A Limited Liability Company (LLC) is a smart business structure which allows one or more persons to own a portion of a company. The reason this is smart is because the profits from an LLC pass through to its members and the LLC doesn’t have to file a separate tax return like a corporation does. Also, a LLC reduces personal liability from company operations.
There are eight significant steps involved in forming a Limited Liability Company (LLC):
1. Choose a company name with the following rules in mind. A LLC name must not be a name that is likely to mislead the public and must be distinguishable in the records of the Secretary of State. Names must include the words Limited Liability Company, or LLC, or L.L.C. You can search for name availability on the Secretary of State website. Also, you can reserve a name for 60 days and it only costs $10.
2. You must name the LLC organizer in the Articles of Organization. This can be anybody. If an attorney is involved in forming the LLC many times the attorney is named as the organizer. If a service is being employed, then the service can name somebody.
3. Designate a registered agent. This can be a person or a firm. Most people use a service for this. The purpose is to have an alternate address that you can be served with legal filings.
4. Decide the structure of your management and ownership. This will be reflected in documents that you must create.
5. Create an Operating Agreement. This is the document that will outline how the company will be run. Management of the company and payment of the profits are the main topics that are identified. Many people will use an attorney for this or use a service. Also, there are form Operating agreements that you can fill in the blanks.
6. File the Articles of Organization. Again, an attorney or a service can do this for you or there are fill in the blanks kits you can get. The information required to file articles is the name and address of the company, the LLC organizer, and the registered agent. Also, the management method has to be identified, meaning managers vs. members.
7. Obtain an EIN number and open a business bank account. If you have more than one member you must obtain an Employer Identification number even if you don’t have employees. An EIN number is usually required to open a business bank account which you will need to manage and account for the finances of the business.
8. File a Statement of Information. Within 90 days of forming your LLC you must file a Statement of Information with the Secretary of State and annually thereafter. This is a way for the State to keep track of the address and management of the company and to collect an annual fee.
Once you have accomplished all the above, you are an LLC. Entering into contracts or setting up bank accounts will require you to produce filed copies of your documents, so you want to keep them safe and accessible. States other than California may have slightly different rules but mostly they will be the same.
This information is not intended to replace or substitute for any professional or legal advice on any of the subjects discussed. It is purely informational.
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