What Is A Limited Liability Company?
A lot of business people opt to form a limited liability company or LLC instead of sole proprietorship, partnership or corporation. There are many benefits of having an LLC but there are also disadvantages.
What is a limited liability company?
An LLC is a business structure that is similar to a partnership but it has a legal protection like a corporation when it comes to personal assets of the owners or members. Unlike a corporation, forming an LLC is very simple and needs few requirements only but it also requires a fee when filing the documents.
Although a limited liability company has flexible management structure, few types of businesses cannot become an LLC. These businesses include banks and insurance companies. Since it has no restriction as to how the company will be managed, the number of members has no restrictions too. Members can be an individual, corporation, foreign entity or even another LLC.
What are the requirements in forming an LLC?
The Articles of Organization is the basic document that the law requires to those people who want to establish an LLC. This document is also referred as certificate of formation or certificate of organization. It includes basic information of the limited liability company such as business name and names of the members and their addresses. The address of the registered member who is designated to receive future lawsuit is also required to be indicated in the document. There may be other requirements depending on the state where the business will be established. Filing this document has a fee. Filing fee depends on the state but it usually ranges from $100 to $800.
Some states require the company to publish a simple notice of intent in a local newspaper that will be published several times for weeks. After completing this notice, an affidavit of publication should be passed to the LLC filing office. Once the affidavit is passed, the LLC is now established.
Rules in choosing a name for the LLC
Just like the other companies, an LLC is not allowed to be named similar to other LLCs. This can be checked with the LLC filing office. The name should also have a designator like Limited Liability Company, Limited Company, and abbreviations such as LLC, L.L.C., and Ltd. Liability Co.
It is also not allowed to include words such as Bank, Insurance, Corporation or name of a city. The name should also not violate any company trademark. There may be other requirements depending on the state so it is best to ask the LLC filing office for specific requirements.
The LLC Operating Agreement
An LLC Operating Agreement is not required by law but it is better if the company has one. This document sets the rules within the company such as ownership, members’ rights and percentage interest, members’ voting power and how to handle profits and losses. This is the document that tells how the company is managed and can be used in future legal dealings of the limited liability company.