Limited Liability Companies Form LLC Law and Legal Definition

WHERE TO FORM AN LLC

Not all businesses can operate as LLCs. Businesses in the banking, trust and insurance industry, for example, are typically prohibited from forming LLCs. In addition, some states prohibit professionals such as architects, accountants, doctors and other licensed healthcare workers from forming LLCs.

State laws governing LLCs vary from state to state. An LLC will usually be formed in the state in which it has significant business or member contacts. If an LLC is required to qualify to do business in an outside state, it may have to pay filing fees and franchise taxes as a foreign LLC to the outside state. It may also be subject to double taxation by having to pay state taxes to the outside state and also have to pay taxes and annual fees in its state of formation, even if the LLC is not conducting business in that state. Also, the LLC may be required to comply with the outside state's laws if it is deemed to do significant business in that state.

ARTICLES OF ORGANIZATION

The existence of an LLC begins when the Articles of Organization with the Secretary of State are filed. The articles must be on the form prescribed by the Secretary of State. The articles of organization are the controlling documents of the LLC and will override any conflicting provisions in other documents, such as the operating agreement, member agreements, or corporate/llc resolutions.

Requirements vary by state, but most states require the following minimum information:

  • The name of the LLC-The name you select must not be the same as or deceptively similar to an existing limited liability company in your state.
  • Most states require that the limited liability company name be followed by Limited Liability Company or by the abbreviation LLC.
  • The mailing address of the proposed entity.
  • The name and address of a registered agent in the state of filing.
  • The name and address of the LLC's organizer.
  • The LLC's stated period of duration or date of termination.
  • Some states may require that your articles of organization list the name and address information for each llc member.
  • The signature of the Organizer or person filing the articles of organization.
  • Whether the LLC will be managed by one manager, more than one manager, or the members.

REGISTERED AGENT

Most states require that an LLC have a Registered Agent who maintains a registered office within the state of formation. This Registered Agent may be at an address that is different from the LLC's business address, such as an out-of-state business office, but may not be a post office box.

The main purpose of the registered Office/Agent requirement is to provide a public record of a person who will accept service of process on behalf of the LLC if claims are brought against it. Because the articles of organization are a public record, potential claimants can usually contact the Secretary of State's office to obtain LLC's registered agent information in order to serve your LLC with a subpoena or summons.The agent may also be used to accept official documents, such as tax notices.

OPERATING AGREEMENT

To validly complete the formation of the LLC, members must enter into an Operating Agreement. This operating agreement may be established either before or after the filing of the articles of organization and may be either oral or in writing in many states. Regardless of state requirements, it is advisable to have a written operating agreement. If you don't create a written operating agreement, the LLC laws of your state will govern your LLC.

The LLC operating agreement may vary in complexity, and contains the following information:

  • Company name and address information
  • Registered agent information
  • Name and address information for each LLC member
  • LLC management structure and operation
  • Items contributed by each Member
  • Fair market value of each item contributed
  • Date of company dissolution
  • Accounting method
  • Tax treatment for your LLC
  • Sample LLC operating resolutions
  • Appointment of LLC officers
  • Designation of a final capital pay-in date

OPEN A BANK ACCOUNT

Most banks require only a copy of your Articles of Organization and your federal Employer ID Number to open a bank account. Some, however, may also require a resolution authorizing the opening of the account passed by the LLC's members and a copy of the LLC Operating Agreement. Because bank requirements vary by bank, you should contact the branch manager and ask about their requirements for new accounts.

SHAREHOLDER AND DIRECTOR MEETINGS

An LLC is not vulnerable to alter ego liability for a failure to hold shareholder or director meetings in many states. If the LLC's Articles of Organization or Operating Agreement do not expressly require such meetings, alter ego liability will not attach for failure to have shareholder or director meetings.While many states do not require that your limited liability company hold meetings on a regularly scheduled basis, it's advisable to conduct meetings with the members to ensure smooth operations.