Checklist for Forming an LLC

LLCs are a great way to protect yourself from personal liability when owning a business.
LLCs are a great way to protect yourself from personal liability when owning a business. (Image: Don Farrall/Photodisc/Getty Images)

Limited Liability Companies, or LLCs, are a popular form of small business entity. LLCs are easy to set up, provide owners with limited liability protection, and can take on a variety of tax structures. LLCs are also easier to manage and less formal than corporate entities such as C Corporations and S Corporations. Setting up an LLC for your own business is fairly simple.

Naming Your LLC

More often than not you will create your LLC for the state in which you reside. Occasionally, entrepreneurs choose to organize in particular states like Delaware or Nevada due to specific LLC case law and statues, but nine out of 10 LLC owners should simply organize in their home states. You can check the availability of the name you want to use for your LLC with your secretary of state or on the secretary of state's website. The name of the LLC must end in either "LLC," ".Ltd," or "Limited."

Filing Paperwork

Each secretary of state uses state-specific paperwork to create an LLC. This paperwork is typically referred to as articles of organization. Articles of organization always include the name of the LLC, the LLC owners, and the registered agent for the LLC. A registered agent receives legal notices, such as registered mail or lawsuits, on behalf of the LLC. Filing articles of organization typically costs a few hundred dollars in most states.

Operating Agreement

Every LLC, even those with only one owner, should have an operating agreement in place. An operating agreement dictates how the LLC is managed and how finances in the company are controlled. This contract is critically important when there are partners running the LLC as it also outlines the partnership arrangement. In addition to outlining how the business is managed, operating agreements reinforce the limited liability status of the company as having one in place creates a corporate formality.

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