6 Fundamental Requirements to LLC Formation

Delaware’s Secretary of State, Jeffrey W. Bullock noted that last year was a year of “unprecedented growth,” with the total business entities topping 1.6 million at year end. LLCs in particular have grown with over 8.72% during this time. The limited liability company has proven to be a popular business structure that provides distinct advantages to its members. Chief among the reasons responsible for the LLCs popularity has to do with the limited liability protection it provides members as well as pass-through tax status.

 While it is notoriously easy to form an LLC there are a few fundamental requirements that need to be adhered to. Fortunately, resources such as The Really Useful Information Company (TRUiC), provides in-depth coverage about all things related to LLCs. What follows is a closer look at some of the fundamental requirements entrepreneurs need to adhere to when forming an LLC.

Articles of Organization

When starting an LLC the first fundamental requirement would be to correctly file the Articles of Organization. The Articles of Organization are part of a legal document used to establish the LLC at state level. This document is also known as a Certificate of Organization or Certificate of Formation. Generally the appropriate form can be downloaded from the secretary of state website. When filing the form, it is prudent to ensure that the correct number of copies have been made. Often is required to submit two copies: one for the state to keep and one for the entrepreneur’s record keeping. Failing to include the prescribed copies is a common cause of rejected flings and can be easily avoided. Each state has their own requirements, but the Articles of Organization generally include the business name and purpose, primary business address, names and contact information of managers, an appointed registered agent and ownership of the LLC. 

Operating Agreement

The second crucial document entrepreneurs will need is the operating agreement. An operating agreement specifies the rights and duties of LLC members. It also specifies how income will be distributed to the members. California, New York, Missouri, Maine and Delaware are the only states that require operating agreements, however it remains a good idea to invest time and careful consideration into drafting an operating agreement for the LLC as it can help to keep the company in good standing. Generally the operating agreement includes: a description on the way key business decisions will be made, members percentages of ownership, how profits and losses will be distributed, voting rights, what happens in the event of member death or if a member wants to exit the business and how the LLC will be dissolved. All members have to sign the operating agreement in order for it to be valid. 

Employee Identification Number

The EIN (employee identification number) is a non-negotiable requirement for any business who wants to stay in the good books with the IRS. The EIN should be used on all business-related documentation and is needed to open a business bank account. To get an EIN the IRS Form SS-4 will need to be completed by the entrepreneur or his/her attorney. It is worth noting that an EIN helps to keep an entrepreneur’s social security number private. When vendors look up credit information, the EIN is the number that is used. 

Registered Agent

A registered agent is a fundamental requirement for keeping the LLC in good standing. The registered agent is a person or company that is designated to receive legal correspondence on behalf of the LLC. This includes government, legal and tax correspondence. There are a few legal requirements for registered agents such as: registered agents need to be located in the same state as the LLC, they are required to have a physical address (a P.O. Box won’t suffice), and they have to be physically present at this location during standard business hours. 

Publication Requirement

Some states, such as New York, Arizona and Nebraska require LLC owners to publish a notice in the local paper announcing the formation of the LLC. If the entrepreneur’s state has such a publication requirement, it is best to check with the state’s business filing office for information regarding the continent of the notice, how many times it must be published and any other requirements that may apply. 

Business Permits and Licenses

Once the LLC has been registered, the entrepreneur will need to obtain suitable business permits and licenses that may be required for running the LLC. The types of permits and/or licenses needed will depend on both the state and local governmental requirements as well as the industry the LLC operates in. It is advisable to consult the Small Business Administration website for more information on which business will require licensing.