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HOW TO INCORPORATE

The Paperwork Required to Set Up an LLC
 

To create an LLC, you must file the correct paperwork with your state.
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To create an LLC, you must file the correct paperwork with the state.

Let's look at the basic legal documents and procedures involved with starting your own LLC. Fortunately,it's a simple process, meaning that it should take you relatively little time to turn your idea of forming anLLC into a legal reality.

One person may prepare and file the paperwork. Generally, one person may prepare, sign, and file thebasic documents to set up an LLC. This person need not be a member of the LLC, but must turn the reins ofmanagement over to LLC members or a management team after the LLC is formed. Of course, what thelegislatures have in mind is that a lawyer can do the filing for you -- which is fine if that's what you want.Normally, you can just as well prepare the paperwork yourself and drop it in the nearest mailbox.

LLC Articles of Organization

The only formal legal step normally required to create an LLC is to prepare and file LLC Articles ofOrganization with your state's LLC filing office. A few states require an additional step: the publication ina local newspaper of a simple notice of intention to form an LLC prior to filing your Articles of Organization.

The LLC filing office is usually the same one that handles your state's corporate filings, typically theSecretary of State's office, located in each state's capital city. Larger states usually havebranch filing offices in secondary cities as well.

LLC Articles of Organization don't have to be lengthy or complex. In fact, you can usually prepare yourown in just a few minutes by filling in the blanks and checking the boxes on a relatively simple formprovided by your state's LLC filing office. Typically, you need only specify a few basic details about yourLLC, such as its name, principal office address, agent and office for receiving legal papers, and the namesof its initial members (or managers, if you're designating a special management team to run the LLC).

LLC Operating Agreement

An LLC should always create a written operating agreement to define the basic rights and responsibilitiesof LLC members.

Although not advisable, an LLC that is registered with your state may be operated on a handshake withouta formal operating agreement among the owners. No matter how busy you are, we believe it's a bigmistake to delay preparing an operating agreement. Without a written agreement to refer to, you may getstuck in a crisis trying to answer such questions as:

  • When members are faced with an important management decision, does each get one vote, or do they vote according to their percentage interests in the LLC?
  • Are owners expected to make additional capital contributions (the money invested in the business) if the LLC needs additional operating capital?
  • Are owners entitled to periodic draws from the profits of the business?
  • Will interest be paid to the owners on their capital contributions?
  • May members leave the LLC anytime they wish and expect an immediate payout of their capital contributions?
  • How much should an owner be paid when he or she decides to leave the business?
  • Is a departing owner allowed to sell an interest to an outsider?

Please believe us when we say that these kinds of unanswered questions can, and frequently do, comeback to haunt small businesses. They are far better addressed in a written operating agreement, signedaround the time your new LLC entity is created.

Copyright © 2000 Nolo.com Inc.

Related resources at inc.com:
Limited-Liability Companies: How Do They Work?
Choosing between a Corporation and an LLC

Last updated: Nov 1, 2000




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