What is Needed to Create an LLC?™
Article by
LawsOnline November 01, 2024
Download Sample Forms
Sample LLC CHECK SHEET-PDF
Sample
OPPERATING AGREEMENT - PDF
Sample CERTIFICATE OF ORGANIZATION - PDF
Article by
LawsOnline November 01, 2024
Download Sample Forms
Sample LLC CHECK SHEET-PDF
Sample
OPPERATING AGREEMENT - PDF
Sample CERTIFICATE OF ORGANIZATION - PDF
Are you contemplating starting a business but, you are
concerned about the impact of company liability on your, and
your future partners', personal assets and property? You are
not alone. Around 4.7 million businesses are started every
year. That average is according to data from the US Census
Bureau, as reported by USA Today. (See (See
https://www.usatoday.com/money/blueprint/business/business- 20year.)
If you have evaluated the differences between an LLC and a
Corporation, and you want simplicity, an LLC is the least
complicated of the two. Corporations are more involved in
setting up because of the required Articles of Incorporation,
ByLaws, Stock Register, Shareholder List, Board of Directors
Meeting Minutes, Annual Shareholders' Meeting Minutes, etc. If
you are looking for low overhead, but still want cover from
liability, most LLC’s can provide adequate general liability
protection from personal liability. First, you need to put
together an outline of what information you need to begin the
registration process for your LLC to save yourself the
headache and aggravation of jumping into the creation of an
LLC and not having all the necessary ownership information.
In this article, we have created a CHECKLIST that you can use
to outline what you need to create an LLC. This is not a
substitute for legal advice. An attorney must be
consulted. You will especially need the assistance of a good
attorney to guide you through some of the new regulations
affecting all businesses including, the Beneficial Ownership
Information regulation issued in 2024 by the Financial Crimes
Enforcement Network (FinCEN). FinCEN, a Federal agency within
the Department of the Treasury, requires all businesses in the
United States, which are not exempt under the new rules, to
identify the beneficial ownership of the organization. On
January 1st, 2021, Congress enacted the Corporate Transparency
Act, which was part of the National Defense Authorization Act
to help prevent money laundering, terrorist financing,
corruption, and tax
fraud. (See https://www.fincen.gov/boi-faqs#A_1) Again,
having an attorney to help you with the new regulations is
very important.
What do you need to
gather and review when setting up an LLC prior to beginning
the registration process?
1. Name of
Organization. If you are already doing business as yourself,
you probably are using a family name, nickname, calling card,
etc. that everyone knows you by. However, when you want to
make it official and receive the personal protections
available, you may want to spend some time considering a name
that will allow you to grow. A name that is more descriptive
of your services would be beneficial. In addition, you may
choose to avoid future conflicts by verifying if someone has
already registered your company name with the state.
2. Registered Agent. This is the primary point person for the
new organization. In all government filings, a new company
must have a point person who is the initial contact with the
state and local government agencies. This person will be
responsible for filing legal documents with the state and will
be responsible for future legal correspondence such as,
service of process with outside individuals or entities. In
some cases, instead of a person, you can use an organization
as a registered agent. You can talk with your law firm to see
if they provide this service if none of the members of your
new company want to be a registered agent.
3. Company Purpose. You will need to identify the main
product or service you are providing to the community so you
can include it in the Articles that the company will file with
the state. Your organization purpose could be doing something
more than selling products. It could be providing services or
consulting activities. In some cases, this organization may
even be providing charitable work. However, if you are looking
to be a nonprofit organization, then you will need to
investigate incorporating as a nonprofit corporation and not
an LLC. It is very complicated to do LLC nonprofits. So, in
most cases, someone forms an LLC for profit disbursement among
its members. In general, the description of your company
purpose should efficiently and effectively tell the consumer
what the new entity will do within the state such as, selling,
consulting, or services. Keep it simple and succinct.
4. Company Effective Date. Most states require Articles that
include a start date that your organization will formalize as
the beginning of the company's existence. In addition, your
Articles may also require you to put an end date for this
organization. If allowed, you can leave the end date open so
that your new LLC can be considered a perpetual organization
existing year after year until you decide to close the
organization. However, this is state-specific so check your
state's corporation registration process to determine if it is
necessary to include an end date in the Articles of your LLC.
5. Management Structure. This is an important step to decide
before you register your LLC with the state. Are you going to
be member managed or hire an outside manager to manage the
company? In most cases, someone forms the LLC and the members
of the new organization will manage the organization
themselves. This means one of the owners of the LLC will also
be appointed by the other members to have some control over
the newly formed organization's day-to-day activities. These
daily actives will include opening bank accounts, hiring
individuals, coordinating office space, making purchases to
run the LLC and signing contracts on behalf of the
organization. Now, in some cases, the LLC members may be too
busy with their own personal affairs to manage these
day-to-day activities and, this is where the decision would be
made to hire an outside individual to manage the LLC. In
either case, before filing with the government entity of your
state, you will want to look at a sample operating agreement
to decide which direction you are planning for your LLC. As a
default, you can always start as a member managed company and
then elect to switch to a manager managed LLC after you are
established.
6. LLC Ownership Percentage.
When starting the LLC, you will need to sit down and identify
the percentage of ownership for each of the members of the
LLC. In general, many LLCs started as partnerships with around
50% control given to each member. However, as you add three,
four, or more individuals, you may want to have different
levels of ownership to represent the percentage of funds that
each member brings into the organization. For example, if two
individuals bring into the organization $4000.00 each and
another two individuals bring in $1000 each, you may have
ownership broken down to two individuals at 40% and two others
at 10%. The sky is the limit on how the percentage of
ownership is handled. It should just be clarified before the
LLC is registered with the state. You can always make this
change later.
