For many small business owners considering how to organize their company, becoming a Limited Liability Company (LLC) is a great choice, thanks to the liability protection and pass-through tax status they afford.
Each state has specific guidelines for forming an LLC, but they all adhere to the same general principles (explained on SBA.gov here). Whichever method you choose and no matter where your LLC is formed, you’ll need to complete two specific documents to legally form your LLC and structure your new business entity: your Articles of Organization and your Operating Agreement.
Here’s a quick overview of what you need to know about completing these key documents:
Articles of Organization – The Legal Foundation of an LLC
This is a simple document that kick starts the process of becoming an LLC and is required by all states (although you must first name your business and register it with your state – see here). The form includes basic business information such as name, address, member names (if you are a partnership), and the details of the registered agent (your attorney, for example) whom you’ve authorized to accept legal documents on your behalf.
LLC Operating Agreement – A Must for Multi-Member LLCs
Although not required by most states, an operating agreement is an important document that structures your LLC’s financial and functional decisions, and provides rules and regulations for smooth operation. Think of it as the document that defines how key business decisions are made (especially if there is more than one LLC member), as well as each member’s duties, powers, and responsibilities.
It also outlines how profits and losses will be distributed and how and when meetings will take place, and governs succession planning, such as procedures agreed upon for buying out or transferring ownership interests when members leave the LLC.
Once the members sign the document, it is an official contract, binding them to its terms. Although not required, it is widely recommended that you create one to protect yourself and the interests of your business, even if your state does not mandate it.
Writing the Documents
A qualified small business attorney can help you draft your articles of organization and operating agreement, although a lawyer is not required to draft or approve any of these documents. To help you find a lawyer, read SBA.gov’s Need a Lawyer? How to Find Legal Representation for Your Small Business.
You can also hire an online service provider to take care of the end-to-end process of filing articles of organization and to help you develop an operating agreement. Providers include LegalZoom, MyCorporation, or The Company Corporation.
You can also draft the documents yourself with a little research and use of available templates. Check with your state filing office or online for samples. For peace of mind, you can find an attorney to review your drafts if you choose to write the documents yourself.
For more information on how to legally establish an LLC, read SBA.gov’s guide to Forming an LLC.
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