As a small business owner who wants to structure your business properly, you should consider forming an LLC. LLC stands for Limited Liability Company and is one of the most popular business structures for small business owners. Why?
Reasons for forming a LLC
Many small business owners form an LLC to take advantage of its limited liability protection. However, it does not only offer limited liability protection of a corporation but also the flexibility of creating a sole proprietorship. There are no formalities, paperwork, or fees required. In addition, LLC tax is charged on the owner; thus, there’s no double taxation like in a C- Corporation.
So what are the documents required to form an LLC?
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Articles of Organization
To form a limited liability company (LLC), you are required to file Articles of Organization to the state. You can do this personally or get the help of legal professionals. Articles of Organization contains basic information about the company such as:
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The name of the LLC
For the name of the company, you should ensure it conforms to the rules of the state. This said, choose a unique name. The name should end with an LLC designator such as “LLC,” “Limited Liability Company,” etc.
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The business purpose
This describes the purpose of the business. In most states, you are allowed to describe a broad, general purpose for your business.
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The business registered agent
You need to provide information about the name and the address of the LLC’s registered agent. The business agent receives official documents such as tax and legal documents on behalf of the company.
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The management structure
In most states, you’ll be required to state the LLC’s management structure, whether it will be member-managed or manager-managed. You also need to provide the contact information of the managers.
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Operating Agreement
Though the operating agreement isn’t a requirement in most states, you need it to strengthen your business. Do this especially if you are forming a multi-member LLC. The operating agreement defines the financial and functional decisions of the LLC. The key issues that an operating agreement should include are:
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Percentage ownership of the members
You can divide the percentage ownership at your own discretion, e.g. 50-50% for a two- member LLC.
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Profit and Loss distribution among the members
You should also define how profits and losses will be shared. In most cases, they will be according to the percentage of ownership. However, unlike in a corporation, you can share it differently than the ownership percentage.
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Voting rights
This outlines how decisions will be made. You base decisions based on the number of votes per percentage and determine whether major decisions will require a majority or a unanimous decision.
Final Thoughts
Forming a LLC is easy. Considering its many advantages and the minimal time required to form one, you should seriously consider it for your business. Just don’t forget the aforementioned documents as you need them before you can get the required license to run your business.
