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By now, you're probably familiar with the advantages of
running your business as an LLC: limited liability
protection and a simpler method of paying taxes than that
imposed on corporations. (To learn more about these
benefits, read LLC Basics.)
This article focuses on the steps you will take to make
your LLC a legal reality. Essentially, you must:
- Choose an available business name that complies with
your state's LLC rules.
- File formal paperwork, usually called articles of
organization, and pay the filing fee (ranging from $40
to $900, depending on the state). See our Secretaries
of State links page.
- Create an LLC operating agreement, which sets out
the rights and responsibilities of the LLC members.
- Publish a notice of your intent to form an LLC
(required in only a few states).
- Obtain licenses and permits that may be required for
your business.
Choosing a Name for Your LLC
The name of your LLC must comply with the rules of your
state's LLC division. (Typically, this office is combined
with the corporations division, and is part of the
Department or Secretary of State's office.) While
requirements differ from state to state, generally:
- the name cannot be the same as the name of another
LLC on file with the LLC office
- the name must end with an LLC designator, such as
"Limited Liability Company" or "Limited
Company," or an abbreviation of one of these
phrases ("LLC," "L.L.C." or
"Ltd. Liability Co."), and
- the name cannot include certain words prohibited by
the state, such as Bank, Insurance, Corporation or
City (states differ widely on prohibited terms).
Your state's LLC office can tell you how to check if
your proposed name is available for your use. Often, for a
small fee, you can reserve your LLC name for a short
period of time until you file your articles of
organization.
Besides following your state's LLC naming rules, you
must make sure your name won't violate another company's
trademark. Once you've found a legal and available name,
you don't usually need to register it with your state;
when you file your articles of organization your business
name will be automatically registered.
Filing Articles of Organization
After settling on a name, you must prepare and file
"articles of organization" with your state's LLC
filing office. While most states use the term
"articles of organization" to refer to the basic
document creating an LLC, some states (including Delaware,
Mississippi, New Hampshire, New Jersey and Washington) use
the term "certificate of formation." Two other
states (Massachusetts and Pennsylvania) call the document
a "certificate of organization."
One disadvantage of forming an LLC instead of a
partnership or a sole proprietorship is that you'll have
to pay a filing fee when you submit your articles of
organization.
Articles of organization are short, simple documents.
In fact, you can usually prepare your own in just a few
minutes by filling in the blanks and checking the boxes on
a form provided by your state's filing office. Typically,
you must provide only your LLC's name, its address and
sometimes the names of all of the owners -- called
members. You will probably also be required to list the
name and address of a person -- usually one of the LLC
members -- who will act as your LLC's "registered
agent," or "agent for service of process."
Your agent is the person who will receive legal papers in
any future lawsuit involving your LLC. Generally, all of
the LLC owners may prepare and sign the articles, or they
can appoint just one person to do so.
Creating an LLC Operating Agreement
Even though operating agreements need not be filed with
the LLC filing office and are rarely required by state
law, it is essential that you create one. In an LLC
operating agreement, you set out rules for the ownership
and operation of the business (much like a partnership
agreement or corporate bylaws). A typical operating
agreement includes:
- the members' percentage interests in the business
- the members' rights and responsibilities
- the members' voting power
- how profits and losses will be allocated
- how the LLC will be managed
- rules for holding meetings and taking votes, and
- "buy-sell" provisions, which establish
rules for what happens if a member wants to sell his
interest, dies or becomes disabled.
For more on LLC operating agreements, read
Creating
an LLC Operating Agreement.
Arizona and New York: Publication of Notice
If you are forming an LLC in Arizona or New York, you must
take an additional step to make your company official: You
must publish in a local newspaper a simple notice stating
that you intend to form an LLC. You are required to
publish the notice several times over a period of weeks
and then submit an "affidavit of publication" to
the LLC filing office. Your local newspaper should be able
to help you with this filing.
Licenses and Permits
After you've completed the steps described above, your LLC
is official. But before you open your doors for business,
you need to obtain the licenses and permits that all new
businesses require. These may include a business license
(sometimes also referred to as your "tax registration
certificate"), a federal employer identification
number, a sellers' permit or a zoning permit.
Form an LLC Top Of Page
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