Understanding LLC Formation

While each state has slight variations to forming an LLC, there are some general principles:

Choose a Business Name. There are 3 rules that your LLC name needs to follow:

(1) it must be different from an existing LLC in your state;
(2) it must indicate that it’s an LLC (such as “LLC” or Limited Company”); and
(3) it must not include words restricted by your state (such as “bank” and “insurance”).

File the Articles of Organization. The “articles of organization” is a simple document that legitimizes your LLC and includes information like your business name, address, and the names of its members. In most states, you file with the Secretary of State or the Corporation Commission. However, other states may require that you file with a different office such as the Department of Commerce and Consumer Affairs, Department of Consumer and Regulatory Affairs, or the Division of Corporations & Commercial Code. Each state will have its own filing requirements.

Create an Operating Agreement. Most states do not require operating agreements. However, an operating agreement is highly recommended for any LLC because it structures your LLC’s finances and organization, and provides rules and regulations for operation. The operating agreement would also include percentage of interests, allocation of profits and losses, member’s rights and responsibilities and other provisions. We will discuss operating agreements in more detail later.

Obtain Licenses and Permits. Once your business is registered, you may be required to obtain business licenses and permits. Regulations vary by industry, state and locality.

Announce Your Business. Most states require the extra step of publishing a statement in your local newspaper about your LLC formation. Check with your state’s business filing office for requirements in your area.

Your best bet is to work with an experienced attorney in setting up your LLC.