Thursday, January 31, 2013

How to Start an LLC

Setting up a limited liability company or LLC is so easy contrary to what others think. There are fewer documents that are required to be passed in order to establish the business and there are also simple processes involved. But in order to understand the process involved in starting a limited company, you should know first what the features of the company are.

What is a limited liability company?

A limited liability company is one of the business structures in which it features a combination of partnership and corporation. It has the legal protection of owners' personal assets and the creditors cannot pursue them during bankruptcy like corporations. Aside from the protection of assets, the LLC also enjoys tax and operational benefits of partnerships. This means that there is only one level of taxation unlike in corporations where the company is taxed at a business level and the shareholders are also taxed for their dividends.

What are the requirements of starting an LLC?

Although the limited liability company is a hybrid business structure, establishing one is very easy. The law only requires one document to be passed by the company but there may be other requirements depending on the state where the business will be established. The only document required is the Articles of Organization.

The Articles of Organization

This is the basic document of the company. Some states call this document "certificate of formation" or "certificate of organization". Important information about the company is stated in this document such as business name, owners or members, duration of the business, name of the registered agent and the corresponding address, purpose of the company, and managers' names and addresses, if applicable.

There is a filing fee for the Articles of Organization and the price depends on the state. The fee may range from $100 to $800. There may be other fees that the state may require so it is best to consult first the LLC filing office before processing the document. This is a disadvantage compared to partnership or sole proprietorship.

Operating Agreement

This document is not required by law but may be required by some states. This document indicates how the company will be managed and the organizational structure of the LLC. It is important to have this document before the company operates in order to avoid confusion within the organization.

The Operating Agreement sets out rules for ownership of the company. This includes members' rights and responsibilities, percentage interest in the business, management of the organization, allocation of profits and losses, and certain provisions such as "buy-sell" in case one of the members dies, becomes disabled or leaves the company. Such provisions are important because the life of the company is affected if one of the members leaves the LLC.

Publication requirements

There are some states that require the company to publish a notice in a local newspaper stating the intention of establishment. In case this is required, the notice should be published several times for several weeks, depending on what the filing office will require. After the specified period, an affidavit of publication should be passed to complete the filing of the company.

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