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One of the fundamental decisions you need to take as a new business owner is to decide the type of business structure. Or, as an existing business owner, it may be time to transit from a sole proprietor set up to a Limited Liability Company (LLC).
So, you need to consider a number of factors while choosing the business structure that meets your requirements.
For instance, you would want a limited liability setup if you want to engage in risky business activities. In such a case, an LLC may be the right choice for you.
Likewise, there are other factors that help you in deciding the type of business structure suitable for you. These include difficulty in setting business, related expenditure, income tax liability, investment needs, etc.
Thus, an LLC as a business structure has its own characteristics. For instance, you as a business owner enjoy limited liability. At the same time, you need to file an Article of Organization with your state to establish an LLC.
Thus, in this article, you will learn what is Articles of Organization, parts of Articles of Organization, and how to file Articles of Organization.
But first, it is important to understand what is an LLC and how to form an LLC?
What is an LLC?
A Limited Liability Company is a hybrid business entity that combines the characteristics of Corporations, Partnerships, and Sole Proprietorships. That is, an LLC provides you with protection from your business’ debts and liabilities.
In other words, you are not personally liable for your business debt, just like a Corporate form of business entity.
However, you are required to pay taxes on the income that your LLC generates. This is much like the Sole Proprietorship and Partnership form of business structure.
Furthermore, your LLC can consist of one or many owners. Such owners are called the members of an LLC. Also, you can form an LLC as a profit entity or as a non-profit organization.
As stated earlier, an LLC is a statutory entity. That is, you can do business by forming an LLC only if you follow the statutory requirements laid down by your state.
Accordingly, each State has its own LLC Act. Thus, it is mandatory to file a document in order to formulate an LLC form of business structure as per the LLC Act. Such a document is known as the Articles of Organization.
The members or the owners of your LLC enter into an operating agreement. The Operating Agreement is the fundamental document providing guidelines for various business aspects. These guidelines relate to (i) managing the affairs of your business entity, (ii) conducting business, and (iii) managing relations between members and managers.
How to Form an LLC?
Forming an LLC can seem difficult at the outset. However, there are a number of steps involved in forming an LLC. As stated earlier, you need to file Articles of Organization with your State Government to formulate an LLC.
Accordingly, the following are the steps involved in forming an LLC.
Selecting the State of Your LLC
Deciding the State where you would want to form an LLC is one of the first decisions you need to make to function as an LLC. This is because your LLC would come into existence only if you file Articles of Organization with your State.
Now, you must consider a number of factors while selecting the State where you would organize your LLC. These could include:
- State in which you would conduct your business
- Certain privileges specific to a particular state
- Expenses like filing fees etc
Choosing an LLC Name
The next step is to choose your LLC’s name once you have decided on the place of organization. You must keep in mind a number of factors while choosing your LLC’s name. For example, you can choose a name that is easy to remember and pronounce.
Or you choose a name that stands out and can be marketed easily. Also, the State you choose to organize your LLC in can exercise a number of limitations on your entity’s name. These could be certain mandatory words, prohibited words, etc.
Furthermore, you need to make sure that you check the availability of your LLC’s name once you have selected its name. This you can do with your State’s Business Entity Department.
Selecting a Registered Agent
A Registered Agent is an individual or a business entity that has the authority and is duty-bound to receive the legal papers on behalf of your LLC.
Thus, it is important for your LLC to choose a Registered Agent. This is because your LLC does not have a physical existence of its own, much like an individual. Therefore, papers to your LLC would not be possible.
Furthermore, such an Agent can be Attorney, a Family Member, or any Entity specializing in such services. Also, your Agent must have a physical address in the State in which you organize your LLC.
Reserving and Registering an LLC Name
You can reserve your LLC’s name for a limited time period once you have decided on its name and checked its availability. Thus, you can do this by filing an Application for Reservation.
The Reservation would make the LLC Name available to you until you are done with organizing your LLC. Also, it will prevent others from using your LLC’s name. Furthermore, it will also give you the right to your LLC’s Name in the States in which you are still not registered.
Formulating and Filing Articles of Organization
As mentioned above, you can only form an LLC by filing an Articles of Organization. You need to file such a document with your State’s Secretary or any other Office responsible for Business Entity filings.
Further, such a document is called “Articles of Organization” in the majority of the States. Also, each State has its own requirements in respect of the content of the Articles of Organization. Thus, you can check the section below to know the contents and how to file Articles of Organization.
Entering into An Operating Agreement
The next important step in formulating your LLC is drafting an Operating Agreement. The initial members of your LLC need to enter into an Operating Agreement, which can be written or oral.
Furthermore, there are States whose LLC Act specifies that the Operating Agreement is optional. Accordingly, your LLC would be guided by the provisions stated in the Statute of your State if you do not have an Operating Agreement.
Thus, this may not be according to the needs of your LLC. Also, the Operating Agreement caters to a number of issues. These could be:
- Method of Distributing Profits and Losses and items of tax between members
- Duties and the liabilities of the people managing your LLC
- Rules regarding admitting or withdrawing of members etc.
Obtaining Tax Identification Number For LLC
You now need to obtain a Tax Identification Number from your Federal Tax Authority once you have formulated your LLC. Tax Identification Number is a unique number given to your business entity for easy identification by the Tax Authority.
Thus, you as an employer typically use such a number to report your taxes. Accordingly, you use the Tax Identification Number on your Income Tax Filings, Bank Accounts, etc.
In addition to this, say your LLC does business in multiple States. In such a case, you will have to apply to the specific State’s Tax Department for the Sales Tax Number. Furthermore, you need to register yourself with such State’s Labor Department.
