How to Form an LLC: 3 Basic Steps

Every entrepreneur wants to have a personal protection against lawsuits and other legal claims for their company’s debts and liabilities. In other words, if you are an entrepreneur, you do not want to be the one compensating your company’s debts to its debtors up to the extent that your personal properties and assets are already at risk.

If that will be the case, forming a limited liability company or LLC is just right for you. Aside from your personal limited liability of your company’s debts and obligations, you have also the opportunity to maximize your profits because of its pass-through-entity features for tax purposes. It is contrast to the corporation’s double taxation, which taxes are imposed both on income generated from corporate and the individual shareholder’s level. Other benefits are also noted once you have already started operating your LLC.

Steps in Forming an LLC

So you consider forming an LLC for your business. Almost all newcomers in the LLC industry are experiencing a hard time forming an LLC. They resort in hiring an LLC attorney and paying them at least $500. However, forming an LLC is not hard, if you just know the three basic steps. This article can serve as your self-guide in forming your own LLC. Continue reading and make your LLC a legal reality.

Step No.1: Choosing an LLC Name

Your LLC needs to have its own identity that will distinguish itself apart from other entities. However, keep in mind that the name for your LLC must meet the rules stated in the state’s LLC division. Although the requirements vary from state to state, the following rules are in general to all of the states in the country:

* Your LLC’s name must be different from other LLC’s name registered with the state’s LLC office;
* The name must end up with any of the following LLC designator to establish the identity of the company as an LLC:
o Limited Liability Company,
o Limited Company,
o Abbreviation of the aforementioned designator, that is “LLC”, “L.L.C.” or “Ltd. Liability Co.”; and
* The name must not include words prohibited by the state like Bank, Insurance, City, and others which do not pertain to the nature of LLC as a separate legal entity.

Take note that your LLC’s name must be available with the state you want it to operate or on any state you are going to conduct business to satisfy registration as a foreign LLC. You can check the availability of the names you have selected by communicating with the secretary of state’s office and file a query on their online database. You can also opt to reserve a business name for future use if you do not have plans of filing your articles of organization.

Step 2: Filing Articles of Organization

Articles of organization are organizational documents which disclose basic information about the LLC you are forming. It includes the name of your LLC, the name and addresses of each LLC owners, the location of the main office of the LLC, and the name and address of the LLC’s registered agent which will be acting on the legal matters in behalf of the LLC itself. There are ready-made forms where you will be filling-up the aforementioned details. After accomplishing, it will be filed before the state secretary’s office through its LLC and corporate division.

Step 3: Creating an LLC Operating Agreement

Although operating agreements are rarely required by most state laws, it is still advisable that you create one. The rules with regards to the ownership and operation of the business, as well as the responsibilities, rights and obligations of its owners are just some of the details included in an LLC operating agreement.

After filing all these documents and paying all the required fees, you will wait for the confirmation of your application. The correspondence will be sent to you through registered mail or online. After the state affirmed the existence of your LLC, you can now enjoy its advantages and benefits.

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