1. Decide Where to Form Your LLC
When forming a LLC, you must file paperwork with the state. Most businesses file with the state that the business is located in. But if you plan to do business in multiple states, you may have a choice of states for your LLC formation. If this applies to you, remember to take each state’s requirements into consideration when making your decision.
2. Choose a Name
When naming your LLC, you will need to comply with the rules set up by your state’s LLC division. In Alabama, for example, your name must be unique and distinguishable from other businesses, and it must include the words “Limited Liability Company” or the abbreviations LLC or L.L.C. Additionally, your name cannot include any language that implies the company is “organized for a purpose not contained in its articles of organization.”
You can research your state’s naming requirements by visiting the website of the state agency that handles business filings. If your proposed name is available but you’re not ready to form your LLC, most states will allow you to reserve the name for a set period of time.
3. File Your Articles of Organization
This may also be known as a “certificate of formation” or a “certificate of organization.” It is a document that officially establishes the existence of your LLC. Information contained in the Articles usually includes:
- Name and address
- Nature of the LLC’s business
- Name and address of the LLC’s registered agent
- Name and address of the managers, organizers, and members of the LLC
You may also be required to include information about admitting new members and the circumstances that would result in the dissolution of the LLC.
4. Prepare an Operating Agreement
While not required in many states (including Alabama), it is highly advised that you prepare an operating agreement. This document outlines the rules for ownership and operation of the business, and often includes such details as:
- Members’ percentage interests in the business
- Rights and responsibilities of members
- Voting power of members
- Profit/loss allocation
- How the LLC is to be managed
- Rules for holding meetings, voting, etc.
- Buy-sell provisions in the event a member wishes to sell his or her interest or becomes unable to fulfill management duties.
This does not have to be filed with the state. This should be kept in a file or binder with your other important business documents or records.
5. Obtain an Employer Identification Number
An Employer Identification Number (EIN) is obtained from the IRS and is required to start a bank account in the name of the LLC. You can apply for free through the IRS website.
6. Set Up an LLC Bank Account
When setting up an LLC, it’s important to keep your personal accounts separate from your business accounts. This will require you to set up a bank/checking account in the LLC’s name. The bank will need to see your filed Articles of Organization, EIN, and possible resolutions of the LLC authorizing the opening of the account. You will need to specify who has the signing authority and establish the requirements needed for checks over a certain amount.
7. Keep Current with Required Filings
Most states require some form of annual report filing. Missing the deadline can lead to penalties and late fees, and even suspension or termination of the LLC. If the information in the LLC changes, make sure to appropriately change your filings.
8. Obtain Licenses and Permits
There are licenses you need to operate a business in your state. These may include a business license, federal EIN, zoning permit, vendor’s license, etc. While forming an LLC can be a fairly painless procedure, every state has its own rules and regulations, and you should seek the counsel of a professional business attorney to help you navigate the entire process. For help with forming your LLC, call the attorneys at Stanko, Senter & Michell today.