7. Operational
Agreement. This is the LLC’s instruction manual. It provides
guidance on how the overall LLC runs day-to-day. In addition,
this Operational Agreement also provides guidance on how to
handle voting rights based on ownership percentages and on
what to do when a member wishes to be bought out or sell their
interest. It is very important and beneficial to review a
sample Operational Agreement first to decide how you want your
LLC to be structured.
8. State and Federal Filings. The last item to do is the actual filing with the state and federal government agencies. There will be fees involved so be prepared to have a payment plan ready for these different agencies. The state in which you register your new LLC will have a filing fee. The IRS, your local State Taxing Authority, and the U.S. Treasury’s Financial Crimes Enforcement Network (FinCEN) do not require fees for the filings, but the filings are still required. Please check directly with those sites individually for more detailed information and, check with your local attorney to make sure you are proceeding correctly.
In
conclusion, an LLC is a great way to provide protection for
yourself and your property. Whether you are a sole proprietor,
a partnership, or a group of friends going into business
together, this can be a great way to protect yourself, and
your friendships. Before you begin, please use the attached
checklist to outline the purpose of your LLC and, as always,
it is highly recommended that you consult your local attorney
to ensure you are preparing the proper paperwork. In many
cases, it is better to begin your incorporation process with
an outline of what you are trying to achieve and review a
sample Operating Agreement before you initiate any filings.
Remember, once you start the filing process with your state,
you will activate new federal requirements that need to be
completed to be compliant for 2024.
In
today’s world, an attorney should be consulted to learn what
specific state and federal regulations are enacted and to be
advised on the best type of organization needed to protect
your personal wealth and assets. In some cases, you may find
that setting up a general C Corporation will provide more
flexibility than an LLC, but only an attorney can determine
that and help guide you in the best direction.
Thank you and best wishes for your new business.
RESORCES
SBA
https://www.sba.gov/business-guide/launch-your-business/choose-business-structure
IRS EIN #
https://sa.www4.irs.gov/modiein/individual/index.jsp
State Tax
Who is a Beneficial owner?
1. https://www.fincen.gov/boi-faqs#D_1
SECRETARY OF STATE / BUSINESS OFFICES (by State)
Alabama
Alaska
https://www.commerce.alaska.gov/web/cbpl/BusinessLicensing/ObtainBusinessLicenseNumber.aspx
Arizona
https://azcc.gov/corporations/ten-steps-to-starting-a-business-in-az
Arkansas
https://www.sos.arkansas.gov/business-commercial-services-bcs/forms-fees/corporations
California
https://www.sos.ca.gov/business-programs/business-entities/starting-business/types
Colorado
https://www.coloradosos.gov/pubs/business/businessHome.html
Connecticut
https://business.ct.gov/?language=en_US
Delaware
https://corp.delaware.gov/howtoform/
Florida
https://dos.fl.gov/sunbiz/start-business/
Georgia
https://sos.ga.gov/how-to-guide/how-guide-register-domestic-entity
Hawaii
Idaho
https://sos.idaho.gov/business-services-resources/
Illinois
https://www.ilsos.gov/departments/business_services/incorporation/home.html
Indiana
https://inbiz.in.gov/start-business
Iowa
https://sos.iowa.gov/business/formsandfees.html
Kansas
Kentucky
Louisiana
https://www.sos.la.gov/BusinessServices/StartABusiness/Pages/default.aspx
Maine
https://www.maine.gov/sos/cec/corp/incorporating.html
Maryland
https://businessexpress.maryland.gov/
Massachusetts
https://www.mass.gov/info-details/starting-a-business-in-massachusetts
Michigan
https://www.michigan.gov/som/business
Minnesota
https://mn.gov/deed/business/starting-business/organizing/forming-corporation.jsp
Mississippi
https://www.sos.ms.gov/content/documents/Business/Business%20Entities%20(Clean).pdf
Missouri
https://www.sos.mo.gov/business/corporations/startbusiness
Montana
Nebraska
https://www.nebraska.gov/osbr/index.cgi
Nevada
https://www.nvsos.gov/sos/businesses/start-a-business
New Hampshire
https://www.revenue.nh.gov/faq/register-business.htm
New Jersey
https://business.nj.gov/category/start
New Mexico
https://www.sos.nm.gov/business-services/start-a-business/
New York
https://dos.ny.gov/form-corporation-or-business
North Carolina
https://www.sosnc.gov/Guides/launching_a_business
North Dakota
https://www.sos.nd.gov/business/business-services/start-business
Ohio
Oklahoma
https://www.sos.ok.gov/business/infoSB.aspx
Oregon
https://sos.oregon.gov/business/Pages/register.aspx
Pennsylvania
Rhode Island
https://www.sos.ri.gov/divisions/business-services/ri-business/start-your-rhode-island-business
South Carolina
South Dakota
https://sosenterprise.sd.gov/BusinessServices/Business/RegistrationInstr.aspx
Tennessee
https://tnbear.tn.gov/Ecommerce/RegistrationInstr.aspx
Texas
https://www.sos.state.tx.us/corp/formationfaqs.shtml
Utah
https://corporations.utah.gov/business-entities/
Vermont
https://sos.vermont.gov/corporations/registration/domestic-registration/llc/
Virginia
https://scc.virginia.gov/pages/new-business-resources
Washington
West Virginia
https://business4.wv.gov/startmybusiness/Pages/Register-Your-Business.aspx
Wisconsin
Wyoming
https://sos.wyo.gov/Business/docs/HowToCreateAWyomingCompany.pdf
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