Forming a Limited Liability Company

Limited Liability Company formsYou can form an LLC yourself even if you have no formal legal or business training. A limited liability company is the easiest type of business entity to create and requires only five steps:

  1. Choose a business name that complies with state law
  2. File your Articles of Organization and pay the applicable filing fee
  3. Draft an operating agreement
  4. Publish notice of your intent to form a limited liability company
  5. Gather any required licenses or permits needed by your business area

Choosing a Business Name

Though state rules vary regarding the specific rules your LLC’s name must adhere to, there is some consistency among the requirements. For instance, no state permits you to register a business name that is already in use by another LLC in that state whether that LLC was formed in the state or is merely registered as a foreign LLC. Additionally, your business name must contain one of the various suffixes required by state law, such as “Limited Liability Company,” “Limited Company,” “L.L.C.,” or “Ltd.” Finally, many state prohibit certain words from being used in the name of your business, most commonly “Insurance,” “Bank,” or any term that might be misleading about the nature of your business.

Your Secretary of State’s office can consult you on your proposed business name to let you know if it violates any rules. You may also rely on the office to run a check to make sure your name is still available. If you prefer, you may pay a fee to reserve the name, although it is generally easier to submit a final Articles of Organization instead.

Articles of Organization

This form may go by another name in your state, such as “Certificate of Formation,” but this section refers to whatever the required formation document is in your state.

The form itself is typically very simple and requires only a small amount of information, such as the LLC’s name and address, and the names and addresses of all of the LLC’s owners (called members). You must also supply the name of an individual or business that resides within the state to act as your LLC’s registered agent. This may or may not be one of your members. The individual is charged with receiving important communication from the state, such as service of process in the event your LLC is sued.

With your Articles of Organization, you must also submit a filing fee. This fee varies from state to state, but is typically around $100. California is a notable exception as it charges an $800 tax on top of the filing fee.

Operating Agreement

Not all states require an operating agreement, and of those that do, none require that the agreement be filed with the state. Regardless of your state’s laws, though, it is always a good idea to draft one, even if you do not plan to write it as you are forming the limited liability company. This agreement with cover how the members receive profit disbursements, what each member’s voting rights are, who will manage the LLC and how, what happens when a member wants to leave the LLC, and so on. For a more detailed list, read here for what to include in the LLC operating agreement.

Publication of Notice of Intent to Form

Not all states require that you make a public notice of your intent to form an LLC, and those that do each have slightly different rules. Essentially, you must make a notice in one or more local newspapers that appears for a period of time — typically around two weeks — informing the public about your intent to form an LLC. The newspaper will provide you with an affidavit of publication that you must submit to your Secretary of State’s office. Newspapers in states with this requirement deal with LLC publications regularly and should be able to guide you through the process.

Licenses or Permits

Some limited liability companies, especially professional LLCs, need certain licenses or permits before they may legally begin operating. Some commonly needed permits include a business license, a zoning permit, a federal EIN (Employer Identification Number), or a seller’s permit. Trade-specific licenses may be required in certain LLCs, such as accounting firms, legal firms, and other industries. These requirements are generally not specific to LLCs and apply to your chosen trade, so consult your professional ethical obligations or state laws.

As always, speak with an experienced business law attorney to ensure that you meet all of your state’s requirements before forming your limited liability company.