What Is an LLC?

Deciding to create an LLC is an important milestone for a business and, fortunately, isn't as difficult as you might imagine. 

An LLC, or limited liability company, is a type of legal protection that shields the personal assets of members of a company from any debts that their company may incur. The rules for forming an LLC will depend on the state where your company is located.

1. Choose a Name for Your LLC

There are a few basic rules that you will need to follow to make sure your LLC is formed correctly. 

The first, and one of the most important, steps in forming your LLC is choosing an LLC name. The rules for naming an LLC can vary from state to state, so you should be certain to check your state's naming policy before starting this process. In addition, you need to be certain that the name of your LLC does not infringe on another company's existing trademark. LLC names usually don't have to be registered with your state. However, your business name will be automatically registered when you submit your articles of organization.

2. File Articles of Organization

The second step to LLC formation is preparing and filing your articles of organization with your state. This basic document required for your LLC may also be referred to as the certificate of formation or certificate of organization. 

When filing your articles of organization, there is some basic information that you will need to provide. Fortunately, these forms can usually be completed in just a few minutes. The most important information that you will need to provide in your articles of information include:

  • The name of the LLC
  • The address of the company
  • The names of the members, or owners, of your company 

Any owner of the LLC can prepare the articles of organization. However, usually one person is chosen to complete this document. 

Your articles of organization must also list the name and contact information of your LLC's registered agent. The registered agent is usually one of the members of your company and is a person who will receive any legal papers that result from possible future lawsuits involving your company. 

LLCs differ from corporations in that an LLC is allowed to be managed by any of its members. Corporations, on the other hand, are managed by a board of directors that are tasked with making important decisions.

3. Create an LLC Operating Agreement

Next, you will need to create an LLC operating agreement. The operating agreement will outline how your company will be operated and will also detail ownership rules. This is very similar to both corporate bylaws or a standard partnership agreement. 

Usually, an LLC operating agreement is not required by law. However, having an agreement in place will clarify the arrangement of your business, including important details about the percentage of your LLC owned by individual members, as well as the duties and rights of the owners. 

Many people choose to have their LLC operating agreement reviewed by an attorney before full adoption.

4. Publish a Notice (Some States Only)

Depending on the rules of your state, there may be other steps you will need to complete before your LLC is formed. For example, certain states require you to publish a notification that you plan to create an LLC. Generally, this notice will be submitted to a local newspaper. 

To fulfill this requirement, you will need to publish your notice multiple times over a period that can last several weeks. Then, you must provide the LLC filing office in your state with an affidavit of publication, which you should be able to acquire from your local newspaper.

5. Get Licenses and Permits

Once the previous steps have been completed, your LLC will be officially formed. Before you can open your business, however, you will also need to acquire permits and licenses required for business operations. These documents can include zoning permits, business licenses, a federal employer identification number, and a seller's permit.

Filing Fees

Unlike a partnership or sole proprietorship, you will need to pay certain fees when forming your LLC. For example, most states require you to pay a fee when filing your articles of organization, which will usually be $100. 

Some states, such as California, require you to pay an annual tax. Typically, filing fees will be between $30 and $200. 

If you need help creating an LLC, you can post your legal needs on UpCounsel's marketplace. UpCounsel accepts only the top 5 percent of lawyers to its site. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale Law and average 14 years of legal experience, including work with or on behalf of companies like Google, Menlo Ventures, and Airbnb.