Articles of Organization
Articles of Organization is a document that you need to file with the Secretary of the State to form an LLC. In other words, it is an important legal document containing information with regards to your business. Furthermore, without Articles of Organization, you cannot form your LLC.
As mentioned earlier, each State has its own LLC Act and its own State Laws and Tax Treatments. Therefore, each state requires from you certain information about your business to be specified in the Articles of Organization.
So, filing Articles of Organization is fundamental to forming your LLC. This is because it legally establishes your business entity as an LLC in the State you choose to organize the same.
Further, your LLC gets a separate legal entity status which distinguishes its owners or members from the business entity. Thus, the State legally becomes your home state once you receive the approval of your Articles of Organization from the State’s Secretary where you organize your LLC.
Hence, you can function as a domestic LLC in such a State. Further, you would be legally bound to abide by the laws of such a State.
How to Write Articles of Organization for an LLC?
As stated above, the Articles of Organization is a legal document that contains all the important information about your LLC. It is a document that is necessary to get your LLC into existence.
Articles of Organization have different names in different States. It is also called Certificate of Organization, Certificate of Formation, Articles for LLC, Articles for Limited Liability Company, or LLC Filing.
Also, there may be States where you might have to write Articles of Organization from the start. However, there are certain States that give you fillable forms for filling out and filing the Articles of Organization.
Thus, it becomes necessary that you prepare such a document appropriately. Further, you need to ensure that all the important information is correctly specified.
Typically, each State has its own requirements with regards to the contents of the Articles of Organization. However, certain details that commonly form part of your Articles of Organization are as follows:
Name and Address Of LLC
You need to provide the Name as well as the Address of your LLC. This is also called your LLC’s Principal Place of Business. The Principal Place of Business is the main location where your LLC is doing business.
Nature or Purpose of your LLC’s Business
In this, you need to give a short description of your business offerings. However, there are certain States that give you the choice of choosing a general description such as “To Engage in Any Lawful Activity”. This broadens the scope of your business prospects.
Name and Address of the Registered Agent of your LLC
Here, you need to provide the Name and Address of the Authorized Registered Agent of your LLC. As stated earlier, a Registered Agent is a person or an entity who is legally authorized to receive the legal documents on behalf of your LLC.
Names of Managers or Members of Your LLC
The Members are the individuals who hold membership interest in your LLC. They are also called your LLC’s owners much like the shareholders – the owners of a corporation. Now, you need to provide the names of the members or owners of your LLC. This is in case you know their names at the time of filing Articles of Organization.
How to File Articles of Organization for an LLC?
Since we now know the importance and the contents of Articles of Organization, let’s understand the process of filing the same.
Contact Your State’s Secretary of State
As mentioned above, it is mandatory to file Articles of Organization with your State’s Secretary of State to formulate LLC. Each state has its own requirements for the information to be included in your Articles of Organization.
Therefore, you can contact them by visiting their office, via a phone call, or visit their website. This way you will find out or know the details you need for filing the Articles of Organization in your choice of State.
Further, you can check with the State Secretary for details like:
- Important information for the contents of Articles of Organization
- Steps for filing Articles of Organization
- Articles of Organization Form
- Cost of filing Articles of Organization, etc.
List Details You Need For Filing
It is always handy to keep the information that you need for filing Articles of Organization. As stated above, you can keep the following details for filing Articles of Organization.
- Name of your LLC. Some States would require you to use the word LLC in your entity’s name.
- Address of your LLC
- The Name and Address of your Registered Agent
- Start Date of your LLC
- Purpose of your LLC.
- Name of your managers and additional members of your LLC.
- The Name and Signature of the organizer.
Fill The Form Correctly
Make sure that you fill the form correctly once you have all the details with you. As stated earlier, the website of the Secretary of State will tell you the manner in which you need to file the Articles of Organization.
Typically, you either fill the form online or send a physical copy of the form via mail. Further, many states also provide you with a fillable PDF form or an e-filing portal to file Articles of Organization.
Pay The Requisite Filing Fee
You must pay the requisite filing fee for Articles of Organization once you have completed the Form. Further, the Filing Fee varies depending on the state in which you file your Articles of Organization.
Obtain Certificate of Formation
The Secretary of State will give you a Certificate of Formation once you have submitted your application. In addition to this, it will also provide you with a copy of your Articles of Organization. Furthermore, it will keep the original copy of the Articles of Organization with it.
Publishing Notice of Formation in Local Newspaper
Some states have this extra step in filing Articles of Organization with the State Secretary. They require you to publish the notice of LLC formation in the state’s local newspaper.
Now, the time your State Secretary takes to scrutinize your LLC’s Formation is between one to two weeks. However, it may charge an extra fee if you want your LLC’s Articles of Organization to be processed earlier than the standard time.
Do You Need An Attorney to File LLC Articles of Organization?
You may fill the Form for Articles of Organization all by yourself and file the same with your State Secretary. However, hiring an attorney for filing Articles of Organization may prove beneficial. This is because preparing the documents and filing the same with the help of an Attorney would enable you to avoid mistakes.
Furthermore, an attorney can guide you on the type of LLC structure and operations. Also, he may let you know the best choice for the type of business you are into. Also, your state may have certain pre-selected regulations forming part of your Articles of Organization.
Such default rules may not go with your business purpose and vision. Thus, an attorney may help you to formulate rules as per your business needs in the Operating Agreement. As a result, it will safeguard your interest as an LLC.