Startups that consider forming a limited liability company (LLC) should understand not only the steps involved in the business formation process but also the LLC paperwork necessary. Doing this will prevent any complications and ensure that the company will benefit from the advantages that the structure offers.
Generally, there are two important documents that a company has to prepare when forming an LLC.
- Articles of Organization
Some states may refer to this LLC paperwork as the Certificate of Formation. It formally registers the business with the state. It comes with a filing fee and should be submitted to the state governing agency, which is usually the Secretary of State.The necessary information will depend on the state. However, there are certain elements that most states require.
- Operating Agreement
This formation document is not a requirement in most states. However, having one is highly advisable, especially if the company has multiple owners.The operating agreement sets out the processes on how to run the LLC. It also specifies the rights, powers, duties, and responsibilities of the owners, who are called members, as well as the distribution of profits and losses. Some companies also include a provision on how the company can be dissolved and the steps it has to take.
Common Issues on LLC Paperwork
While it may seem easy to prepare the formation documents of an LLC, it requires attention to detail. The company should understand the requirements well. Failure to do so can cause some complications.
Here are the common mistakes that LLCs make when preparing the Articles of Organization and operating agreement:
- Articles of Organization
Since this document is filed with the state governing agency, it is important to ensure the accuracy of the pieces of information it contains. Additionally, the state may also be imposing certain rules and regulations on some aspects. Avoiding these complications will help a company save money and ensure a smoother process.
- LLC Name – States impose naming regulations on business entities. For example, an LLC should have the phrase Limited Liability Company or any of its abbreviations like LLC or L.L.C. It is also necessary for a company name to be distinguishable. That means that a startup can not use a name if another business entity in the state has already taken it. Submitting an unavailable or non-compliant name may lead to non-approval of the registration. What a company has to do is to conduct a business entity name search on the database of the governing agency to ensure availability.
- Registered Address – Along with the registered agent, states also require the disclosure of a registered office address. It is where all legal mail, tax reminders, and government correspondence will be sent. The company has to make sure that the registered agent is available at the listed address during regular business hours. Most states also require a physical street address. That means a P.O. box may not suffice.
- Business Purpose – In most cases, states would only require a general statement of purpose. It refers to the reason why an LLC is being established. Phrasing the purpose broadly will remove any unnecessary limitations to the operations of the company. However, some states may require a specific statement of purpose. In that case, it is important to explain the primary business activity of the company in a more detailed way. For example, if a company is planning on being a professional LLC, then it will have to describe the type of services it will offer.
- Incomplete Supporting Documents – In some states, submitting a completed Articles of Organization form and paying the fees is enough to register the business. However, others may require additional documents like Information or Cover Sheets. Always check the requirements properly to avoid any problems.
The operating agreement is an internal document. However, it is crucial LLC paperwork. Any mistake during the drafting can lead to bigger issues, such as disagreements and misunderstandings among members.
- Missing Sections – Failure to include some details may be more convenient for those drafting the operating agreement. However, it may result in complications in the long run. For instance, some LLCs think that the members will remain consistent during the existence of the company. That is why they do not include provisions for adding or removing members. But some things may change in the future, and doing this may leave the company confused as to what procedure to follow.It is also important for a company to constantly review its operating agreement to make sure that it is updated and applies to the circumstances of the LLC.
- Ambiguous Provisions – Some LLCs choose to write certain provisions ambiguously by intention. That is because they think that doing so will provide more freedom. However, having ambiguous sections in the agreement can lead to possible exploitations. It will also open the agreement to varying interpretations, which can cause disputes.
- Legal Loopholes – No matter what document it is, having legal loopholes increases the risks. Some people may use certain sections and manipulate them for their own gain.
For more information about the LLC operating agreement, read this article.
Getting Help With LLC Paperwork
Once a company decides to register as an LLC, it has to familiarize itself with the various requirements set by the state. That includes the completion of formation documents.
Aside from these, it also needs to complete several tasks. These will vary from state to state. Depending on the industry the LLC is in, its business activities, and location, there may also be additional reporting and licensing requirements. To prevent any complications, the company will have to make sure that it complies with all state obligations.
For some companies, ensuring compliance and handling the LLC paperwork may seem a bit much. In such cases, the best thing to do is to hire a reliable third-party organization like DoMyLLC. Our team of experts is well-experienced in preparing and filing formal paperwork. Contact us now to learn more about our services.
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