Two of the most enticing things about an LLC is that it prevents business owners from being personally liable for things related to the business, and it provides pass-through tax status. It also has fewer formalities and requires less paperwork.
If filing as an LLC is something you’re thinking about, you should make sure to have all your documents completed and prepared in the right way. The three essential documents for forming an LLC are:
1) Articles of Organization
The Articles of Organization — also called Certificate of Organization — is the equivalent of the corporation’s Articles of Incorporation. Consider these the building blocks of your LLC.
The basics elements required in the Articles/Certificate of Organization include:
- Your Business Name: Make sure that your name doesn’t pose any potential conflicts with another business name already registered in the state where you’re filing your LLC.
- Business Purpose
- Principal Place of Business
- Registered Agent: This is the entity or individual who will receive official papers and legal documents on your behalf, including documents related to lawsuits. The registered agent has to be in the state where your LLC is registered, and must have a physical address.
- Management Structure: Meaning, does your LLC have a single manager, two or more managers, or are all members managers?
- Duration of LLC: Some states require you to specify how long your LLC will operate. A few states set a statutory limit on the duration (usually a few decades). But you can extend your LLC for longer if it’s still in business when you hit the end of this period.
2) Operating Agreement
An Operating Agreement specifies the rights and duties of the Limited Liability Company members. It also states the distribution of income of the LLC to its members.
While it’s not required by law that you file an operating agreement to form your Limited Liability Company, you need to have this document prepared to be compliant with the company’s corporate formalities.
What you include in your operating agreement will vary depending on your business, but operating agreements commonly include:
- If there is more than one member, you need to describe the way key business decisions will be made
- Members’ Percentages of Ownership
- How Profits and Losses Will be Distributed
- Voting Rights
- What happens if an owner dies or wants to exit the business
- How the LLC Can be Dissolved
All members must sign the operating agreement in order for it to be valid.
3) Employee Identification Number
All businesses, regardless of the structure, need an EIN (Employee Identification Number). Instead of your social security number, you should use your EIN on all your business-related documentation. You’ll also need your EIN to open a business bank account. To get an EIN, you or your attorney need to fill out IRS Form SS-4.
In addition to the documents above, you also need to file an annual/biennial report with the state where your LLC is registered.
So what’s the most effective way to file an LLC? Let’s be real, there are a million online services you can use to do this, but they use generic descriptions and agreements. And they probably don’t cost much less than using an attorney. So is it worth gambling on whether you’re forming the foundation of your business the right way?
Since your legal needs are just as unique as the brand you work so hard to build, work with an attorney who understands your vision so you’re set up for success.