Classifying a business as a limited liability company (LLC) can offer the owner the legal protections afforded to corporations while retaining control of the company.
The guidelines below will help business owners create an LLC from conception to completion.
Research state laws
Business owners must first obtain a state-issued license to conduct business through their LLC. Each state has individual laws that govern LLC operation and creation that are presented in that state’s articles of organization (explained in further detail below).
When selecting a location to register, the best option is typically the simplest: file within the state that contains the physical headquarters of the LLC. Although certain states offer more attractive benefits for hosting a business, filing out-of-state will necessitate additional paperwork, regulations and fees. These extras will also apply to an LLC for each state that contains additional physical stores or locations.
Choose a name
Although naming an LLC may feel out-of-sequence as the second task on this list, its name must comply with the guidelines specific to the chosen state of operations. Rules will differ by governing bodies, but all states share several requirements. The name of an LLC must be:
- Unique. The name cannot be shared by any other business or LLC registered within the state. Even if only one letter needs to be altered to comply, it is best for the success of a business to use a unique name that will resonate with customers. They should not be able to confuse your services with those of any other entities or competitors.
- Clear. The identifying phrase “limited liability company,” or certain abbreviations depending on state such as “LLC,” “Ltd,” or “Co.,” must be included in the filing name.
- Honest. Misleading words that could imply a connection between the LLC and a government body or corporation are prohibited.
Most states allow applicants to reserve a name for an LLC that they are not yet ready to file for a fee. This can be particularly helpful when coordinating available LLC names with potential matching website domains.
Articles of organization
Each state has a unique set of rules guiding LLC creation known as its articles of organization (also referred to by some states as a certificate of formation or a certificate of organization).
Prospective LLCs must pay a fee and complete an application according to that state’s articles. Although there are differences between states, nearly all articles request the following information pertaining to the LLC:
- Legal name and mission statement.
- Business mailing address.
- Expected life cycle (if the LLC will not be permanent).
- Summary of company ownership and management structure.
Entrepreneurs looking to create an LLC should strongly consider the help of outside experts, whether that be from attorneys or accountants who specialize in LLC operations.
Registered agent
Many states also require the name and address of an additional registered agent, who will often be needed to sign for the LLC. Registered agents are individuals or businesses that manage legal documents for the LLC. The registered agent serves as the legal intermediary between the state and company, and their physical address must be within the state for which the LLC is registered. The agent can be a member of the LLC or hired from a list of private service companies made available by the state.
Operating agreement
The operating agreement of an LLC will dictate its core processes and management systems. Although anAn operating agreement is not mandated by state regulations, but it is imperative for an LLC, and any other business, to outline its organization and structure in a legally -binding document.
The most important item defined by an operating agreement is the management structure. Is the LLC controlled by its own members, or an external board of directors? Other important principles include meeting schedules, and voting structure among governors, financial investment practices, income classifications, and dissolution terms.
Regulatory requirements
Once the state has received an application and approved the LLC, owners can take the final steps to legitimacy. The most important of these is the Employee Identification Number from the IRS, which will allow the LLC to conduct business with banks and hire employees.
Other considerations include the various business licenses and sales as well as employer taxes specific to an LLC. These will both vary by state and industry.
Consider outside expertise
Fully comprehending LLC laws, selecting registered agents, and crafting a cohesive operating agreement can be a daunting process. TheyIt demands expertise in various legal and financial niches that most individuals might struggle to match. Entrepreneurs looking to create an LLC should strongly consider the help of outside experts, whether that be from attorneys or accountants who specialize in LLC operations.
The incurred cost of retaining their services will surely not outweigh that of financial or legal missteps in the process. Their experience working with other successful LLCs can help business owners build the roadmap for expanding their own company with the insights gained from a dedicated career in the industry.
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