What Is an LLC?

LLC creation is the act of forming an LLC, or limited liability company. An LLC is a business entity that combines the taxation advantages and flexibility of a partnership or sole proprietorship with the liability protections of a corporation. Such entities offer their owners protection for their personal assets in the event of business-related debt or legal action, pass-through taxation (which means no double taxation), less filing and organizational requirements, and an easier set-up process. Because of this, LLCs are very popular with owners of small businesses. Setting one up may vary in the details from state to state, but there are certain steps that will be the same regardless of state.

Choosing an LLC Name

The first step in creating your LLC will be to choose a name for it. Your LLC name must comply with your state’s LLC naming regulations. Such regulations may vary in some respects between states, but in any state, an LLC’s name must:

  • Not be a duplication. Your LLC’s name cannot be the same as that of an already-existing LLC. Conducting an LLC name search on your Secretary of State’s website will show you if your name is original or not. If not, a new one must be chosen.
  • Contain an LLC designator. Your LLC name must have some form of the phrase “Limited Liability Company” in it. This could be “Limited Company,” “LLC,” or “Ltd.”
  • Have no prohibited words. Some words, such as “Corporation,” are forbidden to LLC names, while other words, like “Insurance,” require special permission.

The LLC office in your state can assist you in meeting these naming requirements. Additionally, in many states you can reserve the LLC name you want before you file for the name, so long as you are willing to pay a small fee.

Filing Articles of Organization

Once you have chosen your LLC name, you must file Articles of Organization with the office of your Secretary of State. Articles of Organization are documents that detail such information as:

  • Your LLC’s address and name
  • Your LLC’s length of existence, if it is not meant to be perpetual
  • The address and name of your LLC’s registered agent
  • The purpose of your LLC (what kind of business you’re pursuing)

Articles of Organization require a filing fee, which is usually around $100 in most states, although California requires an $800 annual tax in addition to the filing fee, and other states may have additional taxes and fees, as well.

Create an Operating Agreement

Although Operating Agreements are not often required, it is a good idea to create one anyway. An Operating Agreement defines the rules of operation and ownership for your LLC and may specify such details as:

  • The percentage of each member’s business interest
  • The responsibilities and rights of each member
  • The voting power of each member
  • The distribution of losses and profits among members
  • The management of the LLC
  • The rules for meetings and voting
  • The buy-sell provisions, which relate to how a member’s disability, death, or desire to sell their interest is handled

An Operating Agreement is also useful insofar as it can prevent future disputes among LLC members by clearly laying out the procedures that should be followed if certain events should come to pass.

Publish a Notice

Some states require you to publish several notices in your local paper informing the public of the fact that you will soon be in business with an LLC. Once this is done, an affidavit of publication must be filed with the LLC filing office. Your local newspaper can help you with the details of this publication.

Obtain Permits and Licenses

Depending on where your business is operating and what kind of business you are in, you may need to obtain certain permits and licenses before you can legally conduct business. Such permits and licenses may include a business license, an EIN (Employer Identification Number), a zoning permit or a sellers’ permit. Most permits and licenses will require a fee, sometimes annually.

These are just the broad details to consider when creating your LLC. If you need further help with LLC creation, you can post your legal need on UpCounsel’s marketplace. UpCounsel accepts only the top 5 percent of lawyers. 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.