Requirements to Set Up an LLC

by Joseph Scrofano J.D./M.A.

LLCs are relatively modern business forms that are recognized in all 50 states and the District of Columbia. LLCs offer business owners a great deal of flexibility in taxation and management, while simultaneously limiting -- but not eliminating -- the liability for its owners. State laws govern LLCs and vary in detail, but most states follow a general pattern for requirements to set up an LLC.

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Name

The first step in setting up an LLC, regardless of which state the business owner wishes to organize it under, is to choose a name for the company. States typically prohibit LLC organizers from choosing a name that is the same or “deceptively similar” to other registered businesses in the state. In addition, federal trademark laws could prevent LLC organizers from choosing certain business names that are registered trademarks.

Articles

State laws typically require LLC organizers to file some sort of Articles of Organization or similarly titled document. Specific requirements vary from state to state. However, some typical requirements for the information in the Articles of Organization include the LLC’s name, its business address as well as the name and address of the LLC’s registered agent -- where and who can accept important mail on the LLC's behalf. States also impose filing fees that the members must include with the articles. In most states, the members must file with the Department of State.

Operating Agreement

States have varied requirements with regard to members executing an operating agreement. An operating agreement sets rules and policies for how the LLC will operate, what degree of control each member may have, and how the members will share in the LLC’s profits and losses. Most states encourage but do not require members to execute an operating agreement.

Business License

Many city and local governments require that businesses who operate within their jurisdiction must obtain a specific business license. Licenses may be trade-specific -- for instance, a “barber’s license” for a haircut business -- or a basic business license.

Tax Obligations

LLC members first decide whether to elect corporate taxation or “flow through” taxation. This process may include obtaining an Employer Identification Number, or EIN, through the IRS. If the LLC has employees, it typically needs to also procure a state EIN.