Two of the most enticing things about an LLC is that it prevents business owners from being personally liable for things related to the business, and it provides pass-through tax status. It also has fewer formalities and requires less legal documentation.
If filing as an LLC is something you’re thinking about, you should make sure to have all your LLC legal documents completed and prepared in the right way. The three essential LLC formation documents are:
1) Articles of Organization
The Articles of Organization — also called Certificate of Organization — is the equivalent of the corporation’s Articles of Incorporation. Consider these the building blocks of your LLC.
The basics elements required in the Articles/Certificate of Organization include:
- Your Business Name: Make sure that your name doesn’t pose any potential conflicts with another business name already registered in the state where you’re filing your LLC.
- Business Purpose
- Principal Place of Business
- Registered Agent: This is the entity or individual who will receive official papers and legal documents on your behalf, including documents related to lawsuits. The registered agent has to be in the state where your LLC is registered, and must have a physical address.
- Management Structure: Meaning, does your LLC have a single manager, two or more managers, or are all members managers?
- Duration of LLC: Some states require you to specify how long your LLC will operate. A few states set a statutory limit on the duration (usually a few decades). But you can extend your LLC for longer if it’s still in business when you hit the end of this period.
2) Operating Agreement
An Operating Agreement specifies the rights and duties of the Limited Liability Company members. It also states the distribution of income of the LLC to its members.
While it’s not required by law that you file an operating agreement to form your Limited Liability Company, you need to have this LLC legal document prepared to be compliant with the company’s corporate formalities.
What you include in your operating agreement will vary depending on your business, but operating agreements commonly include:
- If there is more than one member, you need to describe the way key business decisions will be made
- Members’ Percentages of Ownership
- How Profits and Losses Will be Distributed
- Voting Rights
- What happens if an owner dies or wants to exit the business
- How the LLC Can be Dissolved
All members must sign the operating agreement in order for it to be valid.
3) Employee Identification Number
All businesses, regardless of the structure, need an EIN (Employee Identification Number). Instead of your social security number, you should use your EIN on all your business-related documentation. You’ll also need your EIN to open a business bank account. To get an EIN, you or your attorney need to fill out IRS Form SS-4.
In addition to the documents above, you also need to file an annual/biennial report with the state where your LLC is registered.
So what’s the most effective way to file an LLC? Let’s be real, there are a million online services you can use to do this, but they use generic descriptions and agreements. And they probably don’t cost much less than using an attorney. So is it worth gambling on whether you’re forming the foundation of your business the right way?
Since your legal needs are just as unique as the brand you work so hard to build, work with an attorney who understands your vision so you’re set up for success.
Forming an LLC is a relatively easy process. Still, there are several things you need to do after you’ve filed your Articles of Organization and before you can start operating your business.
If you’re asking, “what is the next step after forming an LLC?”, here are seven critical steps you should take after the initial filing.
Step 1: Complete any additional formation requirements
Some states require additional filings or steps at the time of incorporation, such as a county-level filing, publishing notice of the LLC formation in a local newspaper, or an initial report filing.
For example, New York requires LLCs to publish notice of the incorporation for six consecutive weeks in two newspapers as assigned by the county clerk in the county of the LLC’s legal address. A Certificate of Publication should then be filed with the Department of State upon completion of the publication requirement.
If you’re creating your LLC in New Jersey, you are required to initially submit a Public Records Filing for New Business Entity with the Corporate Filing Unit of the NJ Division of Revenue & Enterprise Services. Then within 60 days of forming your LLC, you must file a Business Registration form. You do have the option of filing both forms at the same time. The NJ-REG asks for extensive information related to taxation.
Step 2: Create an LLC operating agreement
Even if your state doesn’t require you to have an LLC operating agreement at the time of formation, it’s still vital that you have one. An operating agreement can protect your company’s status, ensure that members abide by the rules, and help mitigate any issues or misunderstandings that can arise — even if you operate a single-member LLC.
What should you include in your LLC operating agreement? Among the items to include are the following:
- How the LLC will be managed by its members (owners) or manager. (Read more on LLC management in LLC members vs. LLC managers.)
