Limited liability companies, or LLCs, are flexible business entity structures that have characteristics of a corporation as well as a partnership. However, each state can impose different requirements to create a LLC, though in most jurisdictions, the formation process is similar. Moreover, most state laws allow you to form a LLC for any legitimate purpose, such as to hold and trade investments.
Fit your business needs with the right LLC package
Choose a unique name for the LLC. The government agencies responsible for overseeing the creation of LLCs in most jurisdictions will provide free online access to its business name database. Search through the database to ensure no other LLC currently uses the business name you want to use.
Prepare the LLC formation documents. The formation documents will always require, at a minimum, the name of your LLC, the address of its principal location and the name and address of a registered agent who has the authority to accept service of process on behalf of the LLC. States make these forms available online, but will refer to them by different names, such as articles of organization in New York, or the certificate of formation in Delaware.
File the formation documents and pay the fee. Contact the appropriate state agency, such as the secretary of state’s office, to determine the acceptable payment methods and whether you must file the documents by mail, fax or in person. In most jurisdictions, legal formation of the LLC occurs at the time of filing or shortly thereafter.
Draft the LLC operating agreement. The operating agreement governs all aspects of the LLC and its members, and can include clauses that establish the scope of the LLC’s investment activities, the timing and amount of profit distributions and any other policy that members agree to at the time of drafting the agreement. Not every state requires the existence of an operating agreement, but if it does, it’s usually unnecessary to file it with your state agency.
Tips & Warnings
Operating an investment LLC may require special licenses from state and federal agencies if you and other members intend on soliciting capital from investors who aren’t LLC members. For example, the Securities and Exchange Commission may subject the LLC to federal regulations if the enterprise is an “investment company.”
Although the fundamental requirements for creating a LLC are similar across jurisdictions, it’s important to identify whether your state has additional requirements. In New York, for example, once the filing of the formation documents are complete, the state requires an agent of the LLC to publish the articles of organization or a notice of the LLC’s formation in at least two newspapers within 120 days of the formation date.
References & Resources
- Jupiterimages/BananaStock/Getty Images