Requirements for an LLC

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

The state laws governing the creation, operation and dissolution of limited liability companies are fairly uniform in that the majority of jurisdictions adopt the principles of the Revised Uniform Limited Liability Company Act. However, as minor variations in LLC requirements exist, you must adhere to the laws of the state in which you create the LLC.

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Certificate of Organization

Every jurisdiction will require you to submit a certificate or articles of organization to effectuate the creation of a legal LLC entity. These documents are straightforward and brief, allowing you to meet formation requirements expeditiously. It must include the name of the LLC, the address of its principal office and the contact information of the agent you authorize to accept legal service of process on behalf of the business. At the time of its submission, at least one member must exist before the appropriate state office can file the certificate. However, most jurisdictions will delay filing and provide you with a specified period of time, commonly three months, for a member to join. If no member exists after that time, the certificate becomes void and you must start the process over again.

Standards of Conduct

The jurisdiction that governs your LLC will impose on members a minimum standard of conduct when conducting LLC business. Most standards impose a duty of loyalty on the member when conducting firm business. The duty of loyalty prohibits self-dealing in any way that may cause damage to the LLC, or usurp business opportunities. A breach of this duty imposes personal liability on the member for the amount of damage or loss. Loyalty also requires a member to refrain from participating in other business ventures that directly compete with the LLC.

Foreign LLC

Most states will recognize an LLC that is created outside its jurisdiction and treat it as a foreign LLC. Foreign LLCs have no restriction to engage in interstate commerce; however, a state may preclude you from seeking judicial intervention in its courts if you do not file a certificate of authority with the foreign state. The certificate requires the same information as the articles of organization. Once you file the certificate and register in the foreign state, you can then file a lawsuit to resolve business disputes with a resident of that jurisdiction.

Tax Reporting

The federal tax law imposes additional requirements that LLCs must adhere to. Upon formation, all LLCs with more than one member are subject to partnership taxation rules, while single-member LLCs are taxed as sole proprietors. Both forms of taxation require individual members to report their share of business income and pay the appropriate tax on a personal tax return. Under both schemes, the LLC is not liable for paying the federal income tax. However, any LLC may elect corporate tax treatment and shift the obligation to report and pay tax to the LLC entity rather than members.