Forming An LLC
A limited liability company shares some of the qualities of a corporation, but in
many respects, an LLC has more flexibility as far as structure and division of profits.
An LLC is a pass-through entity, for tax purposes—meaning that the income is reported
on the owners’ personal income taxes, and not as corporate income. This avoids the
double taxation of a C-corporation (under which the net income is subject to corporate
income tax before the remainder is passed on to the owner, and then taxed again
as personal income). Additionally, profits can be split however the owners see fit
and are not required to correspond to the percentage of the owners’ capital contributions.
In other words, if an LLC had two owners who each contributed a different amount
of money to the business, they could still evenly split the profits if they wished
by stating that arrangement in the Operating Agreement.
The Operating Agreement is an internal document—meaning that it needs to be drafted
and adopted by the members, but is not required to be filed with any state entities—that
specifies these and other aspects of the operation of the LLC. The Operating Agreement
typically specifies how profits and losses are allocated; the powers, duties, and
percentage interests of the members; the voting rights of the members; and provisions
addressing buyout situations in the event of a member passing away or leaving the
business. It will also specify whether the LLC is managed by managers, or by the
members. The managers (or members) can amend the document at any time.
In order to form an LLC, you must file Articles of Organization with the Secretary
of State’s office of the state in which your business will be domesticated. Those
Articles can contain additional provisions, but the basic information required is
typically as follows:
- The name of the LLC—this should end in “Limited Liability Company” or an accepted
abbreviation and should be distinguishable from other corporate and LLC entities
on file in that state.
- The registered agent’s name and address—this should be a person (or currently existing
company) with a physical location in the state. A PO box is not typically accepted
as the registered agent’s addres unless it is in conjunction with a physical address.
- The business statement—for most LLCs, a general business purpose, such as “Any and
all lawful purpose,” is typically acceptable.
- The organizer’s signature—this may or may not be a member or manager of the LLC,
but it should be the person who drafted the Articles of Organization.
Every state’s requirements are a little different; some require registered agents
to sign the Articles of Organization, while others do not. Some states require notarized
signatures, and others do not. Regardless of where you’re filing, ClickandInc.com
can correctly draft the appropriate Articles for your state and efficiently register
your business. Visit Clickandinc.com to see how we can help with your new LLC formation.
For more information
The following pages describe specific differences between business types.
For Information By State