How Can My Company Be an LLC?

by Jeff Franco

All state governments and the District of Columbia allow you to create a limited liability company as the legal entity for your business. The formation requirements are fairly uniform across all jurisdictions, and provide a straightforward process to LLC creation. There is no requirement that you form the LLC in the state you reside in. However, you must adhere to the laws of whichever jurisdiction you choose for as long as the LLC exists.

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Creating the LLC

The first step in forming an LLC for your company is to draft a certificate of organization, or the equivalent in your jurisdiction, and file it with the appropriate state office. Commonly, the secretary of state's office in each jurisdiction handles the creation of business entities. The certificate requires you to provide the name of the business, the location of its principal office, and the name and address of the agent you authorize to accept all legal service of process on the LLC's behalf. The jurisdiction will review the document to ensure compliance before filing it. The LLC legally exists on the date the certificate is filed.

Becoming a Member

During the initial LLC formation stage, prospective co-owners may agree who to include as a member on the certificate of organization the LLC files with the state. After formation, additional members may join by any means the operating agreement allows, or on a unanimous consent of all existing members. If no members exist during any consecutive 90-day period, the last person to leave the LLC may designate a new member. Unless the operating agreement states otherwise, membership is not conditional on the new owner providing a contribution of money or property.

Contribution

Most jurisdictions allow members to make a valid contribution to the LLC with tangible and intangible property, money, promissory notes and promises to provide future services. However, the LLC is free to draft an operating agreement that requires a member to make a current or future contribution. If you accept the obligation to make future contributions as a condition of membership, you are personally liable to the business and its owners for any contributions you fail to make. Additionally, if a lender extends credit to the business based on your promise to make future contributions to the LLC, and your failure to make the contribution causes the LLC to default on repayment to the lender, the lender has a legal cause of action against your personal assets.

Member Management

States provide members of an LLC with the right to manage the affairs of the business unless the operating agreement clearly states that management duties solely lie with non-member managers. Each member has equal rights or votes to dictate how the LLC operates. In the event members disagree, operations are conducted in a manner the majority of members approve. However, no member may act outside the scope of ordinary business practices without the consent of all members. Clauses within the operating agreement that authorize member management are not subject to amendments unless members unanimously agree.