- How the management team will be selected
- How key business decisions will be made
- What actions require a vote by the members (and what percentage is required for approval)
- The duties and responsibilities of the members
- How profits, losses, and tax items will be allocated among members
- The procedure for transferring ownership interests or bringing in additional members
- Events that could trigger the dissolution of the LLC
- Your succession plans
- How the LLC will be dissolved
Consult a lawyer to help you draft your LLC operating agreement. If you choose to draft your own, be sure to have a lawyer review it before members sign.
Step 3: Fulfill other LLC internal requirements
In addition to the LLC operating agreement, members and managers must also undertake other internal requirements. Although commonly overlooked, these must be documented as part of your company records. Records may need to be presented when you sell the company or are involved in a lawsuit.
While not required, it’s recommended that your LLC do the following:
- Issue membership certificates to members and record the action in the membership transfer ledger
- Hold and document an initial meeting of members and managers
- Hold and document an annual meeting of members and managers
Step 4: Obtain an EIN
Before you can pay business taxes, you may need to register your business with the IRS and obtain an employee identification number (EIN). An EIN is the equivalent of a social security number for your business and is required on your state and federal tax filings.
A single-member LLC without employees is not required to obtain an EIN. Taxes are filed using a social security number. Still, there are compelling reasons to get an EIN. An EIN is often needed to open a business bank account to help ensure the separation of your business and personal finances.
Step 5: Open a business bank account
Opening a business bank account and obtaining a business credit card helps to maintain the separation of business and personal assets. This helps to prevent “piercing the corporate veil”, which is a legal phrase that describes when the owners of a corporation lose the limited liability that having a corporation provides them. When this happens, the owners’ personal assets can be used to satisfy business debts and liabilities. This concept also applies to LLCs.
Maintaining a business bank account helps you ensure liability protection of your LLC and the security of your personal assets in the event your business is sued or found liable.
A bank account and credit card also help build business credit — something that suppliers and vendors will verify before transacting business with you. For this reason, consider opening your business accounts as soon as you start incurring business expenses or accepting money.
Step 6: Obtain necessary licenses, permits, and registrations
Business licenses are issued by federal, state, and local governments. Depending on the industry and jurisdiction in which your LLC operates, you may need to obtain licenses from multiple government levels. Below is a list of the common licensing-related requirements for any business.
- Basic business operation license. This is a license from the city in which your business will operate, or from the local county (if the business will be operated outside of the city's legal boundaries).
- State tax ID number. Issued by your state’s department of revenue or taxation, the state tax ID number is also called a tax registration number.
- DBA/fictitious business name registration. The doing business as (DBA) or fictitious business name registration happens with the appropriate state or local jurisdiction.
- Zoning and land use permits. Local governments’ zoning laws may prohibit certain business activity in designated areas.
- Building permit. If you plan on remodeling or building a commercial space, you'll need to get a building permit.
- Sales tax license/sellers permit/resellers permit. This license/permit has many names, and those names vary by state. But it is required for the selling of almost all products and services.
- Workers’ Comp Insurance. In most states, workers' compensation coverage is mandatory if you have at least one employee.
- Payroll tax registration. If your business has one or more employees, your business likely needs to comply with a variety of payroll tax laws at the federal and local levels
Step 7: Maintain LLC compliance
A final important step after forming an LLC is to maintain good standing in your state’s records. Ensuring good standing helps preserve the limited liability that an LLC entity provides, expand into other states, and quickly obtain a certificate of good standing for lenders.
Here are some things to keep in mind as you maintain LLC compliance:
- File an annual report: Most states require LLCs to file an annual report or statement. This allows states to track formed or foreign qualified LLCs. Certain states only require you to file every other year. States may also impose a state fee when statements are filed.
- Pay franchise tax: Some states also have a franchise tax — a fee paid to the state for the privilege of operating an LLC in that state. The formula for calculating this tax varies by state but is typically based on business revenue or the number of shares and par value.
The due dates for filing an annual report and paying franchise tax differ in each state. Some states connect the date to the anniversary of the LLC’s formation or qualification. Other states set a specific date for all LLC annual statements.
Learn more
When it comes to starting an LLC, there is a lot for small business owners to think about beyond the initial LLC filing. LLC owners should rightly ask, “I have my LLC now what?”
Learn more about creating an LLC in a few simple steps and get trusted guidance from BizFilings to make sure the process and compliance with ongoing requirements are done right.