Business ownership is an exciting and rewarding pursuit. However, it also comes with responsibilities and challenges. Knowing how to set up the business properly is crucial in preparing the company for its future and LLC filing requirements. It can determine the personal liability, tax treatment, and obligations of the company.
Understanding What An LLC Is
One of the easiest and most efficient ways to launch a business venture is to set it up as a limited liability company (LLC). Generally, this is a newer form of company in the country.
Wyoming was the first state to enact a formal LLC law in 1977. The act aimed to combine the beneficial features of corporations and partnerships. Over the years, all states adopted the legislation and allowed the formation of LLCs.
This structure is often called a hybrid form of company. That is because it has a pass-through taxation feature similar to a partnership or sole proprietorship. At the same time, it offers limited liability like a corporation. Additionally, the structure allows flexibility in management and operation.
Forming An LLC
Organizing a company as an LLC requires the completion of a multistep process. Since states have their own laws governing business entities, the LLC filing requirements and fees will vary depending on where the company decides to register.
Despite the differences in the processes, there are some considerations that apply in all states.
- Choosing an appropriate name for the LLC – Many entrepreneurs may already have a name that they had thought long and hard about even before deciding to launch a business venture. But it is important to note that states have naming regulations that LLCs have to follow. First, the company needs to include a proper designator. It can be the phrase “Limited Liability Company” or any of its abbreviations, such as “LLC” or “L.L.C.” Second, the company name cannot include any term that could confuse it for a government agency. In most cases, the words “bank” and “insurance” are also prohibited. Third, the LLC has to make sure that its company name is distinguishable. That means it can not use a name if another entity in the state has already taken it. To ensure the availability of the desired company name, the LLC will have to conduct a business entity name search on the database of the Secretary of State or other governing agency. Most, if not all, states also allow the reservation of a company name. It comes with a filing fee.
- Appointing a registered agent in the state – Before the LLC filing, a company needs to appoint a registered agent in the state. This can either be an individual or a commercial registered agent that is willing to receive and send all legal mail, services of process, and government correspondence on behalf of the company. In most cases, an individual registered agent has to be at least 18 years old, a resident of the state, and has a physical address where they are always available during normal business hours. As for commercial registered agents, they have to be authorized to do business in the state and always available in the registered office during regular business hours. To discover how to find the best registered agent, read the Five Traits Of A Good LLC Registered Agent For Your Business.
- Filing the appropriate formal paperwork – The submission of formal paperwork and payment of the corresponding fee will formally register the LLC and legalize its operations in the state. The form is often called the Articles of Organization or Certificate of Formation. It is usually filed with the Secretary of State. The document requires some basic information about the LLC. That may include the name of the company, its principal office address, the name and address of the registered agent, the purpose of the business, its management structure, the effective date, and its duration. The necessary information will depend on the requirements of the state. Most states also offer downloadable forms that companies can simply fill out.
- Preparing an operating agreement – The operating agreement is an internal document. You do not have to submit a copy of it to the state. It is also not required paperwork. However, creating an operating agreement is advantageous for an LLC. Not only will it be useful for the organization of the business, but it can also be helpful in running the company. Companies need to carefully plan how they will run the business and include all the details in their operating agreement. Doing this will ensure that your company has a single source of information for future reference. The operating agreement often includes the following:
- Percentage interest owned by each member
- The rights, responsibilities, and voting power of each member
- The allocation of business profits and losses among members
- The management structure of the company
- Rules for holding meetings and taking votes
- Details about selling and buying shares
- The dissolution process in case the company has to close
- Complying with other obligations – Depending on the industry, activities, and primary place of business, an LLC may have additional regulatory requirements. Here are some of the most common:
- Employer Identification Number (EIN) – The EIN from the Internal Revenue Service (IRS) is used for tax filing purposes and is necessary for hiring employees and opening a business bank account.
- Business Permits – Some states and local governments may require an LLC to obtain certain licenses and permits. Check with the state, city, and county agencies.
Getting Help
The steps we have mentioned here are only the common tasks necessary for LLC filing. States may have additional requirements and fees. A company has to learn and understand all of them before proceeding with the registration.
In cases where the company finds the whole ordeal a bit overwhelming and too time-consuming, the best option is to get help from a reliable third-party organization like DoMyLLC. Our team of experts has knowledge and experience in handling business formation processes in all 50 states, including the District of Columbia. We are also authorized to serve as a registered agent. Contact us now to learn more about our services.