Obtain an LLC: Everything You Need to Know
To obtain an LLC, you will have to go through multiple steps to gain recognition from the state you are forming it in.3 min read
To obtain an LLC, you will have to go through multiple steps to gain recognition from the state you are forming it in. An LLC is a popular business structure for many new business owners due to the fact that it provides limited liability for its owners and utilizes pass-through taxation similar to a partnership or sole proprietorship.
There are various ways that the IRS can classify an LLC for tax purposes and the designation often has to do with the number of owners known as members in the LLC.
- Multi-member LLCs choose between being taxed as a partnership or a corporation.
- Single-member LLCs can opt for being taxed as a corporation or be a taxable disregarded entity.
- If there is one owner in an LLC that chooses the disregarded entity status, it's treated as a sole proprietorship.
- If a corporation owns an LLC classified as a disregarded entity it's considered a division or branch of the corporation that owns it.
How to Form an LLC
Forming an LLC is relatively simple and involves a few steps. Some of the steps you need to follow to create an LLC include:
- Choosing an available name that falls within state LLC naming rules.
- Filing Articles of Organization along with a filing fee that can range from $100 to $800 depending on the state where your LLC is formed.
- Drafting an Operating Agreement which will define the rights and responsibilities of the members.
- Publishing your notice of intent to form an LLC in states that require it.
- Obtaining the necessary permits and licenses for you to form your business.
Choosing Your LLC Name
When you choose your business name, it must meet the compliance regulations of the state in which you are forming. You can typically find the rules for naming at your area Secretary of State's office corporate division. While some of the regulations vary from state to state, there are some common regulations that are standard rules. Your LLC name:
- Cannot be the same as another LLC that registered with the state.
- Must end with Limited Liability, Limited Company or the abbreviation for one of those names.
- Cannot include prohibited words such as Insurance, Corporation, Bank, or other prohibited words designated by the state.
You can find out from your state's LLC office if your desired name is available and can reserve your name for a small fee to hold the name until you file your Articles of Organization.
Filing Your Articles of Organization
Once you have chosen your name, you will need to file your Articles of Organization with your states LLC filing office. When submitting your Articles of Organization, you will need to send a filing fee in with it. The documents themselves are fairly short and filled out easily by checking a few boxes and filling in some blanks on forms that you retrieve from your state's LLC filing office. Your Articles of Organization will need to include:
- Your company name
- Your business address
- The names and addresses of all members
- The name of your registered agent
Creating Your Operating Agreement
Operating Agreements are not often required by law and aren't filed with the LLC office, but they are a good idea for defining the structure and rights and responsibilities of the members of the LLC. Operating Agreements are very similar to corporate bylaws and partnership agreements. A standard Operating Agreement should include:
- Each member's percentage of the LLC
- The rights and responsibilities of the members
- The voting power the members hold
- Allocation of profits and losses
- The management structure of the LLC
- The rules for voting and holding meetings
- The provisions for a member buying and selling their interest
Publishing Your LLC Notice
Certain states require an official announcement of LLC formation. This typically involves publishing a notice in local newspapers several times over a couple of weeks. After completion, the business will have to submit an "affidavit of publication" with the LLC office.
Obtaining Licenses and Permits
After completing the above steps, your LLC is officially formed, but before you can officially open for business, you will need to obtain any licenses or permits required for your type of business.
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