Formation Documents for LLC: Everything You Need to Know
Preparing formation documents for an LLC may seem overwhelming, but the process is fairly straightforward. 3 min read updated on February 01, 2023
Preparing formation documents for an LLC may seem overwhelming, but the process is fairly straightforward. As long as you understand what you need to submit and when, you will be able to successfully form an LLC.
Limited Liability Company
Before you form an LLC, it's important to understand why you would do so. A limited liability company (LLC) is a business that has characteristics of both a partnership and corporation. An LLC is like a corporation in that its owners are not personally liable.
This business structure could also be compared to a sole proprietorship or partnership in the sense that it is flexible and follows pass-through taxation. This means that the profits and losses of an LLC are reported on each owner's individual tax return. The LLC itself does not pay taxes.
You only require one person to form an LLC, which is referred to as a single-member LLC. However, an LLC can have multiple members.
Legal Documents Needed to Form an LLC
The first step in forming an LLC is to prepare articles of organization. This documentation will be filed with the Secretary of State or affiliated state agency. Once this is complete, an operating agreement should be created. This will identify the rights and responsibilities of each owner, which are referred to as "members." The rules of operation will also be determined. You may then need to apply for an employer identification number (EIN) through the IRS.
Although you can certainly complete the articles of organization yourself, an operating agreement may require legal counsel. It's also important to note that changes have been made so an LLC can be formed with an unlimited life. This is in reference to the IRS code.
Cost to Form and Operate an LLC
When you first submit formation documents for an LLC, you will be required to pay a fee based on the state of formation and operation. When maintaining an LLC, each state will also charge an annual fee. Since most states require LLCs to submit an annual report, a fee is typically sent with this paperwork. Some states will also require state taxes.
The Main Differences Between an LLC and an S-Corporation
If you're undecided between forming an LLC and a corporation, here are the main differences to understand:
- An S-Corporation shares similar tax-related characteristics to an LLC, but an LLC has fewer restrictions. Overall, an LLC is considered to be more flexible.
- An S-Corporation cannot have more than 100 stockholders, can only issue one class of shares, and is subject to greater formalities than an LLC.
- An LLC will be required to pay Medicare and Social Security taxes on all profits. Stockholders within a corporation are not required to pay these taxes on profits above their salary.
Filing Formation Documents to Form an LLC
Before you begin to prepare your formation documents for an LLC, you'll need to:
- Choose a unique name for your LLC after performing a thorough search. Make sure you refer to your state's LLC database.
- Select a registered agent for your LLC. This individual will receive all legal documentation.
When filing your LLC formation documents, you will typically need to include your LLC's name, the address of your office, your effective date, as well as the name and address of your registered agent. Many states will also require additional information. This can generally be achieved either online or via mail. If you submit online you will need to pay associated fees by credit, whereas mail-in submission will require a check or money order.
- If you file by mail and there are no associated issues, processing will typically take 1-2 weeks.
- In comparison, if there are no issues and you filed online, expect processing to take an average of 1 week.
Upon approval, you will receive a stamped copy of your LLC formation documents. The stamped document confirms that you are now an operating LLC. This process will vary from state-to-state.
Please keep all of your documents on file, as your LLC records should be easy to access. When you receive a certificate of good standing, add this document to your ongoing records.
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