Legal Requirements When Setting Up an LLC


Suppose you are interested in establishing a business through a limited liability company, commonly referred to by the acronym of LLC. In that case, you should know there are specific legal requirements you must satisfy before selling a single product or service. Each state has distinct laws pertaining to LLCs. The linguistic nuances of each state’s LLC laws, such as the certificate of formation and articles of organization, differ, yet they serve the same overarching purpose.

Before moving forward with your enterprise, verify the details of your state’s unique LLC requirements. Here is a quick look at the basics of launching an LLC in compliance with the law:

Choose a Business Name

Every business needs a name. When establishing your LLC, pick a name that adheres to the state’s requirements for business monikers. The primary part of the company’s name usually has some semantic leeway, yet every state has specific words that cannot be used in the LLC name. Examples of such words include but are not limited to:

  • City
  • Insurance
  • Incorporated

The legal LLC name is to end with the LLC designation, such as LLC or limited liability company. Above all, the name you select for your business cannot replicate the same name of another LLC already on file in the state where the filing is to be made.

Filing the Articles of Organization

Also known as the certificate of formation, the organisation’s articles must be filed before doing business. The articles of organization are a key legal document and the basis of the LLC. Articles of an organization include:

  • The name of the business
  • Place of operation
  • Business purpose
  • Duration of operation
  • Management structure

As an example, certain states have LLC duration statutory limits. Regarding management structure, some LLCs have multiple managers, management via members or one solitary manager.

The location of the business, along with its unique operations, are also important as they determine the required licenses and/or permits prior to launching the enterprise. We touch on LLC licenses and permits later in this article.

Form an Operating Agreement

Though some states do not require LLCs to establish operating agreements, they are recommended and serve important purposes. All in all, nearly half a dozen states require every LLC to establish an operating agreement as it establishes key internal rules that determine how the enterprise is run. The bottom line is if your business has more than one owner, establishing an operating agreement is in your interest.

The operating agreement is a legal document between the LLC owners. The operating agreement puts the basics of the business into writing, creating the enterprise’s foundation and guidelines for operations.

The details of the agreement identify:

  • The business
  • Its structural components
  • Ownership percentages
  • Duties of members

A truly comprehensive operating agreement explains how conflicts will be resolved in the event that they arise during the course of business. Operating agreements are not set in stone. Though such formal documents can be kept confidential among LLC members, they can be updated as time progresses without making the general public or media aware of alterations.

For example, if business owners or members would like to alter how votes are taken at meetings or other details about meetings, the operating agreement can be amended. Furthermore, the allocation of profits or losses to members can also be changed as desired through operating agreement amendments. Even the details about how additional funding will be provided down the line if the LLC requires more capital should be spelled out in the operating agreement.

Above all, the operating agreement is important as it designs the business structure exactly as you and your fellow owners/members desire, as opposed to the state’s default rules. Be sure to include information about business ownership progression in the event that an owner passes away or if he or she desires to depart the enterprise for other opportunities.

The best operating agreements also explain how the company can be dissolved. Once all the details are written down and agreed to by relevant parties, each signs the agreement. If the LLC operating agreement is not signed, it is not valid. Creating and signing a truly comprehensive LLC operating agreement provides you, the business owner and your fellow business partners, peace of mind that extends to your loved ones who depend on you as a breadwinner.

The operating agreement is a formal and tangible document that ultimately answers the questions about the business’s unknowns, alleviating needless worry and stress. Now that the operating agreement is created, it is time to shift your focus to appointing a registered agent and conducting business.

Appoint a Registered Agent

All states require that LLCs appoint a registered agent. The registered agent is the person or entity who receives the legal documents or other formal paperwork on behalf of the business owner. For example, if the LLC is served with a lawsuit by a legal process server, it is the registered agent who receives those documents.

The registered agent must be located within the state where the LLC is registered, meaning the agent must have an address on file with the United States Postal Service. Furthermore, the registered agent must be an official resident of the same state where the LLC is registered or function as a business that is formally authorized for operation in the state.

Selecting Your Tax Status and Obtaining an EIN

Part of the appeal of setting up your business as an LLC is that it eliminates personal legal liability in the event that a dissatisfied customer or business partner files a lawsuit against the business. Furthermore, LLCs are advantageous because they are categorized as pass-through tax entities, mitigating the tax burden of conducting business. Add in the fact that LLCs have comparably fewer requirements for legal documents and bureaucratic formalities, and there is even more reason to set up your business in this form.

LLCs require an EIN, short for Employee Identification Number. The EIN is used in place of the Social Security number on business documents. Furthermore, the EIN is a requirement to open a business account. Your business attorney is required to complete the SS-4 form with the IRS to obtain the EIN on your behalf.

Obtaining Business Licenses & Permits

Before conducting formal operations, LLC business owners must obtain the necessary licenses/permits. LLC legal requirements extend from the local level to the state level and even to the federal level. If you are uncertain as to which specific licenses and/or permits are necessary to operate an LLC in your state, reach out to a business law attorney and/or the United States Small Business Administration for guidance. It might also be necessary to publish public notices and file yearly reports. In some instances, such mandatory reports require the payment of fees.

Bring out the Best in Your LLC

Now that you understand the legal foundation necessary for your LLC, it is time to do the heavy lifting necessary for business success. The most successful entrepreneurs understand they can only wear so many metaphorical hats on their own, choosing to delegate and outsource labor as necessary. When in doubt, consult with a business law attorney for guidance in regard to legal and tax-related LLC challenges that stand between your business and financial success.

Leave A Reply