Forming an LLC
Don't be afraid of forming an LLC -- it can actually be easier than forming a corporation and it could be the best thing for your business.
Many people are afraid of taking the necessary steps towards forming an LLC (limited liability company), fearing that it could be the most difficult and complicated task they will ever have to perform for their small business. You can go about forming an LLC by taking just five easy steps, however:
- Find a business name that is available (not taken by another company) and that conforms to your state's rules regarding names for LLCs.
- File your paperwork, normally called the "Articles of Organization," and pay the fee associated with the filing.
- Make the operating agreement that will dictate how the LLC will be run. This normally lays out the rights and responsibilities of all LLC members.
- In some states, you must also publish a notice that you intend to form an LLC.
- Get all the licenses and permits that your business needs to run.
Your LLC's Name
In order to properly name your LLC, you must be in compliance with the rules of your state that govern the names of LLCs. You can most likely find out this information by contacting the office in the state government that controls LLCs and corporations. Even though the specifics of these laws may change from state to state, in general:
- The name must be original, meaning that it cannot take the same name as another LLC that is on file at the state government office,
- The name must show that the business is an LLC, typically by placing "LLC," "Limited Liability Company," "Limited Company," "Ltd. Liability Co.," or some other abbreviation at the end of the name to serve notice to the public about the type of business organization, and
- The name cannot include words that are prohibited by state law (e.g. "Bank" or "Corporation" in some states). Which words are prohibited will depend upon the state that you are forming your LLC in.
If you fear that the name you have chosen for you LLC will be taken before you have had the time to get everything in order to file your paperwork (perhaps you had a falling out with a previous business partner), many states will allow you to reserve a business name for a short period of time in exchange for a fee. In addition, many state governments will tell you whether or not the name you have chosen for you LLC is a valid name under the state's laws.
One more point to keep in mind when choosing a great name for you LLC is to be careful not to infringe on the trademarks of other companies. To get a brief sense of trademark law, you only have to consider whether a customer, upon reading or hearing your business' name, would associate a product or service that your company produces or sells with another company. For example, if a pre-existing company had the name "Beez Kneez" trademarked, and you named your company "Bee's Knees," you may be in violation of their trademark.
If you have found the appropriate name for your LLC, you shouldn't worry about registering the name with your state government. Generally, when you file the articles of organization for your LLC, the business name will also be registered with the state at the same time.
The Paperwork -- Articles of Organization
After you have found a great (and valid) business name for your LLC, you must then prepare and file the "Articles of Organization" that will be associated with your LLC. These documents often go by different names, such as "Certificate of Formation" or "Certificate of Organization" depending upon the nomenclature that your state uses.
Filing Fees for Articles of Organization
One of the disadvantages of forming your business as an LLC, as opposed to something like a sole proprietorship or general partnership, is that you generally have to pay a fee to the state in order to file your Articles of Organization. In general, you should expect to pay around $100 in order to file you Articles of Organization, although some states can charge much more.
Information that Is Required
Many people that are thinking about forming an LLC get worried about the information that is required to be put in the Articles of Organization. However, when push comes to shove, these documents are short, simple and to the point. In fact, many business owners prepare their own Articles of Organization simply by filing out a few blank spaces and checking the appropriate boxes in cut and dry forms provided by the state government. Generally, the articles will include the LLC's name, address, the names of all of the owners, and a few other points of information. In addition, all of the members of the LLC may prepare and sign the articles, or they can simply appoint one of the members to do it.
In addition to the Articles of Organization, you will probably also have to designate a registered agent for your LLC when forming your LLC. Once a person has been registered as the agent of process for an LLC, that is the person that will have legal authority to receive all legal papers (such as a summons or legal complaint) that your LLC may get in the future.
Although it may not be required by your state that you file an operating agreement for your LLC (most states do not require it), you should still, nevertheless, create one. The operating agreement for an LLC will set out the rules and regulations for both ownership and operation of the business and is one of the key documents that will significantly help in the long run. Generally, operating agreements will include:
- The owners' (members') business interest in the LLC
- The rights and responsibilities of the members
- Regulations controlling how the business profits will be shared
- Terms relating to the voting power of the members
- Rules and regulations that set out how the LLC will be managed
- Rules regarding when meetings will occur and how votes will be taken, and
- Provisions that will govern situations where a member wants to get out of the LLC, either by selling his or her interest, death or disability.
Some states require that an LLC take another step to make the business official, namely that the members must publish a notice to the public in a local newspaper of their intent to form an LLC. This publication requirement normally spells out how long the notice must appear (typically over the course of a few weeks), and also how the members will prove they met the publication requirement (typically be submitting an affidavit of publication). If your state requires this publication, your local newspaper should be able to help you.
Permits and Licenses
By completing all of the above steps, your LLC will be officially registered with your state government. Depending upon the type of business that you intend your LLC to be involved with, however, you may still have to obtain various permits and licenses in order to go into business. These may include a business license, a federal employer identification number, zoning permits and sellers' permits (if you intend to sell a good).