There are 5 simple steps to take to form an LLC.
1. Choosing a name for the LLC
- The name of the LLC must not be already in use by an existing company or entity.
- At the end of the name it should be indicated that the company is an LLC or limited Liability Company
- The name cannot contain words prohibited by state rules. Words such as “banks” and “insurance” for example.
2. File official paperwork, also called articles of organization (certificate of formation or certificate of organization in some states)and pay all the required fees
- This is done in the state’s LLC filing office.
- Fees usually range around $100 but some states charge yearly taxes aside from the filing fees which may cost up to $800.
- All required information should be provided including the contact information of a “registered agent” that represents the LLC. The registered agent is chosen from the members.
3. Draft a company operating agreement. A standard operating agreement should include the following:
- Each member’s stake in the company
- The rights and responsibilities of each member
- The weight of each member’s vote
- Distribution of profits and losses
- The management of the company
- Guidelines for meetings and voting
- Interest trading provisions
4. Publishing a note of intent
- This is required only in some states.
- A note should be published in a public medium (usually the local paper) stating the intent to form an LLC.
- An affidavit of publication is then submitted to the LLC filing office. Some states may require the publication to continue for several weeks.
5. Securing the necessary licenses and permits needed for the business
- After making the LLC official, licenses and permits required to operate a business will still be needed.
- These will include a business license, a federal employer identification number and a zoning permit.
It is easy to form an LLC but it is even easier to dissolve or end one. Under normal laws an LLC may be dissolved when a member leaves. This depends however on the stipulations stated in the company operating agreement.
A Limited Liability Company can be managed jointly by its members. This method is known as “member management”. There is however another method called the “manager management”. In a manager managed LLC all decisions are voted upon only by the assigned managers. The managers can be chosen from among the members or they can be from outside the company. In this arrangement, non managing members just sit and wait for the profits. Opting for manager management may require dealings with state and federal regulations on sale of securities.