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Forming A Limited Liability Company

Forming A Limited Liability Company

Deciding what type of entity you want for your business is certainly important, as this choice has ramifications mainly related to taxes and report requirements. The advantages or disadvantages of forming a certain type of business (either as a partnership, corporation, limited liability company, or nonprofit corporation) is largely based on what the business is going to do. An entity formation attorney can be useful in advising you as to what type of business entity is right for the type of business that you want to run. Having made the choice to form a business as a limited liability company, here are some of the more important things that you will need to do.

  1. The first item is to choose a name. One important thing about the name is that it must contain “Limited Liability Company”, “LLC”, or “L.L.C.” after the business name. After a name is selected it must be checked to see that someone else has not already registered the same business name; this can only be done by checking with the appropriate state department (the Secretary of State or some department thereof).
  2. After choosing a name, the company must draft “Articles of Organization.”  States have different requirements for what has to be included in this document; for example some States require that the documents indicate whether there is one owner (member) or multiple, or whether you will be member or manager-managed. Typical elements that need to be in this founding document include both a clause designating a registered agent and a clause stating the office address for the registered agent. The registered agent is the party that will be served in the event the business is sued or the State otherwise needs to contact the business.
  3. After completing the Articles of Organization the incorporator (person who files the documents with the proper State agency) will then send off or deliver the Articles of Organization to the Secretary of State for filing; this usually requires a nominal filing fee which varies by State.
  4. After filing the Articles of Organization the business becomes recognized as an entity by the State. The next thing that business owners should do is adopt an “Operating Agreement” (this is analogous to bylaws with a corporation). An Operating Agreement must be adopted by the owners/members of the business, and will dictate how the business must run. These are the rules that govern all LLC action. Common items addressed in an Operating Agreement including voting rights, ownership structure, and management decisions. It should be noted that an Operating Agreement replaces the State’s default set of operating rules. A business attorney is usually retained to draft an Operating Agreement that will meet the business owner’s needs.
  5. After adopting the Operating Agreement, the owners generally meet and resolve to complete items that are needed for the business to run, like opening a bank account, and applying for insurance.

Although not an exhaustive checklist of what needs to be done to form a limited liability company (LLC), the above is enough to get the LLC formed; however some States may require more. A good idea is to check with your State’s Secretary of State to determine the precise requirements for formation. A local business lawyer can help you form your limited liability company in accordance with your State’s laws.

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