Purpose of Filing an LLC With a State

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

The limited liability company business structure -- commonly referred to as a hybrid of the corporation and partnership -- is only an option if you adhere to all filing procedures in the state in which you want to create the entity; this doesn't necessarily need to be the state in which you operate. This is because legal formation of the LLC cannot occur without filing the proper documentation with the secretary of state, or similar agency, in your jurisdiction. But this is only the initial purpose; there are other reasons why you may want to file documentation to form an LLC in one or more states.

The limited liability company business structure -- commonly referred to as a hybrid of the corporation and partnership -- is only an option if you adhere to all filing procedures in the state in which you want to create the entity; this doesn't necessarily need to be the state in which you operate. This is because legal formation of the LLC cannot occur without filing the proper documentation with the secretary of state, or similar agency, in your jurisdiction. But this is only the initial purpose; there are other reasons why you may want to file documentation to form an LLC in one or more states.

Legal Formation

The principal purpose of filing LLC formation documents -- sometimes called certificates of organization -- is to create a separate legal entity for your business. You can choose to register your LLC in any state, but whichever state you choose, you'll need to file this or a similar document with the agency responsible for overseeing business entity formations, such as the secretary of state. Prepare the document to include the essential requested details like the business's name and address, as well as the registered agent information. Then file it with the proper state agency. Your LLC is formed once the state accepts the documents for filing along with the required fee.

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Personal Asset Protection

Business owners might prefer to keep their business and personal assets separate, which is often the main purpose of filing for LLC formation. When you conduct business as a limited liability company, debts and other obligations that arise through business activities aren't the responsibility of the owners, who are known as members. For example, if you obtain a line of credit in the LLC's name, but later default on repayment due to business losses, the creditor can sue the LLC, but your liability is limited to the assets of the company. Despite the size of your personal bank account, it remains outside a creditor's reach.

Multistate Business Activities

As your business grows, you may want to operate in states other than the one where your LLC is registered. Most states require a foreign LLC -- an LLC created in a different state -- to register documentation if they conduct business within their jurisdictions. This form is often referred to as a certificate of authority. In New York, for example, registration is required if a business's activity in the state are of a permanent, continuous and regular nature, as well as vital to the business and not merely incidental. This is always based on facts and circumstances; however, if you regularly sell goods to New York customers, chances are you'll need to file registration documents with the New York Secretary of State.

Other Advantages

An existing business may choose to file for LLC formation as a way to raise additional capital by admitting new members. Also, the inherent flexibility of LLCs, provides the freedom to draft an operating agreement -- which is a written document outlining the company's rules and management policies -- with terms that allow the company's members to sell their interests in the LLC without much restriction.

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Steps to Creating an LLC

References

Related articles

What Is an LLC License?

A limited liability company is a type of business structure that shields the owners of the company from personal liability for the financial dealings of the operation. An LLC does not pay federal taxes since the profits are only reported on the owner's tax return as personal income. The creation of an LLC is governed by state law and members must file certain documents with the appropriate state department to gain approval to operate as an LLC.

When Does an LLC Become an Entity?

States allow several types of business structures, including limited liability companies, which limit the owner's personal liability for the business's obligations. When a business has a separate existence from its owner, as is the case with an LLC, it means that the business owner or an investor is much less likely to be held personally responsible for the debts of the business; however, you can only create an LLC through appropriate registration with the state. Thus, until the LLC's paperwork is properly filed, it does not legally exist.

LLC Terms

A limited liability company, or LLC, is a popular type of legal entity because it combines the best characteristics of a partnership and corporation. As a result, the terms used to describe the characteristics of an LLC are often taken from both partnership and corporation law. Because each state has enacted its own LLC laws, some terms used for LLCs differ from state to state.

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