A Limited Liability Company is a business structure that combines pass-through taxation of a partnership with the limited liability of a corporation. That means profits and losses pass through to the owners. LLCs offer protection from personal liability for business debts, and owners typically risk losing only on what they have invested in the LLC. For this reason, this entity is often considered a “best of both worlds” approach.
If you’re considering forming an LLC as your new business, here are the steps you need to take.
1: Choose a Name
When naming your LLC, you will need to comply with the rules set up by your state’s LLC division. In Alabama, for example, your name must be unique and distinguishable from other businesses, and it must include the words “Limited Liability Company” or the abbreviations LLC or L.L.C.
Additionally, your name cannot include any language that implies the company is “organized for a purpose not contained in its articles of organization.”
2: File Your Articles of Organization
This may also be known as a “certificate of formation” or a “certificate of organization.” It is a document that officially establishes the existence of your LLC. Information contained in the Articles usually includes:
- Name and address
- Nature of the LLC’s business
- Name and address of the LLC’s registered agent
- Name and address of the managers, organizers, and members of the LLC
You may also be required to include information about admitting new membersand the circumstances that would result in the dissolution of the LLC.
3: Prepare an Operating Agreement
While not required in many states (including Alabama), it is highly advised that you prepare an operating agreement. This document outlines the rules for ownership and operation of the business, and often includes such details as:
- Members’ percentage interests in the business
- Rights and responsibilities of members
- Voting power of members
- Profit/loss allocation
- How the LLC is to be managed
- Rules for holding meetings, voting, etc.
- Buy-sell provisions in the event a member wishes to sell his or her interest or becomes unable to fulfill management duties.
4: Obtain Licenses and Permits
These are the licenses you need to operate a business in your state, such as a business license, federal EIN, zoning permit, vendor’s license, etc.While forming an LLC can be a fairly painless procedure, every state has its own rules and regulations, and you should seek the counsel of a professional business attorney to help you navigate the entire process. For help on forming your LLC, call the attorneys at Stanko, Senter & Mitchell today.
