Forming a limited liability company can be a great business decision, and it’s not as complicated as you may think. An LLC combines the limited liability that a corporation has with the pass-through taxation that a sole proprietorship has. Some people are hesitant to form an LLC because of the assumed complications and difficulties. This article lays out the simple steps you can take for your small business.
Choosing a Name
When deciding on a name for your LLC, you need to ensure that it complies with your state’s rules. You can typically find these rules by contacting the specific state office, which often is the Secretary of State office. Here are some general rules that tend to apply across the board: The name must be unique from all other LLCs on file with the state. The name must omit all words that are prohibited by your state. You must indicate that the company is an LLC by putting “Limited Liability Company,” “Limited Company,” “Ltd. Liability Co.,” “LLC,” or “L.L.C.” at the end of the name .You can typically reserve your desired name for a certain period of time if you pay your state’s office a small fee. This might be a smart idea if you want to secure the name before you have finished all of your paperwork. You may also be able to find out if your desired name is taken before you turn in your paperwork.
Filing Articles of Organization
Once you have decided on a name, you need to create “Articles of Organization” and file them with your state’s office. Your state may use different terminology for this paperwork, such as “Certificate of Organization” or “Certificate of Formation.” When forming an LLC, you will be required to pay a filing fee. This is one big difference to forming a general partnership or sole proprietorship. Each state has differing fees. Don’t be intimidated by the process of making your articles of organization. They are actually quite short and simple. Once you get a form from your state’s LLC filing office, you normally just have to fill in the blank spaces with the relevant information. Information that is generally required includes the business address, business name, and names of the owners. You can decide whether to have all members create and sign the document, or all members can appoint one person to take responsibility.
Forming an Operating Agreement
It is crucial for you to create an operating agreement, even when it’s not required by the state. The purpose of this document is to set up rules and guidelines regarding operation and ownership of the business. An operating agreement typically includes these sections: The voting powers, responsibilities, rights, and percentage interests of all owners How the business will be managed The process of allocating profits and losses Rules for taking votes and holding meetings Provisions that determine what should be done if a member leaves the LLC, in the cases of selling interest, disability, or death
Publishing a Notice
Some states require that you notify the public of the formation of your LLC. These publications can typically be done through a local newspaper. Sometimes the notice will have to be published several times over a certain period of time to meet the state’s requirements. You will then show your LLC filing office an affidavit of publication for proof.
Getting Licenses and Permits
Once you have completed all of the previous steps, your LLC is officially formed. But before the business opens its doors and begins full operation, you might need to obtain certain licenses and/or permits in accordance with state laws and regulations. Some of these things include an employer identification number, zoning permit, sellers’ permit, or a business license.