Why and How To Create A Limited Liability Company
Why Create A Limited Liability Company?
Create a Limited Liability Company to do business if you want to appear businesslike. LLC's are lawful business entities for use in banking, owning intellectual property, investment interests, real estate, or any other form of property. You will feel, and be more effective in business as the CEO of your one-member LLC than as a sole proprietor.
Create an LLC if you want business losses that you incur in a startup business to reduce your individual taxable income.
Create an LLC if you want to limit your responsbility for certain types of legal liabilities to the amount you have invested in the LLC.
How to Create A Limited Liability Company
To create an LLC you will need to create at least two documents:
1. The Articles of Organization
Obtain this document from the Secretary of State office or website of the State where you are filing — usually the state where the business is located. There will be a fee for filing, and it varies greatly from one State to another. When you file the Articles you will likely have to state whether the LLC will be “Member-managed” or “Managed by a Manager.” For single-member LLC's, just select “Managed by a Manager.” If you have a multi-member LLC, you will need to understand the difference, which is explained under the topic of the Operating Agreement.
2. The Operating Agreement
The Operating Agreement is a set of commitments about how you will handle the affairs of the LLC. Some of those are prescribed by the law of the State where you are forming the company, and others are reminders to preserve the corporate form.
If you are the only member of the LLC, you basically commit to keep basic corporate records, and there's little risk of the Operating Agreement itself becoming a cause of legal liability.
If you are creating an LLC with two or more members, you may want to include very specific language about the particulars of the business relationship. If an LLC is Member-managed, then the members all get votes, usually proportionate to their share of ownership, although non-voting ownership rights could be created. In an LLC is Manager-managed, then the Manager has virtually total control of the operations of the LLC, and the Members are pretty much along for the ride. So the distinction is fundamental.
A Super-Simple Multi-Member LLC Form
LLC agreements can be used very flexibly to define the business relations of the members. It is strongly advisable to have the advice of a business counselor to highlight the points of negotiation in order to be sure the LLC truly reflects the intentions of the members who are signing it. Additionally, legal advice can be helpful to be sure the Operating Agreement and other documents comply with any local requirements. With this precautionary advisement, and the additional one that none of the foregoing is a substitute for legal advice, a super-simple multi-member LLC form is attached below for your free use for purposes of discussion and study. No representation is made that the form is sufficient to satisfy the legal requirements of any jurisdiction or the needs of any particular business.