What Is LLC Formation?

Ever wondered what LLC is all about? Well LLC or Limited Liability Company (Sometimes known as Limited Liability Corporation) is a business company that, as its namesake suggests, offers limited liability to its owners.

Now, ever wondered about LLC Formation?

There are several steps that must be undertaken in Llc formation.

Step 1- Name your Business

The first step that needs to be undertaken is a name must be chosen. Due to the legal issues in relation to forming an LLC, it is best to check with state law first. General requirements are that:

  • the name must contain 'Limited liability company' 'Limited company' or abbreviations of this, such as 'LLC'
  • The name chosen cannot be the same name as another registered LLC.
  • Selected words must not be included in the same (check with State law for further information) such as Bank or Insurance.

Your local LLC office will be able to guide you on this matter. They can advise if the name is already in use, and even you may be able to reserve your name for a short period of time only.

It is important to remember that your name should not in any way violate an already existing name of a corporation. This could result in a lengthy and costly court dispute, which would not be an ideal beginning for your LLC.

Step 2- Articles of incorporation

After the name has been established, the next stage is to file the 'articles of incorporation' with your specific state's LLC office. This is an important stage in any business incorporation. Articles of incorporation may also go by the name 'articles of organisation' or 'certificate of formation'. The forms require basic information such as tax details and banking details. They can often be downloaded from selected legal websites.

While this process is relatively simple, unfortunately it is not without costs. When filing the Articles of Incorporation, there are usually some fees associated with it. These are once again state dependant, however range from between $100- $800.

The Articles of incorporation are meant to be short and simple, and can be done independently in a limited amount of time. Included must be your LLC's name, address and members. A 'registered agent' may also be a requirement that is necessary. This can be one of your members that is nominated to be to one to receive legal papers in any future lawsuit of your LLC.

Step 3- Member operating agreement

The 'members' are the owners of the business. Therefore the 'member operating agreement' are selected topics that the members should agree upon. They are necessary as they provide a degree of authority, and in the event that conflict arises.

The member operating agreement can include:

  • Who are the members?
  • Allocation of profits/losses
  • Distribution of LLC units
  • Rights/Responsibilities of members
  • Voting power of members
  • Management of the LLC
  • Meeting and voting details
  • Contingencies for if a member decides to sell their interest, etc.

Step 4- Authorisation

There may be further requirements that differ from state to state. These may include licences, permits, and public notification.

Llc formation is similar to business incorporation in that there are special licences and permits that must be obtained before you business can begin operating. They include a 'tax registration certificate' a 'federal employee identification number' and a 'sellers permit'.

In rare cases you will have to undergo public notification before you can officially begin trading. This may be as simple as publishing an ad in the local newspaper, highlighting your intentions to form an LLC. This may need to be undertaken several weeks in a row. Further details can be sought from the LLC filing office, or even from your local newspaper.

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