LLC stands for Limited Liability Company. It is a very popular form of business ownership since the business owners against liability in case the business is being liquidated.
It also gives them a pass-through tax status and at the same time keeps the paperwork and formalities to a minimum.
LLC is a new concept in the U.S. and each state has its own guidelines on how to form and manage them, but the general principles are the same.
If you want to form an LLC for your business you will need Articles of Organization and an Operating Agreement.
Articles of Organization
This is mandatory. It is the legal foundation of the LLC. It is the one that outlines the information about your business. It includes:
(a) Business Name
Your business name should not be similar to any other business name that has been registered. It is advisable to choose a name that reflects the kind of business you are involved in and at the same time it should be simple.
(b) Business purpose
Your business purpose is what you intend to deal in. though most states to do not require you to be specific about it. You can put a statement like “to engage in any lawful activity under state law for a limited liability company”.
(c) Principal Place of Business
This is where your business is located i.e. its physical location.
(d) Business Registered Agent
This refers to the entity that will receive legal documents and official papers on behalf of your business. The agent must be located in the state where the business is registered and must have a physical steer address. The registered agent can also be your own address or the business address.
(e) Business Management Structure
Here you will give the management structure of your business and indicate whether you have one or more managers. You can also provide their names and address. This is a requirement of many states.
(f) Business Duration
Here you will be expected to indicate how long you expect the business to be in existent. But many states do not require this and you can simply state “perpetual” without giving s specific date when it will end.
Operating Agreement defines the business’ key functional and financial decisions. Even though it is not required by many states and at the same time not mandated by state law, it is a document that you need before the business commences.
This document is very necessary as it will define the role of each member (if the number of members is more than one) concerning the decision making process.
Operating Agreement includes:
(a) Percentages of Ownership of each member
Members of the LLC are free to divide the ownership in any way they choose depending on the financial contribution of each member. But the information must be in the operating agreement.
(b) Voting Rights
Voting rights need to be clearly defined since they will guide how important management decisions are made. Members will decide whether the voting right will depend on each member’s contribution or it will be on a one-man-one-vote basis.