LLC Formation Requirements, The Basics

Although LLC Formation rules can vary significantly by state, there are some basics that remain virtually the same everywhere. Before you tackle an LLC formation, it’s a good idea to understand these basic rules and apply them to your own situation.

In this article, we will discuss LLC naming requirements, what should be contained in articles of organization, the actual LLC filing process, organizers, operating agreements, membership, registered agents, continuing obligations and, finally, dissolution of your LLC. This is quite a bit of information however; you need to understand at least the basics of what we are discussing before you begin an LLC formation.

Since naming your business is the very first step in the process, we will begin here. Every state has its own requirements for how distinct and different a business name must be from any other LLC on record, so a final determination on the availability of an LLC name requires some specialized assistance. You can use this link to have a specialist research the name of your limited liability company for free: http://www.ezonlinefiling.com/secure/namecheck.php These rules are more universal and should be taken into account.

• The limited liability company name should contain, as the last words of the name, the words “limited liability company”, the abbreviation “LLC”, or the abbreviation “L.L.C.”.
• The limited liability company name must not contain any ending such as “Corp”, “Inc”, “Incorporated”, or other ending which would suggest that the company is incorporated.
• The limited liability company name may not contain any word or phrase which indicates or implies that the company is organized for any purpose that is unlawful or contrary to its articles.
• The name must not contain the phrase “doing business as” or the abbreviation “DBA”
• The limited liability company name must be clearly distinguishable from the name of any other LLC in that state. In some states, it must also be distinguishable from any incorporated entities and any foreign LLC or corporation.
• The name should not imply that the limited liability company is affiliated with any government entity, either federal or state.

LLC Formation and the Articles of Organization

In every state, an LLC formation cannot be completed until articles of organization have been completed and accepted by the state. The articles must be signed and filed with the Secretary of State and state law dictates that certain information must be included in the articles of organization. One item that is generally not allowed in the articles is your social security number. While it is used for some things, the state will reject your filing if your SSN is included in the articles. Here are the items that are usually found in the articles:

• The company name.
• The purpose of the company. In some states, you can use a generic description that may be as simple as “any lawful purpose under the laws of the state”.
• A statement as to whether and to what extent there are limitations on the authority of members to bind the LLC or whether these limitations are included in the operating agreement.
• A statement to indicate whether the limited liability company will be managed by the members or by managers.
• A statement regarding restrictions placed on the authority of managers or if those restrictions are found in the operating agreement.
• A statement related to the duration of the LLC. Most states allow for the LLC to be perpetual.
• Additional provisions may also be included pertaining to the LLC as long as they are consistent with the law, although these provisions may also be contained in the LLC operating agreement.

LLC Formation Filing

Your LLC formation is considered complete once the articles have been filed by the Secretary of State. Before they file the document, they will verify that they are in compliance with state requirements. The articles must be executed and signed by at least one person who, depending on your state, may or may not need to be a member or manager of the LLC. At least one original copy should be submitted to the Secretary of State. In some states, a certified copy of the articles will only be returned if you supply the state with multiple copies and some states no longer return any documents without a special request. You will need to understand the specifics in your state before submitting your articles.

Organizers and Filers of the LLC Formation

Believe it or not, states define the organizer differently. In some cases this person must be a member or manager of the LLC. In other cases they do not. Occasionally, there can be a filer of the articles who is not associated with the LLC, but the organizer may still need to sign. To be certain your LLC formation is completed accurately, you should get advice in this area. The Secretary of State is not always clear on the definitions and your filing could be rejected.

Operating Agreement

Some states require the limited liability company to complete and maintain an operating agreement, while others do not. However, it is widely considered to be advantageous for the LLC to have one regardless of the state requirement. The operating agreement is a very thorough document with wide ranging implications on the LLC. It can contain restrictions on the powers of members or managers, explain ownership intricacies, detail how an LLC will be dissolved, how the LLC will continue in the event of the death of one member, how the LLC can be sold and more. Because an LLC is a living entity that can operate without its members or even after their death, this document is an important part of the company plan that shouldn’t be overlooked. If you are not familiar with operating agreements, you should consider having someone experienced in this area help.

Registered Agents

The state will require that you list a Registered Agent, usually in the articles. This title is held by the person or entity that is responsible for receiving documents sent by the state or otherwise to the LLC. They must be available during normal business hours and should be prepared to accept service of process. In some cases, a member can be the Registered Agent. Often a service is hired to act as the Registered Agent to prevent this burden from falling on a member or manager or to prevent the member from having to list their home address. Additionally, if you are filing in a state where you do not have a physical address, you may need to hire a service organization to handle this for you.

Continuing Obligations

Once you have completed the LLC formation, you will likely have some ongoing obligations. In most states you will need to complete and file an annual report to keep the Secretary of State records current. This document usually contains very basic information about the LLC, such as the current address. Failure to file annual reports as required can result in the state dissolving your company, so pay close attention to this requirement.

Dissolution of the LLC

Unless otherwise specified in the articles or the operating agreement, a limited liability company is dissolved upon the happening of any one of the following events:

• The occurrence of events as specified in writing in the operating agreement or articles.
• The consent of the members to dissolve.
• By judicial decree
• By administrative action by the Secretary of State

Certainly, this article does not cover every aspect related to an LLC formation, but we have tried to provide a broad view of many of the related items. More information on each of these specific topics is available throughout our website or by simply giving us a call. We will be glad to answer your questions or handle the entire process for you.

 

• General Topics
• How To...
• Tax Matters
• Legal Matters
• Loans and Financing