The Costs and How to Become an LLC

by Jeff Franco J.D./M.A./M.B.A.

All 50 states and the District of Columbia have the authority to create limited liability companies within their jurisdictions. Although the rules and regulations may vary across jurisdictions, many have adopted some variation of the Uniform Limited Liability Company Act. This model legislation provides for the formation of an LLC structure with minimal filing and payment requirements.

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Articles of Organization

Every jurisdiction requires you to prepare the articles of organization or its equivalent as the first step in creating a legal LLC. This document includes the address for the LLC’s principal place of business, its name and the contact information of an agent you authorize to accept legal documents on behalf of the LLC. When choosing a name for the LLC, you must ensure that no other business entity uses it within your jurisdiction. Most jurisdictions require a nominal fee to accompany the articles that can range from $50 to $800. For example, as of December 2010, New York imposes a $200 fee.

Existence of Members

Most states allow an organizer who has no interest in the LLC business to prepare and deliver the articles of organization to the appropriate office before a single LLC member exists. However, many jurisdictions do not file the articles and officially create the LLC until at least one member exists. If articles are delivered without members, the organizer must provide the office with notification in writing of the date the first member joins. If the organizer fails to find members or notify the appropriate office within a specified period, the document lapses and becomes void. There are no additional filing costs for delivering the articles at a time when members do not exist.

Operating Agreements

Many multi-member LLCs draft an operating agreement that is binding on all current and future members. Frequently, the agreement provides the method for allocating profit distributions, voting requirements for important business matters such as admitting new members, limitations on the type of transactions the LLC may enter into, and the standards of conduct for all members and managers. Most jurisdictions do not require the LLC to have an operating agreement, and impose their own LLC regulations on the business in the absence of such an agreement. The state of Delaware is in the minority of jurisdictions that require an operating agreement; however, its drafting may be done after legal formation is complete. The operating agreement is an internal document and does not require the payment of a government fee.

Foreign LLCs

A majority of jurisdictions classify any LLC created outside of the state as a foreign LLC. A foreign LLC may conduct business in any jurisdiction of the United States. However, many states require the LLC to apply for a certificate of authority before it can obtain access to that state’s court system to settle business disputes. Most states charge foreign LLCs a registration fee that is comparable to the cost of creating an LLC within the state. For example, Delaware requires a $200 fee, whereas New York charges $250.