Requirements to Form an LLC: Everything You Need to Know
The requirements to form an LLC are the steps you will have to take to form an LLC, or limited liability company, in the state you wish to form it. 4 min read
What is an LLC?
The requirements to form an LLC are the steps you will have to take to form an LLC, or limited liability company, in the state you wish to form it. There may be some variance in procedure from state to state, but in general, the LLC formation process is the same in all states. The three key steps are:
- Choose an LLC name.
- Get a registered agent.
- File Articles of Organization.
You may also be required to publish a public notice and file annual reports (sometimes with fees) in some states, and depending on your field of business, licenses and/or permits may be necessary. Setting up an operating agreement is also recommended, though rarely required.
Obtain an LLC Name
The first step to forming an LLC is to select an LLC name. The basic requirements for an LLC name, regardless of state, are:
- That it be original.
- That it have the phrase “Limited Liability Company,” or some variation thereof, in it.
- That it not have any forbidden or restricted terms, unless authorized to have them.
To see if your LLC name meets these requirements, simply conduct a search for it in your state’s LLC name database. The database will inform you if your name is taken or if it contains terms that cannot be used. Once you have found a name that works, you can register it when filing the Articles of Organization. Some states do allow you to reserve it for a fee, however.
Get a Registered Agent
A registered agent is an individual or a business that represents your LLC in the accepting and serving of legal papers. A registered agent must be a resident of the state in which your LLC is registered or be a business authorized to operate in your state. Either entity must also have a physical address in the state.
Publish a Public Notice
Some states require LLCs to publish a public notice of their existence several times in their local paper before filing their Articles of Organization. Once the notices have been published, an affidavit of publication should be submitted to the LLC filing office. Your local paper should be able to assist you in completing this step.
File Articles of Organization
The Articles of Organization are a legal document which provide the state with basic information concerning your LLC. Such information includes:
- The address and name of your LLC.
- The address and name of the LLC’s registered agent.
- The name(s) and signature(s) of the LLC owners.
This document should be filed with the Secretary of State or appropriate office either online, through the mail, or by fax. Depending on the state, a filing fee varying from $40 to $900 will be required.
Once the Articles of Organization are approved, a certificate or document of acknowledgment will be issued to confirm your LCC’s formal existence.
File Annual Reports and Fees
Some states will require annual paperwork documenting the state of your business. Some may require filing fees as well. An extreme example of this is California, where there is an $800 LLC tax annually, plus a $900 to $11,760 annual fee relative to an LLC’s annual income that exceeds $250,000. Other states have much lower fees, and some do not have any, but it may be a good idea to document your business proceedings nonetheless.
Obtain Permits and/or Licenses
Depending on where your business is located and what kind of business it is engaged in, permits and/or licenses may be necessary before you can go into business. Your business will need to acquire these to meet all federal, state, and local requirements. The U.S. Small Business Administration can be helpful in making sure you are in good standing here.
Form an Operating Agreement
Forming an operating agreement is rarely required, but it is highly recommended. The operating agreement will set out the internal rules that govern your LLC, and it may be as basic or complex as is deemed necessary. Issues that may be covered include:
- The responsibilities and rights of the members.
- The voting power of the members.
- The distribution of losses and profits to the members.
- The management structure of the LLC (member managed or manager managed).
- The manner in which meetings and votes will be conducted.
An operating agreement allows you to tailor the structure of your business to your liking (thus avoiding the state’s default rules), strengthen limited liability, and avoid disputes amongst members by setting out specific rules of conduct, and is thus highly desirable.
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