(Newswire.net — October 29, 2021) –When you begin a business, you have to choose a business structure through which you will operate that business and fulfill your tax and legal obligations while limiting your personal liability. One of the most popular business structures is that of a Limited Liability Company (LLC).
What is an LLC?
An LLC is a business structure permitted under state statute, whether you plan to start an LLC in Texas or Maine. Each state has its own set of regulations regarding LLCs, so it’s important to check in with your state if you want to set up an LLC. The owners of an LLC are known as its members. In most states, there are no real restrictions on members, so members can be individuals, or corporations, or other LLCs, or foreign entities. There are also no restrictions on the number of members that an LLC can have. The majority of states allow for “single-member” LLCs which have just one owner. Certain kinds of businesses cannot organize themselves as LLCs, such as insurance companies and banks. Again, it’s important to check in with your state to understand the requirements you have to meet to organize an LLC. You should also check federal tax regulations to get a better understanding of your tax obligations. As for foreign LLCs, they have their own set of specific regulations.
Although state regulations vary, there are certain basic rules of thumb that you should follow to set up an LLC.
Choose a Business Name
The first thing that you have to do is to choose a business name for your LLC. The business name must adhere to state regulations.
The most basic regulation is that you cannot choose a business name already in use by another business within your state. This protects the trademark of a business, so that there is no confusion among stakeholders regarding a company. Your state’s Secretary of State will have a database of business names that you can check to see if your preferred business name has not already been used.
State law also regulated the use of certain words in a business name. For instance, you cannot imply that you are in a business that you are not.
Finally, your business name will be suffixed by LLC or even “limited liability company”.
In most states, you can reserve a business name for up to two months. This will typically cost between $10 and $50.
Choose a Registered Agent
All states require that an LLC have a registered agent. A registered agent is an individual or business designated to receive what is known as “service of process”, when a business, in this case, your LLC, is party to a legal action such as a summons or lawsuit. A registered agent is designated so that when service of process is sent, there is someone or an organization to which it may be sent. When the registered agent receives the service of process, they are obliged to pass it on to the LLC. However, even if they do not, the law considers that once the registered agent has received service of process, it is the same thing as your LLC receiving it.
If your registered agent is an individual, they must be over 18 years old. You may name yourself or a company official as the registered agent. The registered agent has to be at their “registered address” at all times during normal business hours. If your registered agent is not there, then you will be liable if you do not meet the demands of a service of process. So, for instance, if you do not see a subpoena because your registered agent was not at their street address, then a judge can proceed without you and pass judgment without you having recourse to argue that you were unaware of the subpoena. SO you have to be very careful when choosing your registered agent.
File the Articles of Organization
When you establish an LLC, you have to file what are commonly referred to as “articles of organization”. Each state will have a template that you can use for your filing. You can usually find this template at the Secretary of State’s website, or the state agency responsible for business registrations.
The articles of organization are similar to articles of incorporation, and outline the initial statements needed to form an LLC in many states. In some states, articles of organization are known as certificates of organization, or certificates of formation.
You will have to provide basic information such as your business name; the street address of the business; the business’ purpose; how the LLC will be managed; your registered agent’s contact details; and the LLC’s duration.
One or more of the LLC members will have to sign the application.
In a few states, such as New York and Nebraska, you have to post a notice in a newspaper to announce your intention to register an LLC. This must be done before filing the articles of the organization.
On average, you will have to pay a processing fee of between $50 and $100, depending on the state. There are outliers. For instance, Alaska charges $250 to file articles of organization.
Once your application is approved, you will receive a state-issued certificate indicating that your LLC has been registered. You can use this document when opening a bank account or getting an Employer Identification Number (EIN).
Draft an Operating Agreement
An operating agreement outlines the management, financial and legal rights and obligations of the members of the LLC. It shows how profits will be distributed; how members can leave the LLC; and how the LLC will be funded and by whom. In essence, it is a manual showing how the business will operate.
Although an operating agreement is not a legal obligation in most states, you would do well to draft one. It will clarify everyone’s role and give the LLC a document to point to whenever there are conflicts or misunderstandings about the running of the business. It is useful even for single-member LLCs because it helps clarify so many issues about the operations of the business. You can discover more about how to form an LLC and begin your journey toward building a great business.