The main question here that I had to think on was whether to use percentage for membership share or business units. Business units are arbitrary and not tied to a dollar amount. So you could express 2 members sharing 50/50 ownership by 50% each, or in terms of half the business units. I went with business units since I viewed them like shares, and are easier to divide in large numbers or small numbers without needing to go into 5 decimal places. I think in the big picture it may not matter as much, but do your own research to see what works best for you.

Business units and initial investment

On this screen where you add members, enter your initial investment in the LLC, and what percentage of the business, or how many business units it represents. Here I chose one million business units as the entire business unit pool, since I am the only member. You can choose the initial size of the business unit pool at whatever you like, but I chose to go large on the number, since I view them as shares.

Me = CEO

I decided to go with officers, and as such crowned myself CEO. That's right.

Ownership decisions

Below the officers you must define rules on how decisions for the company will be made, and who the IRS contact will be. Think hard about the decision on how ownership interests will be handled. As soon as you add one more member to your LLC, this decision could make or break you. And don't get too hung up on getting everything perfect here. You can change these my amending your company articles later, but I wanted to have it solid from the beginning.

Step 3: Taxation and the EIN

LLC taxation questions

These next questions determine how you wish your LLC to be taxed. The big question is if you want to be taxed as a sole proprietor, which I do for simplicity's sake, and so I don't contribute too much profit to Uncle Sam.

EIN questions

The questions above pertain to the SS-4. I decided in an earlier step to spend an extra $30 and have LegalZoom prepare my SS-4 form, which is how you get your EIN (Employer Identification Number) which acts kind of like your company's Social Security number. It turns out that you don't really need an SS-4 for requesting it since I ended up requesting the EIN over the phone with the IRS, but you'll still need your signed and dated SS-4 in your records. And it also makes it easier to request the EIN over the phone since they will ask you questions from the form. Nice to have it handy so you don't fumble on the phone with the IRS.

Primary business activity: Internet services

That's a short one, also pertains to the SS-4.

Step 4: Pay Up

Pick the package you want and lay your money down. This was the total for the "Standard" package with overnight delivery and Tax ID number form preparation.

Grand Total: $480.95

Post-pay instructions:

Post-order instructions

There is a bit of time built in to the delivery process, since LegalZoom must prepare papers for the Delaware Secretary of State and send and get approval. See the 35 days above? If it really took that long the overnight shipping might have been a waste, but maybe I was lucky because it didn't take long at all. Check out the status page:

LegalZoom delivery timeline

Was ordered July 7th. Took only 14 days to process and was delivered on the fourteenth day. So I don't feel too dumb for paying for overnight. Go LegalZoom!

Step 5: Aftermath

Once you get the package from LegalZoom there will be a few things to sign and you'll need to get on the horn and call the IRS to get your EIN. That takes about 10 minutes, mostly wait time on hold. Once you get your EIN, it's immediately effective. Now you're in business!

At this point, you can set up your business account. Your bank will need your copy of the letter from Delaware Secretary of State showing that your LLC was recorded. LegalZoom will send you this with your packet. If you get your Delaware LLC through LegalZoom, you'll need to call LegalZoom's business assistance number and request a "bridge letter". This letter connects you, your LLC, and your registered agent so that your bank will know that you are a representative of your LLC. The reason they need this is because they will check the Delaware Secretary of State's website and do an entity search. Since LegalZoom is responsible for maintaining your registered agent, the registered agent will show up in this search, and not your name. This bridge letter fills in the gaps by connecting you with the business. They will email it to you soon after as an attachment. Print it out and take it to the bank.

Note: Keep in mind that LegalZoom will set you up with a Delaware registered agent, and will bill you $159 per year a month later and every year afterwards on the anniversary of your LLC's inception.

I hope you enjoyed this short series. I hope it helps many of you in protecting yourselves and also legitimizing your business in the business world. Now let's kick some tail.

Next post: Don't Worry About the 3 Percent

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