formation

Forming a Limited Liability Company (LLC) has many advantages, including protection of personal assets, simplicity, and flexibility. An LLC is seen as a type of “hybrid” business structure which combines features of both a corporation and partnership. Although an LLC is more complex than a traditional sole proprietorship or partnership, the formation process is not as complex as creating a corporation.

Forming an LLC requires the filing of articles of organization with the state business filing office or “Secretary of State”, who will then issue a certificate of formation. Before filing articles of organization, however, the LLC’s owners must take certain steps such as deciding on the company name, appointing members or managers of the company, and creating the company’s operating agreement.

When it comes to selecting a business name, owners must choose one which does not conflict with the name of another business in the state. The business name should also include the phrase “limited liability company” or an abbreviation such as “LLC” at the end. After the name is chosen, the members or managers (depending on the structure of the LLC) will sign the articles of organization and file them with the state.

The operating agreement is the legal document used to define the LLC’s purpose and objectives, authorized activities, and management structure. The structure set forth in the agreement helps to protect the owners’ personal assets from potential creditors. The agreement should detail the rights and responsibilities of each member and specify how profits and losses will be allocated.

Forming an LLC can also provide tax benefits as an LLC can choose to be taxed as a partnership, corporation or even a sole proprietorship. This flexibility can help the owners to find the tax structure which best suits their particular business needs.

In sum, forming a Limited Liability Company is a relatively simple process which can provide owners with great flexibility and benefits in both the short and long term. The formation process requires that certain steps be taken such as deciding on a name, appointing members and/or managers, and crafting an operating agreement. Furthermore, the LLC structure may provide tax advantages depending on the needs of the business.