America is about people with dreams and ambitions working hard to realize their vision and enjoy the financial security and prosperity that the country can offer. For some, part of this vision is starting up a business, being your own boss, and growing a company where financial success is your own. Starting a business in the USA is not as complicated as you may think. One of the most crucial decisions a business owner should make is the structure. The Limited Liability Company (LLC) is one of your options, which means completing the LLC formation package.
What Is An LLC?
When someone runs a business alone (Sole Proprietorship) or as a partnership that is Doing Business As (DBA), it needs to operate the company under a business name. When a company has shareholders, directors, and officers, it is known as a corporation.
An LLC is a hybrid that falls somewhere between the two. The application process is easier compared to that of a corporation. Unlike a DBA/sole proprietorship, an LLC has financial protection for the personal finances of the owners.
In a DBA, the owner’s bank account can cover debt or liability. In an LLC, only the amount a person has invested in the LLC itself is subject to liability. No one can touch your personal finances.
How Do You Form An LLC?
An LLC requires an application, review, and approval before you get the official designation and clearance to operate. Your application should include specific information and meet certain requirements. Fortunately, an application for LLC status is not hard to get. As long as you meet the legal requirements, you’ll have the approval.
A formation package is a checklist of all the required information. As long as you can comply with all requirements, there’s no reason for you not to get approval for your LLC application. Here’s what you should be looking to fulfill in your LLC formation package.
Articles of Organization
Articles of Organization is the document that needs to be filed with the state in order to establish an LLC. It indicates the name of the company, who the members and/or managers are, the registered agent and the business purpose. In short, the Articles of Organization is a submission of who is in charge and is the official documentation of the nature of your LLC. In most states the following is required on the articles of organization.
1. Name
It may seem elementary, but there can be quite a few challenges here. Your business should have a unique name. It should be available and not already in use by another business. There may also be other requirements that vary depending on state regulations.
For example, in California, your business cannot have the name “bank” in it. Look up the requirements in your state to make sure you’re compliant. You can search for the restrictions online or ask local state agencies.
2. Management Structure
An LLC can have two management structures, Member Managed or Manager Managed.
Member Managed
One or multiple members can manage an LLC. If this is the management structure you choose, each member will have the responsibility to play an active role in business operations. It also gives every member the authority to make decisions.
Manager Managed
Some LLCs decide to select someone to act as a manager. This person may be a member or externally contracted that will have the authority to manage the LLC. In this structure, members cannot interfere with the manager’s operational decisions. However, they can make changes to the LLC.
3. Registered Agent
A registered agent is a third-party person or Entity that has agreed to represent your LLC’s interests when it comes to accepting specific legal and financial documentation during business hours. If there is a service of process notices, correspondence from the Secretary of State, or other official government notice, then in most cases, the Registered Agent will be the initial recipient of such documents.
Once the registered agent receives these official documents and notices, they will need to notify the business of the reception. The business will then have to deal with the documents appropriately. A registered agent should be in the state in which your LLC operates. The address for a registered agent cannot be a post office box. While you can designate yourself as the registered agent, it’s advisable to delegate this to a third party for both administrative and legal protection.
4. Business Purpose or Activity
The business purpose summarizes the reason why your company exists. Most states accept a general LLC purpose, which says that the company is willing to comply with the state’s tax laws, business guidelines, and operational regulations. However, other states require the addition of a specific LLC purpose to explain in a more detailed way the primary business activity of the LLC.
Once the business is established it is important to create and obtain all supporting documentation for the LLC. Registering as an LLC is the first set in the process in order to legally operate in the state.
Operating Agreement
Another document an LLC should have an Operating Agreement. It shows the exact internal operation of your LLC. You should indicate how your business will make its financial decisions, what the internal policies are, and how you will execute those policies. The operating agreement will list the structure of the company, who the members/managers are and the responsibilities of those individuals. There are only five states require this document. These states are Delaware, California, Maine, Missouri, or New York. If you’re starting a business in any of the other 45 states, the document is not required, however, if the LLC has more than 1 member it is important to have this document in case disagreements between members occur.
Federal EIN
The Federal Employer Identification Number (EIN) is a critical number in identifying your business. It is the equivalent of a social security number for your business. Every company should have an EIN, even sole proprietorships like DBAs. If a person running a DBA chooses not to apply for FEIN, then the business owner has to submit his or her social security number instead. However, doing this is a dangerous breach of privacy.
Make sure that you apply for EIN. Not only is it legally required. It will also make things much easier for you in terms of compliance with groups like the IRS, as well as state and local financial/taxation groups.
Ensuring a complete LLC formation package means a smooth application and will help you move forward quickly to build your business once the approval comes through.
Once the registered agent receives these official documents and notices, you will receive a notification of the reception. You have to deal with the documents appropriately. A registered agent should be in the state in which your LLC operates. The address for a registered agent cannot be a post office box. While you can designate yourself as the registered agent, it’s advisable to delegate this to a third party for both administrative and legal protection.
Ensuring a complete LLC formation package means a smooth application and will help you move forward quickly to build your business once the approval comes through.
Business Filing Section