The State Requirements for an LLC

by Jeff Franco

Each of the 50 states and the District of Columbia govern all aspects of limited liability company business structures. Each jurisdiction imposes separate bodies of law that provide the requirements to which an LLC must adhere. However, as most states adopt some form of the Uniform Limited Liability Act, only slight differences across jurisdictions may exist.

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Creation

The first step in creating an LLC is to draft the articles of organization and deliver it to the appropriate secretary of state office. Most states require a minimum of the LLC’s business name, the location of its principal office or headquarters and the name and address of the agent the LLC authorizes to accept legal service of process. Formation of the LLC is legally effective once the Secretary reviews the articles and files it. If no members currently exist and you provide a statement to that effect in the document, the Secretary will delay filing it until it receives notification of the first member to join the LLC. If you do not provide the notification within 90 days of delivery, the articles are void. (See Reference 1)

Becoming a Member

States do not impose eligibility requirements for becoming a member of an LLC. The requirements of membership are stipulated by either the initial members that exist upon formation or the non-member organizer who creates the LLC. The operating agreement may require conditions such as an initial or promise of future contributions, or an obligation to provide business services to the LLC. Once you attain membership, in the absence of a clause in the operating agreement stating otherwise, you may only transfer the financial interest in the LLC to another person but not the rights to manage or participate in LLC business.

Business Operations

A majority of states impose the default rule that all members of the LLC have full voting and management rights in the business. Additionally, members may request all books and records pertaining to the LLC’s business at any reasonable time. Some LLC operating agreements may prevent members from managing the day-to-day operations of the business if it requires the hiring of outside employees to run the operations of the business. However, this does not render the member a passive investor. The member still retains the right to oversee the operations and the performance of employees.

Member Dissociation

All members have an unconditional right to dissociate from the LLC and relinquish all membership interest at any time and for any reason. However, if the dissociation is wrongful, the member may still be liable for any damages the dissociation causes the business and its members. For example, if the operating agreement states that you must provide 90 days notice before leaving the LLC and you leave before providing 90 days notice while in the middle of working on a lucrative business deal, the LLC may enforce its claim against you for lost profits if your untimely departure causes the deal to fall through.