Preparing formation documents for an LLC may seem overwhelming, but the process is fairly straightforward. As long as you understand what you need to submit and when, you will be able to successfully form an LLC.
Before you form an LLC, it's important to understand why you would do so. A limited liability company (LLC) is a business that has characteristics of both a partnership and corporation. An LLC is like a corporation in that its owners are not personally liable.
This business structure could also be compared to a sole proprietorship or partnership in the sense that it is flexible and follows pass-through taxation. This means that the profits and losses of an LLC are reported on each owner's individual tax return. The LLC itself does not pay taxes.
You only require one person to form an LLC, which is referred to as a single-member LLC. However, an LLC can have multiple members.
The first step in forming an LLC is to prepare articles of organization. This documentation will be filed with the Secretary of State or affiliated state agency. Once this is complete, an operating agreement should be created. This will identify the rights and responsibilities of each owner, which are referred to as "members." The rules of operation will also be determined. You may then need to apply for an employer identification number (EIN) through the IRS.
Although you can certainly complete the articles of organization yourself, an operating agreement may require legal counsel. It's also important to note that changes have been made so an LLC can be formed with an unlimited life. This is in reference to the IRS code.
When you first submit formation documents for an LLC, you will be required to pay a fee based on the state of formation and operation. When maintaining an LLC, each state will also charge an annual fee. Since most states require LLCs to submit an annual report, a fee is typically sent with this paperwork. Some states will also require state taxes.
If you're undecided between forming an LLC and a corporation, here are the main differences to understand:
Before you begin to prepare your formation documents for an LLC, you'll need to:
When filing your LLC formation documents, you will typically need to include your LLC's name, the address of your office, your effective date, as well as the name and address of your registered agent. Many states will also require additional information. This can generally be achieved either online or via mail. If you submit online you will need to pay associated fees by credit, whereas mail-in submission will require a check or money order.
Upon approval, you will receive a stamped copy of your LLC formation documents. The stamped document confirms that you are now an operating LLC. This process will vary from state-to-state.
Please keep all of your documents on file, as your LLC records should be easy to access. When you receive a certificate of good standing, add this document to your ongoing records.
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