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What Should I Know About Forming an LLC?

When opening a small business, there are several steps that an entrepreneur needs to take. A basic step is determining what type of company the person wants to establish. Many decide to form a limited liability company (LLC). The most difficult part about running an LLC from an organizational perspective could be the actual formation of the entity. It might make sense for those interested in going down that route to seek legal advice from an attorney with LLC experience.

What is an LLC?

An LLC is a combination of a partnership and a corporation. It shares some of the same characteristics of a corporation in that it separates an owner’s assets from their personal assets. Meaning, if there is ever a problem with the business, it will not impact the person’s personal finances. An LLC can contain an unlimited number of participants; a participant or owner is called a member and a member can be a variety of entities from individuals, corporations, or other LLCs.

Regardless of the number of members in an LLC, they all share in the profits and losses.

Establishing an LLC

There are several important steps an owner must take when first establishing their LLC and it pays to have an experienced lawyer with them who can help guide them through the process.

Each state has its own set of rules: The first thing an owner must decide is what state they will establish their LLC. They must then speak to a state representative to find out what that state’s requirements might be. Every state is different with varying procedures and requirements. It is best to know ahead of time about the state an owner is planning to set up shop in.

Make sure no one else is using your name: One of the most important aspects of starting an LLC is the name. It must be something that represents what the company does and stands out in a crowd. However, an owner needs to verify that the name is also unique to them and not being used elsewhere. The most efficient way to do that is to check the proposed name with the Secretary of State. An owner should do this before moving forward with a registration or trademark. Neglecting this step means the owner could run the risk of using a name that is already out there, which could lead to legal problems further down the road.

All LLCs must file basic paperwork: Regardless of the state where the new business is located, the owner will have to fill out some type of articles of organization and file it with the state. There are other names for this document, including a certificate of organization or a certificate of formation. Some states may require additional paperwork beyond this, but this is the basic form that all states require. This certificate will include basic information about the business, including the official name of the LLC, the company address, the names and addresses of the members, and the name and address of the LLC’s registered agent. There will be a fee associated with filing this report, which differs according to the state.

Bring in a registered agent: A registered agent (RA) serves as the official liaison between the business and the state. It is their job to accept paperwork on the owner’s behalf and organize it and submit it to the owner. They are an important cog in keeping the business afloat. Some states might not require one, so an owner needs to verify that although having one can still be beneficial to the company. The RA can be an individual, third party, or even the owner.

Put together an operating document: Another aspect of the process that is not a requirement in every state, but a good idea, is creating an operating document. It provides a roadmap with how the owners want to conduct business for their LLC. This establishes that the owners will follow up with how they wish to work together. It is a good idea to create a hard copy of the operating document so that the owners can refer to it should any disputes arise over time.

If you are looking to establish an LLC and need some legal advice on the matter, reach out to the legal team at MacMain, Connell & Leinhauser today. Call us at 484-318-7106 or contact us online for an initial consultation. We can provide you with the guidance you need to start your business on the right track. Located in West Chester, Pennsylvania, we serve clients throughout Philadelphia, Chester County, and New Jersey.