Setting up a limited liability company starts can feel like an overwhelming process.The first step is to get all of the documents together. This is a guide for everything that you’ll need to turn your business into a registered LLC.
Articles of Organization
You may become confused between articles of organization and articles of incorporation. To create an LLC, or limited liability company, you must obtain articles of organization. Articles of incorporation will turn your business into a corporation, which is very different. You can find out more about articles of incorporation on our comparison between the two here.
Articles of organization can easily be found at the office for your Secretary of State or the Department of Business and Commerce. You can call these locations and pick up the paperwork directly, or you can visit their website. Articles of organization will require information such as your business’ name, purpose, principal place, registered agent, management structure, and duration. Some states also require additional information.
Operating Agreement
Some states may not require you to have an operating agreement, but it’s highly suggested you still obtain this document, particularly for multi-member LLCs. An operating agreement defines your business’ key financial and function decisions.
If there are multiple members, it’s important to identify how key business decisions are made, how profits and losses are distributed, and what happens when someone wants to be relieved of their duties--and have these decisions tied to an official document. While some states don't require this by law, it’s essential to keep your business running smoothly in the future. In the case of unruly members, it can even prevent lawsuits once your company becomes a registered limited liability company.
Some other information that may be helpful in the operating agreement is the members’ percentages of ownership, voting rights, and how the LLC can be dissolved. Companies can divide the business however they please, but having it in writing avoids disputes later on. Voting rights are how the business makes important management decisions. Will every member get a vote that corresponds to his or her percentage? Finally, the operating agreement should outline what will happen if an owner passes or wants out of the company.
As you can see, this document can become very complicated, which is why many people starting an LLC seek out the assistance of an attorney. The fee of creating an LLC can be $50 to $800, and lawyer fees only exacerbate the price. However, it may avoid a lawsuit that could cost thousands later on once the limited liability company has increased in value.
