LLC Business Purpose: Everything You Need to Know
Write an official LLC business purpose focusing on the company's efforts toward achieving its mission when forming a limited liability company (LLC).4 min read
2. LLC Basics
3. How to Form a Limited Liability Company
4. Do I Need an Articles of Organization or Business Purpose?
Write an official LLC business purpose focusing on the company's efforts toward achieving its mission when forming a limited liability company (LLC). One of the first steps you must take to form an LLC is to file special documents with your state office. Most states require LLCs to file an articles of organization document with the secretary of state. However, your state may require a certificate of formation or other such documents.
Limited Liability Company Overview
An LLC is an official business entity created under state law. LLCs offer numerous advantages associated with management flexibility, taxation, and personal liability, which is similar to the benefits partnerships and corporations offer. State laws vary in how LLCs are formed, and some states require the LLC to have an official business purpose. Since LLCs are for-profit businesses, an LLC, even in a state that doesn't require a business purpose, should still create one for the LLC's benefit.
Although states vary in how businesses are filed, each requires the following information in the articles of organization or a similarly named document:
- The name of the LLC
- The name and contact information of the LLC's registered agent
- A statement of purpose
- Details regarding how to LLC will be managed
- The LLC's physical address
- The business' duration
- At least one authorized signature
Unlike other business types, the Internal Revenue Service (IRS) does not have a specific classification for LLCs. As such, the IRS may tax an LLC business as a partnership, a corporation, or a sole proprietorship, depending on how the LLC members choose to be taxed.
If the LLC members choose a corporate tax structure, the business is taxed on its profits and the members also are taxed on any business income. Under a sole proprietorship or partnership, both profits and losses are reflected in each individual member's personal income taxes. However, even if LLC members choose a partnership-based tax structure, the business limits its members' personal responsibility, acting more like a corporation.
How to Form a Limited Liability Company
Forming an LLC starts with choosing your desired business name. You must include the phrase “Limited Liability Company” or one of its abbreviations (LLC or L.L.C.) as part of the business name. Make sure the LLC name is available by conducting a preliminary name availability search through your secretary of state's website, the county Register of Deeds, trademark registration databases, and online business directories.
Keep in mind that the state makes the final decision whether a name already in use is too similar to the one you have chosen.
The next step in forming your LLC is to create your business purpose. This is a document explaining what your LLC is and what products or services it provides. There are two basic types of business purpose clauses:
- General — Certain states allow general-purpose clauses stating the LLC will engage in “all lawful business.”
- Specific — Certain states require a more complex explanation of the LLC's products and services.
Next, you will need to name a registered agent to act as the point of contact for legal and tax documents for the business. This person must have a physical address and live in the same state as the LLC. He or she must also be available during normal business hours. Many business owners opt for a registered agent service instead of selecting their own registered agent because professional services are discreet and may offer additional services.
You must also name the organizer or person preparing and filing LLC formation documents. Most states simply require the organizer's contact information and signature.
The next step in forming an LLC is to select its management structure. LLCs may be managed directly by the owners, who are called members, or by hired managers. When managed by the members, an LLC resembles a partnership business structure. When hired managers are involved, the LLC looks more like a corporation because the members are not involved in daily operations. Members should outline whether the LLC is member-managed or manager-managed in the articles of organization.
Regardless, most states require you to include the names and addresses of all members on formation documents.
Do I Need an Articles of Organization or Business Purpose?
State law usually requires members to file an articles of organization document with the secretary of state when creating an LLC. Since state laws vary, you should research your secretary of state's website for specific requirements. The website should also state whether you need to submit a business purpose statement.
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