Due to its flexibility in tax treatment and the limited liability it offers its members against torts committed by employees and other members, the limited liability company (LLC) has become a popular corporate form for small business. While the requirements for forming an LLC vary from state to state, commonalities exist among almost all jurisdictions.
Fit your business needs with the right LLC package
Your first step in starting an LLC is choosing name for the business. This name should be unique to your business and not in use by any other enterprise anywhere else. While you should at a minimum check with the secretary of state or similar official in your state capitol to ensure the availability of the name, also perform an Internet search to see if another business in another state has the name. Using the name of another business, even if unintentional, could expose you to expensive trademark litigation. Before moving forward, check with the secretary of state to ensure that your intended name does not contain any prohibited words. Some states restrict the use of certain terms, such as "trust" and "mutual," in the name of an LLC or corporation.
Articles of Organization and Filing Fees
In addition to a name, you will also need to draft a set of articles of organization, the forms for which some states make available on the Internet for free. The articles of organization contain key information about the business, such as the names and addresses of the members, the managers and the registered agent for service of process. The articles also contain a description of the business, such as "to make widgets" or "to engage in any lawful activity." The fees required to file articles of organization range from less than $50 to more than $500, depending on the state.
An Operating Agreement
Although not all states require an operating agreement to be filed along with the articles of organization, every startup LLC should have one. The operating agreement spells out the rules for running the business and the agreement of the members as to how to handle important issues such as capital contributions, the duties of members, the removal of members and the rules for conducting annual meetings. Operating agreements help prevent expensive disagreements among members and add another layer of protection against an attempt by a civil plaintiff to pierce the limited liability shield.
A Business License
Depending upon the municipality in which you will have your principal office, the local codes may require you to apply for a business license. The fees for these licenses are as varied as the municipalities that levy them and may only be required once. The purpose of a municipality requiring a business license is to ensure compliance with the zoning ordinance. Depending upon the nature of your business and your zoning classification, local ordinances may not allow you to operate your LLC out of your home.
References & Resources
- Jupiterimages/Comstock/Getty Images