• David Manes

LLC hurdles: doing the paperwork and getting it filed

If you are a small business who has decided to form an LLC you may be a bit confused on how to go from being a sole proprietor to actually forming an LLC. What stands in your way is what has stood in the way of many men and women on the path to greatness: paperwork. Forming an LLC involves two steps: filing the articles of organization and drafting an operating agreement. Below is a short explanation on what goes into those documents and how to get from point A to point B.

Articles of organization

Many states provide a printed template for the articles of organization. On this form you simply need to fill in the blanks, sign the form and turn it in to the LLC filing office. Some states allow you to complete the process online. Other states do not and do not have standard forms, but will have a set of instructions to guide you through drafting one.

Details of articles of organization

Typically the articles of organization will not have to provide anything more than the following items:

  1. The name of the LLC

  2. The name and address of the LLC’s registered agent and office

  3. A statement of purpose: Usually a state wants a short statement of the LLC’s purpose of formation

  4. Type of management: You will need to state whether the LLC will be member-managed or manager-managed

  5. Principal place of business

  6. Duration of the LLC: You are generally allowed to list the life of your LLC as perpetual and if the state has a time requirement you can easily renew when that limit is up

  7. Signatures of the people forming the LLC

After completing the articles you will file the with the appropriate state agency, typically the secretary of state. Some states will allow you to do this online.

Operating agreement

If you are involved in a solo business venture you are finished once you have filed your articles of organization with the state. However, if you have more than one partner in the business venture you will want to have an operating agreement. This agreement will set out the rules for how the business is run. It typically includes important distributions of power amongst the partners, such as voting power and rights to profit.

Details of the operating agreement

A typical operating agreement covers the following items:

  1. Capital contributions: This is a statement of how much money each member contributed to the startup of the company. This represents the ownership interest of each member and also the percentage that each member will get upon liquidation or sale of the business

  2. How a member’s percentage is determined: This is usually represented by the member’s capital contribution

  3. Type of management: Depending on the state this can be done in the articles of organization or the operating agreement

  4. Membership voting: This states how specific issues will be decided and voted on by the members

  5. Profits and losses: How profits and losses will be allocated

  6. Distribution of money

  7. Tax election

  8. Transfers of a membership’s interest

  9. Addition of new members

  10. Buyout provisions

  11. Other businesses

The items above are not an exhaustive or necessary list by any means, but they do represent many of the typical provisions in an operating agreement.  The more specific your agreement is the less chance that conflict could arise later in down the line.

Conclusion

File the articles and the operating agreement and you are done. However, the more complicated your business, the more complicated your filing process will be. In order to ensure you get a fit for your company it is best to have a local business attorney assist you in the drafting and filing of your LLC documents.[1]


 

[1] Fred S. Steingold, Legal Guide for Starting and Running a Small Business (Betsy Simmons ed., Nolo 10th ed. 2008).

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