Limited Liability Company is relatively a new form of legal business structure. Now all the 50 states allow Limited Liability Companies (LLC) to register as a business. The business owners of LLC are termed ‘members’. LLC can have single or multiple members. LLC is formed under the state statutes. There are variations in rules and regulations governing the formation and conduct of LLC in different states. LLC definition is that it provides the limited liability protection offered by a corporation with the operational flexibility of a partnership. LLC are not a tax classification for federal or state tax laws. LLC taxation can be according to the member’s choice. The members can elect to be taxed as a partnership, C or S Corporation.
The basic guidelines for how to LLC formation is
Name availability: Your LLC needs a name to operate under. You have to check whether the name you have chosen is actually available for use. The issue here is that the name you have chosen must not be identical to that of an existing business. Your option to check whether the name is in use is to consult your state’s agency handling LLC registrations or search online resources. The name must contain the words ‘Limited Liability Company’ or ‘LLC’ or such other abbreviations that conveys the company’s limited liability status. Some word or terms such as corporation, bank or insurance or others specified by your state are prohibited from being the part of a LLC name.
Articles of Organization: Some states call this as Certificate of Organization also. For an LLC to come into existence in any state, this document must be filed and the filing fee paid. The Articles or Certificate must contain all the critical information regarding the LLC.
- Proposed name and address of the LLC
- Name and addresses of all the initial members
- Name and address of the resident agent or agent of service of process.
- Purpose of LLC formation
- Business activity
- Membership interests (rights and responsibilities of the members)
The above information may vary with each state.
Operating Agreement: Only some states mandate that an LLC operating agreement also be filed along with the Articles. As a rule, this document is imperative in every LLC’s existence. It provides the LLC with individuality separate from its members. The basic information required is
- Membership interests
- Management policies
- Business ethics
- Membership transfer conditions
Public Notice: You have to issue a public notice on the intent to form you LLC. This is required in some states only.
Forming a corporation is a bit more complicated than forming a limited liability company; it is also more expensive. Choosing to incorporate your business instead of forming an LLC is usually done because for some businesses a corporation provides better tax advantages than a partnership does. Both a corporation and an LLC are protected under the corporate veil, so the deciding factor is usually the tax benefits.
If you are thinking about incorporation, you will need to learn how to form a corporation. Learning how to form a corporation is easy, you can often do everything yourself. Here are the steps you will need to take to form a corporation.
Step one:
You will need to come up with a name for your corporation. When choosing a name for your corporation you will need to comply with the rules of the state that you are incorporating in. Most states will require you to use a unique business name, it cannot be the same or similar to any business names already on file with the corporations office. To prevent this you will need to perform a name search before forming your corporation. The name also has to have a corporate designator in it, such as Corporation or Inc. You also must avoid certain words that might suggest your corporation is involved with the federal government or is a restricted type of business.
Step two:
You will need to appoint directors for your corporation. When appointing directors for your corporation you want to keep in mind that the directors are going to be making the major policy and financial decisions for the corporation, so you want to choose wisely. The directors do not have to be the owners of the corporation, but most corporation owners appoint themselves as directors before the corporation opens. How many directors your corporation can have depends on the number of owners and the state you incorporate in.
Step three:
You need to prepare your articles of incorporation. The articles of incorporation do not have to be complicated; you can often do them yourself. If you do not think you can do them on your own you can hire a company or a lawyer to help you prepare them. The articles of incorporation need to include a few basic details about your corporation. The main thing it needs to include is the name of the corporation, the address of the corporation, the name of the corporation’s directors. You might also need to include a registered agent for the corporation; this is true if none of the directors is listed in the articles of incorporation.
Step four:
You will need to file the articles of incorporation after you have prepared them. When filing the articles of incorporation you will need to pay a filing fee that ranges from $100 to $800 depending on what state you are incorporating in.
Step five:
You will need to draft the corporate bylaws. The corporate bylaws are the rules that your corporation is going to follow so that it can smoothly operate. The corporate bylaws include when and where the corporation will have meetings, what the voting requirements are, and anything else that deals with the day-to-day running of the corporation.
Step six:
You will need to hold a meeting for the board of directors. The reason this meeting needs to be held before your corporation does business is that you need to make a few decisions that deal with the running of the corporation. At this meeting, you need to set the corporation fiscal year, appoint corporate officers, adopt the bylaws, adopt a corporate seal, and make the decision about issuing stock.
Step seven:
You need to issue the shares of stock based on the decision in the board of directors meeting. Issuing the stock is a way to divide the ownership of the corporation, but it is also a requirement of doing business as a corporation. If you want, the protection that is offered to corporations you have to act like a corporation at all times.
