Formation of an LLC: Everything You Need to Know
Formation of an LLC requires several steps, including choosing a distinct company name and filing the correct documents with your state.3 min read
Formation of an LLC requires several steps, including choosing a distinct company name and filing the correct documents with your state.
Steps for LLC Formation
If you decide to form a limited liability company (LLC), both you and your business can receive several benefits. To correctly organize an LLC, you will need to complete several steps and make sure that your documentation is in order.
First, you will need to choose an LLC name that is different from other business names and complies with the rules for LLC naming in your state. Following the naming conventions in your state is the only way to correctly choose a name for your limited liability company. You should be able to contact the LLC agency in your state to learn specific naming conventions.
Regardless of your state, there are a few basic LLC naming rules you should follow:
- Your LLC name needs to be original.
- Your name must reflect that your company is a limited liability company, meaning it should include a designator such as “L.L.C.” or “LLC.”
- Your company's name cannot use prohibited words in your state.
It's also important that you do research to make sure that the name you desire for your company will not infringe on any other company's trademark. Check with the LLC agency in your state to find out if the LLC name you have selected is available. In some states, you can reserve your company name for a short period while you are preparing your Articles of Organization for filing. Usually, this will cost a small fee.
The next step of LLC formation is filing Articles of Organization in your state. Some states may call this document a Certificate of Organization or Certificate of Formation. Generally, completing your Articles of Organization only requires checking a few boxes and filling in some information on a standardized state form. However, you should also be certain that your Articles discuss how you will manage your company. Specifically, you need to list whether you will hire a manager for your company or allow LLC members to handle management duties.
You Articles of Organization also needs to include an end date for your LLC if you only want your company to exist for a limited period of time.
Most states require that your Articles of Organization include information about your members, including their names and addresses. You can either hire someone to complete and sign this document or give this duty to LLC members.
There is typically a fee of about $100 for filing this document. Other states, such as California, can charge annual taxes that may cost as much as $800.
You may also be required to appoint a Registered Agent and include this person's contact information in your Articles. The Registered Agent of your LLC will accept service of process for your company.
You need an operating agreement that will outline the length of your LLC and describe the rights granted to company members. Typically, operating agreements are internal company documents, meaning they will not need to be filed with your state when registering an LLC. An operating agreement can be very useful, as it will clearly define rules for operation and ownership of your business.
Most operating agreements will detail:
- The ownership percentage of each LLC member.
- Language describing owner's rights.
- The voting power of company members.
- Allocation rules for profits and losses.
- A description of how the company will be managed.
- Rules for holding votes and meetings.
- Procedures for transferring ownership interests.
Certain states require that you publish a notice in a newspaper alerting the public to the formation of your limited liability company. Usually, this notice must be published multiple times over a few weeks. Then you will need to file proof of publication with your LLC agency. You should be able complete this requirement with assistance from a newspaper in your area.
Once you have successfully completed all of these steps, your limited liability company will be officially established. However, before you can start doing business in your state, you will likely need to acquire permits and licenses. Primarily, you will need to obtain a business license, which is sometimes called a tax registration certificate. You may also need a zoning permit, seller's permit, and an employer identification number (EIN).
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